Select Committee on Culture, Media and Sport Minutes of Evidence

Examination of Witnesses (Questions 311-319)



  Chairman: Gentlemen, we welcome you here today as we continue this inquiry into the preparations for the Communications Bill.

Michael Fabricant

  311. I was listening to In Business while driving to Lichfield the other week and the whole programme was dedicated to the state of cable in the United Kingdom. I do not know whether any of you heard it. They said things were pretty grim on the cable front. I wonder whether you would like to comment on that? They also mentioned that things were pretty grim at NTL.

  (Mr Carter) I did not hear the programme in question so I cannot comment on the specifics. As you may well know, we are in the process of, and indeed publicly announced last week, engaging in what is called a balance sheet restructuring exercise, which is designed to deal with some of the issues that we have in the structure and shape of the capital side of our business. The operating truth of the matter is that the cable industry in the United Kingdom has probably never been healthier. As I am sure you know the cable industry has been through a rapid period of recent consolidation. Nowhere is that more evident than within our own company. We bought somewhere in the region of 18 companies in the space of four years, creating a substantial integration and operational improvement programme. We have not announced our annual results. We will not until March or April, but last year, 2001, was the best year in the history of the company from an operating perspective. You slightly have to distinguish the issues around the balance sheet from the issues around the income statement and the operating performance of the business.

  312. They drew an analogy with the Channel Tunnel: the huge capital cost of setting it up, but if you wrote that off, which you cannot do that easily, the operating costs can mean that you can show a big profit. Do you think NTL and other cable companies under-estimated the cost of cabling up Britain or was it that you over-estimated the rate of take-up of services?
  (Mr Carter) I am not sure I entirely welcome the analogy with the Channel Tunnel. There are now in truth two cable companies, ourselves and Telewest, so the industry is essentially an operating duopoly, although they are geographically discrete entities, so there is no meaningful or real commercial competition. The cost of the consolidation and the capital build was what it was. It was what the markets at the time determined. There is no doubt that in the last three or four years of that consolidation process and that capital build process the telecoms, media and technology sector was operating at valuations which today you just do not see. However, all of the commentators would say that the industry that we are in, technology, media and telecommunications, is going to be a growth industry in the future. From a United Kingdom perspective, the benefit to the country is that there is an alternative local loop infrastructure. It is the only alternative local loop infrastructure to that of the incumbent, dominant player, British Telecom. Whatever the costs to the operating companies, the benefit to the country is that that infrastructure is there, it is working, it is providing services to many millions of customers. Today, as we sit before you, the United Kingdom cable industry is the leading provider of broadband services. Whatever the costs, the benefits are pretty substantial to the country.

  313. You have craftily steered me away from the state of the financial structure of the industry at the moment and onto areas of public policy. Barry Cox is now the latest Government appointment. He is now the d-tsar, as opposed to disaster one hopes, and you have Andrew Pinder who is the e-envoy. I am not at all clear how they relate to each other. Have you spoken to the two of them yet? How do you find the two of them relating with each other, the role of the d-tsar and the role of the e-envoy? Do you think they are going to make any difference?
  (Mr Carter) We have been in regular, constant conversation with Andrew Pinder. Barry Cox is not, as I understand it, a government appointment. He is an appointment of the Digital Stakeholders' Group, of which we are members. We endorsed the appointment of an individual to represent the interests of all of the operators in the digital arena. I have not personally yet sat down with Barry since his appointment and had a direct conversation but I am scheduled to do so tomorrow, coincidentally. Do we believe there is a need to have a coordinated view across the various players in the digital arena? Definitely. Is there a need to have a greater level of convergence between debates about broadband, internet and all things e and all things digital? Yes, there definitely is and we have been very consistent in our calls to any of the individuals representing those areas and the two government departments that, given that the sector operates in a convergent way, it would make sense for those key policy advisers and indeed key regulators and government ministers to act in a convergent way as well.

Derek Wyatt

  314. Can I tease out some of the problems NTL has? The FT said that Liberty In America are looking at buying you, or is there some restructuring of debt with them?
  (Mr Carter) I cannot comment.

  315. You cannot comment because it is sensitive or confidential?
  (Mr Carter) I cannot comment because I do not know what the FT did or did not say.

  316. It did say that this morning.
  (Mr Carter) I cannot comment on the suggestion.

  317. What is the exact debt that you have to reschedule with your shareholders?
  (Mr Carter) It is difficult for me to be specific. Shall I deal with this issue and put the public position on the record? We have made an announcement that we are engaging in what we call a restructuring process. We are being advised by a series of bankers as to how to conduct ourselves during that process. By dint of being in that formal process and because we are a US listed company, that is largely a US driven process. We are somewhat circumscribed as to what we can and cannot say in the public domain, I am afraid. Suffice it to say that the operating business that is NTL has never been healthier. This is an issue with our balance sheet. We wish to restructure it. What do we mean by that? We wish to reduce the absolute amount of the debt. By how much? I cannot comment. In what manner? I cannot comment, but that process will happen this year. It will complete and, when it does, we will have not only a healthy balance sheet but, as we have today, a healthy business.

  Derek Wyatt: You will not be taken over by Telewest or another player or anyone wanting to enter the market. Do you not think you become vulnerable at this stage?

  Chairman: I do not want to hamper your line of questioning but this is not an inquiry into the status and situation of NTL; we have invited NTL here today in order to learn from them their views about the Communications Bill and the role of organisations such as themselves in it.

Derek Wyatt

  318. Will this affect your investment in broadband roll out? It is an obvious line of inquiry.
  (Mr Carter) Entirely legitimate as well as obvious. The facts speak louder than my words. Today, we provide broadband services at a series of price points of which the most competitive is £15 a month. Today, British Telecom provide some broadband services at a retail price of £40 a month. British Telecom have gone through a balance sheet restructuring exercise. If they were before you today, they would not have to answer the questions that you are asking about their balance sheet. If you look at what we are doing in real time for real customers, we are rolling out broadband services. We are the leading provider of broadband services and we are retailing them at the most competitive price. All of the evidence that we have seen suggests that the primary barrier to take-up of high speed internet is effective retail pricing. Our current balance sheet position is not affecting our ability to offer those or indeed roll them out to more and more customers on a daily basis.

  319. What percentage of your customers currently have broadband?
  (Mr Carter) Over 100,000.

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