David Prosser's Outlook: Murdoch is the wrong saviour for Yahoo

How much are social networking sites really worth? When Rupert Murdoch's NewsCorp paid $580m for MySpace two years ago, there was a sharp intake of breath from media analysts. Microsoft's decision to pay $240m for a tiny 1.6 per cent stake in Facebook earlier this year prompted similar scepticism.

It looked as if both companies had paid over the odds in their efforts to get down with the kids. On even the most optimistic forecasts of potential advertising revenue, it was difficult to justify the price tags attached to social networking sites. Particularly as there are serious doubts about the revenues such sites are really likely to generate.

Now, however, NewsCorp is discussing rolling MySpace into Yahoo, as part of a deal designed to scupper Microsoft's takeover of the company. The stake in Yahoo that this would give NewsCorp under the talks – around 20 per cent – values MySpace at $10bn (£5bn).

Cue another collective intake of breath – this time for the opposite reason. If Yahoo is prepared to do a deal with NewsCorp, Mr Murdoch will have made a near 20-fold profit on MySpace in a two-year period.

Who do such gains say most about? Mr Murdoch was a late convert to the internet's potential, but with MySpace he now looks to have been much more far-sighted than the critics gave him credit for. The other way to look at this potential deal, however, is what it says about Yahoo's desperation to find a way of fighting off Microsoft.

There will be plenty of discussion about the merits of a $10bn valuation for MySpace in the event that a tie-up with NewsCorp comes to pass. In the meantime though, the most pressing question is whether such a deal is more in the long-term interests of Yahoo than accepting Microsoft's offer.

It's difficult to see why it would be. Yahoo would certainly like to be a bigger player in the social networking business, but its real problem – the fact that Google is wiping the floor with it on its core search engine business – would not be solved by a tie-up with NewsCorp. Microsoft is Yahoo's best bet if it is serious about closing the gap on Google – and even then it faces a tough battle.

In fact, the talks with NewsCorp may turn out to be brinkmanship on the part of Yahoo – fair enough if Microsoft is forced to raise its offer for the search engine. For Yahoo shareholders, however, Microsoft's $45bn remains an enticing prospect. It's hard to see how a deal with NewsCorp would enable Yahoo to bridge the 60 per cent-plus gap between its valuation before this saga began and the price the software company has already said it is willing to pay.

Housing ministers back in hot water

Is this groundhog day? Hardly five minutes seem to have passed since the last spat between home insurers and the Government over flood cover, but yesterday – yet again – the industry was warning housing ministers that it was no longer prepared to underwrite all homeowners against the risk of water damage.

This time, the row concerns the 3 million houses that ministers have promised will be built in the UK before 2020, accommodation that all sides accept is desperately needed. The Association of British Insurers says a third of these homes are scheduled to be built on flood plains – as such its members are not prepared to offer insurance against flooding to all of their eventual owners, rendering them unsaleable and possibly even uninhabitable.

Already, the ABI points out, 13 major developments have been cleared for construction, even though they will be built in areas at risk of flooding – in seven cases at high risk according to the Environment Agency.

For its part, the Government claims this is a trend that will not continue – the projects were apparently green-lit before tough new rules designed to force planners to take much greater account of the risk of flooding came into force.

The problem for insurance company bosses is that they've heard it all before. Time and again over the past five years, insurers have become so cross about the perceived failure of the Government to spend sufficient sums on flood insurance that they've threatened to withdraw cover. And while each stand-off has been resolved by ministers offering just enough concessions to prevent policies being torn up, the insurance industry is beginning to believe the Government is merely paying lip service to the issue of flood risks.

You can see its point. The bill for last year's floods is expected to come in at around £3bn, with insurers having already shelled out £1bn. It's one thing being expected to continue insuring homes built years ago, before the risk of regular flooding emerged; it's quite another to ask insurers to cover new homes being built in areas where we already know they'll be at risk.

Moreover, while local authorities now have a statutory duty to consult the Environment Agency on flood risk as part of the planning permission process for any development, they are not duty bound to accept the advice they're given.

The Government now has the power to take over the decision-making process in cases where it has particular concerns, but the jury is out on whether it will be prepared to wade into too many local disputes.

That leaves insurers with a dilemma. Refuse to cover new developments and they run the risk of looking as if they are vetoing much-needed new housing. Continue to offer policies, on the other hand, and the bill for flood damage will keep rising. This won't be the last time, the row over flood insurance erupts.

How broadband has come of age

At first sight, the announcement yesterday by the European Commission that it is to allow Ofcom to step back from regulating the wholesale broadband market in large parts of the country looks like a blow to consumers. In fact, it is recognition that competition among broadband providers has been nurtured so successfully that each company should now be able to stand on its own two feet.

Ofcom is now free to deregulate the wholesale broadband market for around 65 per cent of all UK homes and businesses – specifically those local exchanges where there are four or more actual or potential providers serving areas with more than 10,000 homes and businesses. That means BT – which has the UK's biggest wholesale broadband network thanks to its inherited dominance of the market – and at least three other rivals.

What the EC is saying, in effect, is that in many of the UK's largest cities, broadband providers are now sufficiently advanced in building their own infrastructure that BT should no longer be forced to provide access to its own networks at tightly proscribed costs. In the areas covered, its rivals are now capable – or close to being capable – of offering broadband services to customers that never travel via BT networks.

This, of course, is how regulation should work. For a time, BT, as a former state monopoly, was so powerful that it could have smothered rival broadband providers in their infancy. Now these companies have established themselves, they no longer need such protection and the regulators can – and should – withdraw.

However, the Commission's announcement does mean it is make-your-mind-up time for those companies still undecided about the extent of their commitment to the UK's broadband market.

Carphone Warehouse, Cable & Wireless, Sky and the cable TV networks have already built substantial infrastructure – or acquired it – in anticipation of the day when they could no longer rely on protected access to BT's networks. Rivals with pretensions to joining them will now have to make the leap quickly, or be left behind for good.

d.prosser@independent.co.uk