Telewest and cable rivals must dig deeper to change fortunes

Last week wasn’t a great one for Britain’s second-biggest cable company, Telewest. It made staff redundant – that’s a quarter of the total. It reported a first-half loss of 142m – 25m more than in the same period last year.

It reluctantly owned up to merger talks with another cable company, NTL – a Telewest spokesman described NTL’s announcement of the discussions as “deeply premature”.

And an industrial tribunal awarded a former employee 17,000 because Telewest sacked him after he’d alerted the company to a fraud – the tribunal said Telewest’s defence of the case had been “frivolous and vexatious” and that the company appeared to have “dismissed a potential whistle blower to save serious corporate embarrassment”.

It sounds a pretty sorry situation, but in reality things aren’t quite as bad as they might seem.

Let’s take that industrial tribunal case first. The man sacked was a salesman called Richard Jordan. He was fired in September 1995 after he’d stumbled across a scam being run by another salesman and his manager, who were colluding to inflate sales figures and claim the extra commission.

At the time he was, in fact, employed by another cable company, SBC, which was in the process of merging with Telewest. When he drew the attention of his local management to the fraud, they fired him – because he’s convinced they knew about the problem but had decided to ignore it. That was because SBC stood to benefit in the merger talks with Telewest if sales figures appeared higher than they really were. It’s an interpretation the tribunal agreed with.

So today’s Telewest isn’t directly implicated in the sacking, although it can fairly be blamed for the way it fought the action.

But the case is another piece of anecdotal evidence to add to the pile which suggests that management, at least until recently, was a good deal sloppier than shareholders, employees and customers had a right to expect. The industry’s poor marketing, for one thing, is notorious.

But mergers are now becoming commonplace, and the larger and more professional companies emerging have woken up to rectifying past mistakes. Disclosure of the merger talks with NTL may come as an embarrassment to Telewest, but the talks themselves don’t surprise anyone who’s followed the cable industry in recent years.

Telewest, indeed, with 560,000 television subscribers and more than 800,000 phone lines installed, was the largest cable company until the recent mega-merger of three rivals (Nynex, Bell Cablemedia and Videotron) with the Mercury phone business to form CWC (Cable & Wireless Communications).

The priority for both the industry’s dominant players is now to improve their core marketing and management. That’s where the redundancies come in, as Telewest’s spin doctors were at pains to point out.

Like its rivals, Telewest has put much of its energy and resources until now, into digging holes in the ground and filling them with wire. In the early days, cable companies’ management included many senior people, often seconded from US phone companies, whose experience and skills came from telecommunications, and who knew little about marketing television to consumers.

One result was massive losses, like those on Telewest’s balance sheet, caused by the enormous capital expenditures involved in wiring Britain for the 21st century.

Telewest’s announcement last week heralds a shift in emphasis. Many of the jobs being lost are on the cable-laying side.

The company’s plant now runs past more than 70 per cent of the homes in its franchise areas, and it is scaling down the rate of installation from 500,000 homes passed a year to 25,000. Instead, chief executive Stephen Davidson promises more focus on sales and customer service, working harder at keeping the customers the company has (a third of television subscribers currently “churn”, or drop out, each year) and persuading them to spend more.

The company believes it can improve penetration rates for multichannel television by offering customers more choice and flexibility in the packages of channels they subscribe to.

That’s something which will be easier for all the cable companies following moves by the regulator, the Independent Television Commission, aimed at forcing BSkyB to “unbundle” its channels when wholesaling them to punters.

Telewest’s bad week may be part of a turning point for the cable industry as a whole – and not before time. Next year the cable companies are due to go digital.

Stephen Davidson indicated that the launch date for digital cable had slipped once more, well into 1998, and that a 7m investment in set-top boxes had been put on hold while the company “analyses all the options”, including a possible tie-up with Microsoft to produce the boxes.

In theory, the cable industry is well-placed to dominate digital distribution of television and interactive services, with technology superior to either digital satellite or digital terrestrial television.

But the old cable industry was in no condition to take advantage of that. Perhaps the new-look cable businesses will be.