Videotron to sell off UK cable interests

Videotron is to sell its entire investment in the ailing UK cable market, in a move that heralds the start of a long-awaited industry consolidation, writes Mathew Horsman.

The Canadian-based company owns 56 per cent of Videotron Holdings, the New York-listed stock, and has appointed Goldman Sachs to seek buyers for the stake. Among the potential buyers are Bell Cablemedia, which owns 18 per cent of Videotron Holdings.

Videotron's chief executive, Andre Chagnon, said the company planned to focus on Canada and the US. "Now is an appropriate time to explore alternatives for realising the value of our investment," he said in Montreal yesterday.

Videotron is the fourth largest UK cable operator, with franchises in London and surrounding areas. It pioneered the a la carte approach to marketing cable channels, which led to disputes with BSkyB, the satellite broadcaster, and other suppliers of pay-TV programming.

Most of the industry accepts the "bundling" of channels as a prime marketing tool, using the a la carte system only for a handful of premium channels.

Videotron, along with two other smaller cable operators, led a campaign to convince the Office of Fair Trading to investigate BSkyB's supply of programming to the industry. That inquiry is now under way.

Videotron's marketing and sales performance were below par, according to cable industry sources. "They certainly had trouble developing their business here," said one leading analyst.

The three publicly quoted cable companies all saw their shares rise on the news of Videotron's departure from the market. Neil Blackley, an analyst at Goldman Sachs, said: "The idea is that consolidation will lead to more efficiency and lower costs in the business, which will improve prospects for the remaining companies."

Telewest, the largest operator, saw its shares climb more than 10p to close at 145p. Nynex shares were 4p higher at 91p, while General cable added just 1/2p to close at 184p.

But the sector continues dramatically to underperform the market, and has missed various performance targets expected by analysts. While networks have been built on schedule and on budget, the "penetration" rate at which customers with access to cable actually take the service has hovered at a disappointing 20 per cent. "So far, cable hasn't been much of a success story, despite all the early hype," a telecoms analyst said.

The cable industry has had difficulty convincing customers to sign up for its services, despite undercutting BT on basic phone service and providing multi-channel TV at rates comparable to, although higher than, those charged by BSkyB for satellite.

Separately, the industry trade group, the Cable Communications Association, published its submission to Oftel, the telcoms watchdog that is considering new terms for the supply of telephony services from BT.

The CCA wants Oftel to freeze BT prices at current levels, rather than force the dominant supplier to lower them further. It argues that cable operators would have difficulty undercutting BT at lower than present prices, thus jeopardising their key marketing advantage.