In the troubled telecoms sector, cable companies have a healthier outlook than most, according to Ph...
In the troubled telecoms sector, cable companies have a healthier outlook than most, according to Philip Milburn, global co-ordinator of telecoms at Aegon Asset Management.
Milburn says the share prices of companies such as Telewest and NTL have held up during recent volatility.
For the year to 30 March 2001, Telewest has gained 10.9% while the FTSE All-Share has fallen 8.31%.
He says: "Cable companies didn't get involved in the auction process for third generation licences and didn't have the costs of rollout associated with this."
Milburn says the stocks that have suffered the most are those in the long-distance carrier market. The area has recently been opened up to greater competition and consequently pricing pressure, following developments such as the introduction of microwave transmitters and agreements with utility companies to lay cable.
In contrast, competition in the local carrier market, occupied by companies like Telewest and NTL, is limited as the laying of cable involves digging up residential streets and causes a great deal of disruption. This factor has lent the stock a defensive quality that is proving reassuring to investors, he argues.
The development of "triple-play," the provision of television, traditional telephony and the internet to domestic households, has also increased revenues and is seen as a big positive for companies such as Telewest.
Milburn says: "The ability to pay for these services through a single bill format is appealing to customers and is increasing customer loyalty."
According to Milburn, the market is not perceiving companies such as NTL and Telewest, and to a lesser extent SBC Communications and Citizens Communications in the US, as being vulnerable to the pressures faced by the huge national domestic suppliers such as BT and Deutsche Telekom as they are not subject to the same levels of regulation.
He adds: "If the market becomes more aggressive again, investors may turn away from cable operators and they may get left behind. In the US, cable companies are seen as low-beta stock and have benefited from the downturn in the market."
Not everyone believes cable companies represent solidity in a wobbling market. Neil Massie, investment manager with LeggMason Investments Telecoms unit trust, says he is not persuaded by the case for cable stocks.
He adds: "I don't think the economics add up in terms of rolling out their networks. Telewest, for example, is still playing catch-up in getting its network in place. Even those companies who put down an extensive network in the 1980s are finding that they are having to upgrade their cables in order to provide customers with telephone and internet facilities."
Massie believes services such as these are critical to the future viability of cable companies but the costs involved in providing them will prove too much for many.
Companies like Atlantic Telecom are already struggling to manage existing debt and he does not expect them to survive as independent entities long term. Further industry consolidation is probably on the cards, he adds.
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