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November 18, 1993


By CBR Staff Writer

Other than near cross-the-board improvements in revenues and profits, there were two recurring themes in the briefing given by Cable & Wireless Plc chairman Lord Young: Telemedia and research into wireless communications. It could have been unalloyed good news if the UK and Europe division hadn’t caught a nasty cold on a marine cable-laying project in the North Sea the Marine division decided do use some innovative new technology, which didn’t work. In the scramble to complete on time, the division ran up losses of UKP20m and shrank operating profits in the division by 18% to UKP83m on turnover up 27%. Increasing competition in the UK market is also clearly beginning to affect Mercury Communications Ltd: operating profit crept up by 5% to UKP99 on turnover up 24% to 74%, though to be fair, the profits would have been better if it had not been for resumed contributions to the UK pension fund, which cost around UKP5m, against a net credit of UKP5m for the same period last year. The number of calls handled by Mercury rose 30%, but 70% of income still comes from business rather than residential customers. Stand by for a better second half from Mercury, however: it is due to collect a rebate from British Telecommunications Plc for interconnect costs between the two companies networks, payment to be back-dated to June 1992. The size of the rebate remains a mystery, as indeed does Mercury’s total interconnect bill. Suffice it to say that Mercury describes itself as British Telecom’s biggest customer and adds that interconnect is the business’s biggest single payment. Any rebate, then should make a substantial contribution to figures next time. Cable & Wireless’s 50% share of One-2-One’s start-up costs cost it UKP9m; the first results for the mobile phone operation will be unveiled in the year-end figure, but it has exceeded expectations, to the point where there has been a shortage of handsets. There were also start-up losses elsewhere in the region, albeit at reduced levels. The rest of the world turned in uniformly good results, with Asia Pacific the biggest contributing region, with turnover there up by 39% to UKP1,049m, operating profit up by 45% to UKP365m.

China was up by 32%

Both Hong Kong Telecom Ltd in which C&W has a 57.5% share, and the 51% owned Companhia de Telecomunicacoes de Macau are benefiting from the awakening Chinese economy. Traffic between Hong Kong and mainland China was up by 32% and now accounts for a 48% of international traffic. This becomes even more impressive when it is realised that the entire cake is 24% bigger than this time last year. On the organisational side, the group is trying to capitalise on its federal nature – one result of which will be globally managed data and voice services, due for launch next quarter – initially these will be run by Cable & Wireless North America, Mercury Communications and Hong Kong Telecom. International Digital Communications in Japan and Optus Telecommunications Pty in Australia are expected to join the party later. The group is also beginning to use pilot projects collaboratively: Hong Kong Telecom has committed to video on demand trials next year, information from which will be fed into the other C&W operations. Mercury will be keeping a particularly close eye on this one: Mike Harris, executive director for Western Europe made it clear that Mercury intends to compete aggressively in the telemedia market. Harris said that the company will evolve its network to carry video and is already talking to programme makers and information providers. Harris described Mercury as building an intelligent multi-media network and named the health, retailing, education and publishing markets among those to be targeted. It is also tapping BCE Inc’s software development expertise to develop the necessary network intelligence and will be bring its cable TV partners in on the game. The other big technical push is the replacement of the local loop copper with wireless, radio-based feeds – the cost of the technology has fallen very rapidly, and the gains, from reduction i

n interconnect costs, are potentially very large. Where Mercury is using One-2-One as a mobile replacement for the local loop, the new scheme will use fixed radio links to serve smaller business and residential customers. Harris said that if the trials succeed, Mercury would have to apply for a licence to use the radio tails, so it does not look like an alliance with existing UK licence holder Ionica L3 of Cambridge, or licence hopeful Millicom Holdings. This time last year, Lord Young pointed out, multimedia was still a dream, and radio links weren’t commercially feasible, it is a fast moving business God knows what it will be like next year he concluded.

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