Euro Cable Cos. create, consolidate

European cable issuers are on the fast track with new services as well as consolidation plans, according to market sources.

The main three high yield cable operators operating in the U.K. - Cable & Wireless Communications, NTL, and Telewest - have been operating in the midst of a flurry of rumor mergers but meanwhile they all are shifting their technology toward digital.

Cable & Wireless launched its digital television service earlier this month, with competitors NTL and Telewest slated to do so in September and the fourth quarter, respectively.

The entire European cable sector, with valuations lower than its counterpart in the U.S., shows a lot of potential upside, investors said. Also boding well for the sector is lower penetration rates than the U.S. market.

There are also acquisitions and rumors of acquisitions going on, and as valuation multiples increase with every deal, there is still a lot of upside in the industry, sources said. However some buy-siders argued that they could make money in the sector regardless of whether they correctly choose takeover targets.

In the consolidation front, there are still some in the market expecting the industry to merge until there is just one U.K. cable provider. It was predicted earlier this year by at least one industry analyst that NTL was the best positioned to be the last one standing (HYR 05/24/99). It was subsequently reported elsewhere that all three companies were involved in negotiations for a possible three-way GBP30 billion merger.

The European cable industry has seen some interesting changes this year, with Microsoft investing more and more money in the country's three main high yield cable companies.

Microsoft wants to get its software into the set-top boxes in customer homes.