Bottom Line: C&W's battle plan

NO SOONER has BT revealed plans to deliver video down the telephone wire than Cable and Wireless has finally pinned its colours to the multimedia mast.

Details are sparse but, as C&W's Hong Kong Telecom subsidiary has already said it will run trials of video-on-demand to the home next year, it is likely to be at the head of the queue for Mercury in Britain as well.

Mercury, like BT, is not allowed to deliver television and telephony over the same network. But neither regards that as a barrier to its entertainment plans.

The interesting battle now on the horizon will involve courtship of the software and entertainment companies that are a vital ingredient in the multimedia package.

From the point of view of the core business, C&W's other technology thrust - wireless networks - is intriguing.

Fixed wireless links will allow Mercury to build local telephone networks. They will take the company's service direct into the home and into small businesses while avoiding expensive interconnections to BT and over-reliance on cable TV companies.

The company will need a new licence to deliver the service, but it shows that C&W's marketing imagination is as fertile as ever.

Growth in interim pre-tax profits of 35 per cent to pounds 509m and a 23 per cent earnings gain, after a higher minority slice to Bell Canada for its Mercury stake, is better than it looks. Powered by Hong Kong and Jamaica, the UK contribution was depressed by a pounds 20m charge on marine cables and resumed payments into Mercury's pension fund.

Despite some slight disappointment with the interim dividend increase, the trend in earnings and the valuation of its HK Telecom stake justifies a prospective p/e of 20 and a yield of 2 per cent at 471p.