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MS taking more slices of UK cable business

A chunk of Telewest follows a $500 million slice of NTL

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Update Microsoft is taking a 29.9 per cent share in UK cable company Telewest Communications PLC (see yesterday's MS to take $5bn stake in AT&T), by an exchange of an undisclosed number of shares for the controlling stake held by cable service operator MediaOne Group, which was itself acquired earlier in the week by AT&T for $56.4 billion. The market liked the news, and immediately marked Telewest shares up 16 per cent. Telewest owns Birmingham Cable, Yorkshire Cable, the Cable Corporation, and has a 50 per cent stake in Cable London (with NTL). Westminster Cable is up for sale following orders from Brussels that BT should to dispose of it because those in the area are deprived of a competitive service for telephony via cable. The strange thing is that Microsoft already has invested about $500 million in Telewest's rival cable outfit NTL, currently number three in the UK. This has resulted in speculation that Microsoft will also invest in Cable & Wireless Communications, the present number two. The picture is further complicated by AT&T having a $10 billion joint venture with BT (Telewest's major competitor). Microsoft has not managed to lock AT&T in to using Windows CE exclusively in set top boxes, since Sun will also be used as a source. In the UK, Oracle is the leading software provider for the sector. Nor will Microsoft get any special position with regard to content, since other vendors will also be used. This is Microsoft's biggest outside investment so far, and is no doubt a response to grumbles from shareholders that Microsoft had too much cash not working hard enough. Microsoft clearly wants to have market power in the last mile, as it is known, and must see interactive cable as more attractive than one-way satellite. This points to Microsoft's real interest as being with home users playing interactive games, and using video telephony, rather than in business users. There is likely to be further consolidation in the UK cable industry, with the most likely result being that there will be just two significant operators. But if Microsoft has major stakes in both, this could result in some regulatory problems down the road. Of course, Gates could have arranged a deal during one of his sales calls on Tony Blair that there would be no government opposition to there being just one cable player. Microsoft is fast becoming a global rival to Rupert Murdoch, but with the two companies competing from different ends of the spectrum. So far Murdoch has no UK cable stake, and evidently sees himself as a broadcaster/impresario rather than a networker. There is no love lost between the two tycoons. ®

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