A breakdown in communications

Stephen Byers, Trade and Industry Secretary, has put the brakes on a merger between NTL and Cable & Wireless after the Office of Fair Trading okayed the deal. So what prompted the change of heart?

Trade and Industry Secretary Stephen Byers has stoked the fires of controversy by overturning the findings of the Office of Fair Trading (OFT) on the merger between cable company NTL and Cable & Wireless.

Byers has decided to refer the merger, announced in June, to the Competition Commission, even though the OFT gave it the all-clear.

Byers' action has puzzled the City, as the Government indicated earlier this year that it wanted to end political intervention in the workings of the OFT. Also, consolidation in the cable market had been taken as a given by those in the industry.

The OFT raised concerns during the initial stages of the merger talks about the French buying into the UK market despite the barriers to UK companies entering the French market. Did the fact that France Telecom has a 25 per cent shareholding in NTL influence Byers' decision? Was there extensive political lobbying behind the scenes?

Ted Mercer, head of telecommunications at Taylor Joynson Garrett, says: “We have an industry going from three players, Telewest, Cable & Wireless and NTL, to two players where one will have more than 50 per cent of the market.

“But, in terms of what is in the public interest, is that the relevant market to be looking at? Given that in the other two markets in which they play they are up against strong players, it would seem to be in the public interest that they merge.

He adds: “In the pay TV market they are competing with Sky and in the telecoms local loop market [ie telephone lines] they are up against BT. Its not a situation where we can look at the cable market by itself.”

Mercer says Byers' decision to overrule the OFT is ” a reasonably unusual move”.

He says: “One can only guess at the motives behind it. This kind of decision shows there must have been a fairly strong lobbying element.

“It's interesting that the Competition Commission has been given a fairly short time to deal with some very complex market questions – until 25 February. It's a question that needs to be resolved fairly quickly.”

Mercer does not think France Telecom's stake in NTL is cause enough for referral: “Given the single market I would be surprised, although a company can bring advantages from its dominancy in one market into another.”

Howard Cartlidge, head of competition law at Olswang, says: “I am not aware of specific lobbying but there must have been some groundswell opinion showing there would be some support for this.”

Cartlidge adds: “It is slightly ironic that the Government issued a consultation paper in August, the key element being to remove the minister's right to overturn OFT decisions. Assuming the Government's own proposals come through the minister wouldn't be able to do this in a year's time.

“It is surprising as people have expected consolidation in the cable industry for a long time and thought this would be waved through.”

Cartlidge also dismisses the idea that the French connection with NTL would have influenced Byers.

However Cartlidge warns the merger between NTL and Cable & Wireless could lead to a “loss of innovation” in the cable market since consumers will be able to receive cable services from more than one supplier after 2001.

Nigel Parr, head of competition at Ashurst Morris Crisp, says: “The OFT consults third parties in the market whereas there is no formal opportunity to discuss this with the minister. When the minister overturns the advice of the OFT it makes it difficult to make predictions, it is not transparent and arguably not good administration.”

Parr adds: “The reasons [Byers] gave were really very thin, that he is concerned to ensure effective competition. In the proposals outlined in the consultation paper, the minister will have reserve powers to overturn the OFT for defence reasons but he doesn't mention defence here.”