Sinking feeling for cable groups

By DAILY MAIL REPORTER
Updated:

 

CABLE & Wireless, Colt Telecom and their American and European peers are under pressure to write off billions spent building their international networks.

British Telecom set a precedent for the industry on Tuesday when it wrote down by £825m, or two-thirds, the transatlantic cables held by its troubled Concert venture. BT took this drastic step to reflect that only 12% of the route's available capacity - according to research firm TeleGeography - is in use. After huge investments, similar overcapacity exists between London, Frankfurt and Paris.

Ernst & Young telecoms specialist Richard Coates said the value of cables should fall to reflect market changes. Networks are much cheaper to replace because so many firms have gone bankrupt, while forecast returns on investment are much lower. He warned that write-downs could allow bondholders to demand higher interest rates or even repayment of their debts.

Cable & Wireless and Colt are seen as under most pressure to write down the value of their cables. Colt said it had no intention of writing down its assets. C&W declined to comment.

But, because BT also wrote down its share of the TAT-14 transatlantic cable that went live this month, co-owners France Telecom and Deutsche Telekom may have to follow.

Cable & Wireless spent £1.5bn on networks last year and plans a further £800m this year, including yet another transatlantic cable with France's Alcatel. Colt has spent £1.8bn around Europe. Markets have effectively written down the value of these networks already. Colt's shares, £40 last year, are now 128p.

Newer companies may avoid write-downs because they would be admitting that their investments were foolhardy.

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