Birth of big hitter to take on BT

The emergence of a new, powerful force in the telephone and cable television industries, heralded by the birth yesterday of C&W Communications, is likely to lead to a radical restructuring of the UK market, analysts predicted last night.

In the telecoms market, the combination of Mercury and the three cable operators creates a far more powerful competitor to BT, which will be able to supply cheap and varied phone-based services to as many as 6 million homes.

In the pay-television market, long the more problematic part of the cable industry's key businesses, the changes would be swift, analysts said. The new market leader is expected to be far more effective at building its subscriber base, using the muscle of 6 million franchise homes to create a true national brand for cable as a competitor to satellite television.

The new company, in addition to its own common branding, will have more leverage in its dealings with programme suppliers, and will be able to streamline and improve customer relations, including marketing and billing.

"Certainly this consolidation is a good thing," said one leading media analyst. "Either all the [cable] investors would have to pack up and leave their investment on the table or actually co-operate to make it work." Added another: "The new company is definitely a big hitter in terms of negotiating power with programme suppliers," especially with pay-television giant BSkyB.

"Once the pay-television market goes digital, there will be more competition in the market, and C&W Communications will be well placed."

The announcement was seen as the first important step towards improving the marketing and administration capabilities of the industry, which has disappointed investors by failing to attract significant numbers of subscribers.

Earlier this year the cable operators co-operated for the first time on a joint pounds 12m television advertising campaign, but many critics said the approach was muddled and half-hearted.

Last week the regulator, Don Cruickshank, criticised the industry for failing to match servicing and marketing standards of BT and BSkyB. A media analyst said: "The cable companies have been hopeless so far." Those close to this deal hope it will go some way to redressing the balance.