A Thorn takeover would be a national disgrace

Alongside pharmaceuticals and financial services, music is one of the industries Britain is meant to be good at. We may have failed in automobiles, shipbuilding, and many other areas of heavy manufacturing, but in popular music we still reign supreme. Well, almost, anyway. Now it looks possible that our flag-carrier company in this industry, Thorn EMI, is going to succumb to a takeover bid. And in all probability, it will come from a foreign concern - Japanese (Sony), German (Bertelsmann) or American (Time Warner or Disney).

Over the past few days, Thorn's shares have soared. Normally in such circumstances, the Takeover Panel would require the company to make a formal statement, to confirm or deny a takeover approach. Silence can be taken to mean that Thorn is not aware of anything that might cause its share price to rise in this way. Even if there are no current talks, however, nobody is going to believe that this soon-to-be-demerged company is anything but one of the hottest takeover targets in town.

Does it matter if Thorn EMI is absorbed into some giant international, but foreign controlled, multimedia empire? Yes, of course it does. It matters because if those taking the decisions owe no allegiance to Britain - to its culture, institutions, economy and people - then ultimately they will act against those interests or at least in ignorance of them.

The world is a fast-shrinking and changing place. The big-is-beautiful philosophy of business is enjoying a revival and multinationals are no longer generally thought the force for evil they once were. Even so, in no other developed country would it be remotely possible to acquire a world beating company like Thorn EMI. It is nothing short of a national disgrace that the stock market believes it possible here.

Under Sir Colin Southgate, Thorn EMI has been transformed from a many- faceted collection of underperforming also-rans into a finely tuned Formula One racer. Following the mantra of our age - shareholder value - Sir Colin has focused the business on its core music interests. With demerger of the TV rental arm next August, the process will be complete. In so doing, however, Sir Colin has made Thorn EMI, one of the big five music companies in the world, into a sitting duck for a takeover. It is as if the company has been deliberately groomed to become part of a larger entertainments empire.

"Focus" may be the buzz word for most companies nowadays, but in media, entertainment and telecommunications it is very definitely out. Here the fashion is for "convergence", for the coming together of what in the past have been seen as very different businesses. The groupings that will succeed are those with access to the best copyright and distribution across a range of different entertainment products. Having focused his company so expertly, Sir Colin should be given the opportunity to build his own more broadly based entertainment and publishing group - not sold down the river to the highest bidder. But don't expect either the City or the politicians to listen.

Byatt gets a second chance

The water watchdog, Ian Byatt, may have given North West Water a reprieve as far as its quality standards and handling of last summer's drought is concerned. But can he afford to be so generous when dealing with the huge savings North West plans to squeeze out of its merger with Norweb?

It was obvious from the start that the merger had more to do with financial engineering than customer service but nobody quite expected the deluge of goodies that would flow in the direction of shareholders when the dividend tap is turned full on.

North West justified the fancy price paid for Norweb on the grounds of the pounds 95m annual savings it could wring out of the combined business, largely by shedding jobs. We now know that savings will be 40 per cent higher than that by the turn of the century, generating pounds 500m to fund a payout which shareholders could see rising by 11 per cent in real terms a year.

Remarkably the regulators did not intervene when the deal was first concocted to redirect some of this cash to customers. Mr Byatt was comforted by a side letter from North West containing a woolly pledge to look after customers if savings should prove higher than forecast.

His opposite number at Offer, Professor Stephen Littlechild, was content, meanwhile, with assurances that the two regulated businesses would be ring-fenced to prevent cross-subsidies or a situation arising where customers who refused to pay their electricity bill found the water cut off. Despite United Utilities revealing the true size of the cash pile locked away in its balance sheet, the regulators have still not blinked.

It is always difficult for regulators to intervene once a price regime has been set but Mr Byatt has proved he could do it when the water industry's compensation scheme was not delivering the goods. When Hyder, the union forged by the merger of Welsh Water and Swalec, follows United Utilities' lead in the next few weeks by spelling out its cost savings, Mr Byatt has another chance to act.

US levels telecoms playing field

Merger mania in the US telecoms market is a sure sign of things to come around the world. Technological advance and commercial logic are finally being released from the shackles of national regulation, and the winner, if all turns out as expected, will be the consumer. The UK telecoms market has already had a taste of what deregulation can bring: BT has 150 licensed competitors, including a range of cable operators whose US owners have for some years now been able to do what their own government prohibited, offer both broadcasting and telephony services. The passage of the telecoms bill in the US means the same convergence can start to occur there as well.

But much remains to be done. BT still overwhelmingly dominates the UK market, despite more than 10 years of deregulation. In Europe, the EU is pushing for the liberalisation of telephony by 1998, but some national governments continue to drag their feet. Several technical issues have yet to be resolved - notably, the right of all service providers to have fair and open access to national telecoms networks.

More crucially still, there are bottlenecks galore in the global telecommunications system, where big operators run what amounts to a cartel for international connections, akin to the agreements that govern air traffic routes. All this needs to be swept aside, allowing companies to offer their services on the basis of price and quality. Advances in technology ought to bring the price of phone calls down to next to nothing; companies will earn their money not so much through the provision of infrastructure but on tailored, consumer products and services. The sooner truly liberalised markets can be created, the faster the benefits will accrue to the end- user.