Signs of an underground explosion

In the United States, cable television is booming; it provides hundreds of channels. In Britain, it languishes as an alternative way of receiving satellite broadcasts from Sky. But cable companies are making inroads into another market, which may in the long term prove bigger and more lucrative: telephone services.

Using the fibre-optic cables they have installed to transmit television pictures, cable firms can offer low-cost phone lines in direct competition with British Telecom. This is where they differ fundamentally from Mercury and other companies, which compete with BT on long-distance calls, but have to use its local exchanges to reach domestic customers.

Because cable companies are forging alliances with these long-distance firms, it is now possible in areas including the Midlands, London and the North-west to make a phone call without using any BT equipment. Cable operators are also building dedicated lines between their own franchises or those of other cable companies.

The result could be a radical change in the way telephone services operate. Mercury and Energis pay BT to use its local wires, and thus have to peg their charges to what they pay BT. Competition in the "local loop" opens the door to substantially lower call charges.

To date, two factors have limited the growth of cable telephone networks: the perception that cable is really just an alternative to a satellite dish, and the need for cable phone users to change their telephone numbers. The number issue has been addressed by Oftel, the telecommunications regulator, which is keen to allow cable subscribers to keep their existing BT number.

Nor is the perception of cable as an entertainment service the barrier it once was. The growth of multi-media has brought telephones, video and computing together, and cable operators are finding that the synergy between their products is a plus point for many users. They can also offer money off Sky subscriptions for customers taking phone services, or phone discounts for TV users.

Cable North West, which holds franchises in towns and cities including Liverpool and Preston, says that of its 68,000 cable TV subscribers, 58,000 have opted for phone services as well. BT, which sells (dish-based) satellite systems in its shops, has responded by offering a combined Sky and call discount scheme.

"There is a strong interest in taking both cable phone and TV," says Dougle Paver, spokesman for Cable North West. "We have a lot of room for manoeuvre. Around the country, cable operators are exploiting that strength to their own benefit." BT is forbidden by Oftel to offer cable services directly until after 2000.

Some cable firms also offer free line installation to customers paying by direct debit or taking certain TV channels; to connect a new line with BT costs £99 plus VAT. This is a particularly useful marketing ploy for cable operators looking for a route into the lucrative small-business market.

Cost-conscious businesses looking for a cheap way to expand their number of lines - especially for fax or data links - are less likely to worry about the cable operators' different numbering systems. Cable firms can also offer discretionary discounts to overcome the inconvenience of re-numbering for business customers.

Rising demand for new lines has led cable telephone companies to change their approach to installations. For residential users, the practice was to persuade the customer to give up the BT line in favour of cable. This meant that, if a customer left the cable provider, they had to pay to rejoin the BT network.

Now, cable firms also market their lines as an addition to BT's provision. This means two sets of line rentals, but it gives the customer the freedom to mix and match the services they take. In business, it also offers security: with two suppliers, it isless likely that a firm will be without a telephone in the event of a fault. Cable operators also stress that their "broad-band" networks, based on fibre-optic technology, are future-proof and give high-quality data links.

"It is a two-way street," explains Simon Bond, a spokesman for Nynex, which operates cable franchises in several parts of the country. "We are labelled as cable TV companies, but that is not really the case. We offer a broad-band link into people's homes. Some of that will be entertainment, but also data."

Data services could become another way for BT's rivals to boost their market share. The technology in place in many of the new networks makes it easy to share voice and computer links. Large companies can have fibre-optic cabling run directly into their offices: Energis is providing just such a service for the BBC.

For smaller firms, local telephone companies can provide an ISDN (integrated services digital network) line, which allows very fast data transmission. At present, BT's ISDN 2, the simplest service, is relatively costly, at £300 to install a line and £84 a quarter to rent (both excluding VAT). Some cable firms are examining the market for fast data services, as their main networks are already compatible with ISDN. "We could build ISDN in the local loop," says Dougle Paver at Cable North West, "but it would be very expensive. I think there would be additional demand if the pricing were more accessible."

However, the window of opportunity for cable firms to win data customers may be small. Other companies are poised to enter the market, and integrating voice and data links will be a priority for them.

The regional electricity company Norweb is launching both copper and fibre networks in the Manchester area over the coming weeks. The copper network is based around a telemetry system the company already had in the city, and it is building a new fibre ring. Norweb Communications is actively targeting small and medium-sized businesses, and it can provide direct links to Energis. Over the next three years, it plans to roll out its network across the North-west. Other firms, such as Scottish Power and Torch (Yorkshire Electricity and Kingston Communications) are also in the market.

This raises the prospect of a three-way contest between cable, BT and the electricity firms, especially for small business connections. And emerging technologies may increase com petition still further. A Cambridge firm, Ionica, is developing a fixed-link wireless technology that will provide phone connections into homes without the need for any new cabling.

This can only benefit consumers. After years of a relatively stable market for Mercury and BT in trunk calls, and a monopoly in the local loop, the telecommunications market is starting to become very lively indeed. And demand for lines is growing stronger as the phone finds new uses.