| BUSINESSWEEK ONLINE : AUGUST 9, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- EUROPEAN BUSINESS
The Yankee Cable King (int'l edition) Barclay Knapp mounts a coup in Britain He may not be as well known as other communications impresarios such as John C. Malone or Craig O. McCaw. But Barclay Knapp, a soft-spoken American telecom entrepreneur, is well on his way to becoming Britain's king of cable. Knapp, the president and CEO of Nasdaq-listed NTL Inc., agreed to acquire the residential cable operations of Cable & Wireless Communications (CWC), a subsidiary of Cable & Wireless PLC, for $13.1 billion on July 26. It was a financial coup. Knapp snatched CWC from under the nose of Telewest Communications, which had been talking to CWC since April. He also enlisted the help of France Telecom, which is putting up $5.5 billion of the money in exchange for 25% of NTL. Once it is completed, the CWC purchase will make NTL the dominant cable operator in Britain, with 2.8 million customers and almost two-thirds of the urban market. Capturing Britain is just step one in Knapp's European playbook. He plans to take his successful formula of cheap bundled TV and telephone services across the English Channel, possibly in partnership with France Telecom or even Microsoft Corp. He has already purchased a small French cable operator called 1G and says other lagging systems are for sale in Northern Europe and could be souped up with better management. Analysts speculate that NTL could link up with United Pan-Europe Communications, a major continental cable player in which Microsoft has a 7.8% stake. RIVALRY. NTL and Microsoft already have ties. Microsoft holds a 5% stake in NTL plus 30% of NTL's main rival, Telewest Communications. Christian M. Maher, a telecom analyst at brokers Investec Henderson Crosthwaite in London, thinks it is highly likely that NTL will eventually swallow Telewest as well, giving NTL about 85% of the British market. Knapp says he hopes such a deal will take place. Microsoft couldn't be reached for comment, but analysts say it may push the consolidation. The inability of Telewest to pull the trigger on the CWC deal gave Knapp, whose NTL once seemed the weaker company, an opening. Besides Microsoft, Telewest's other main shareholder is John Malone's Liberty Media Group. ''Knapp moved quickly and in a way that gave us a better deal,'' says Graham Wallace, CEO of Cable & Wireless. Indeed, Knapp's ability to persuade France Telecom to invest in NTL helped clinch the sale. Knapp's advisers Morgan Stanley Dean Witter may arrange another $3 billion in financing. Following the recent souring of its relationship with Deutsche Telekom, France Telecom is under pressure to find new avenues out of France. The company might join NTL in bidding for a third-generation mobile license and draw on NTL's expertise in going after cable systems on the Continent. Why has Knapp emerged as the strong man in Britain when powerful players such as Liberty and Bell Atlantic Corp. have been unable to make much of an impact? Knapp's admirers say his genius has been in figuring out that the British cable game was as much about providing phone services as entertainment. His low-cost cable and telephone packages have helped NTL achieve a higher market penetration than its rivals. He also helped his cause by buying a broadcast transmission business, which brought him the NTL name in 1996 for $376 million. That gave Knapp a profitable business to offset capital-consuming cable. ''That meant he could go out and raise money in both telecom and cable,'' says Ronald Cohen, chairman of London-based venture capitalists Apax Partners & Co., which invests in Knapp's businesses. Looking surprisingly relaxed, Knapp, 42, sketched out his vision of the communications future at NTL's London office. He expects NTL to become a dominant force in Britain using its state-of-the-art cable to pipe pay-TV and Internet service to both television and computers. He thinks NTL can use its urban networks to become a bigger player in fast-growing business telecommunications. NTL is beginning to provide Internet connections for its customers and preparing to launch a digital interactive system in October. Knapp stresses that because much of Europe was recently wired with high-capacity cable, the region has great potential for broadband or high-speed networks. ''Europe has a chance to pull even or perhaps ahead of the U.S. in terms of broadband,'' he says. Knapp, a technologically savvy executive who once worked on cruise missile guidance systems, says there is nothing strange about being a European media mogul while living in Princeton, N.J. His strong local operating teams leave him the luxury of the strategist's and dealmaker's role, he says. He says that given his enormous needs for new money he would have to spend a lot of time in New York, where he has an office. The U.S. ''is where the capitalists are,'' he says. Knapp has an impressive record. He started out in the telecom field in 1981 helping a group that included George S. Blumenthal, now NTL's chairman, found Cellular Communications Inc., an early U.S. mobile phone provider. That business was sold to Airtouch Communications Inc. for $2.5 billion in 1996. He is wrapping up a deal to sell another company, Cellular Communications of Puerto Rico, for $814 million to SBC Communications Inc. and Telefonos de Mexico. Richard Reiss Jr., chairman of Georgica Advisors, a New York investment partnership, estimates that Knapp's businesses have produced a roughly 35% compound annual return since the mid-1980s. Knapp also has about 3 million shares in NTL, which are trading at about $99 on Nasdaq. NO GUARANTEE. But being the king of cable doesn't mean that Knapp is home free, even in Britain. The cable industry has always been something of a weak sister in a British pay-TV market led by Rupert Murdoch's satellite broadcaster British Sky Broadcasting. NTL, like most British cable businesses, loses money. It reported an operating loss of $121 million on revenues of $268 million for the quarter ended Mar. 31, 1999. But analysts were pleased that sales nearly tripled and earnings were a positive $20 million excluding depreciation and amortization. Last year, the company had operating losses of $228 million on revenues of $747 million. A recent Securities & Exchange Commission filing warned that the company faced capital costs and debt service of $1.1 billion for the remainder of 1999. But Knapp paid a fat price for CWC. Some think that the big winner is C&W, which gains sole control of CWC's long-distance business and some $5.4 billion in cash. ''This is one of those deals where real value was created for both parties,'' says C&W's Wallace. Now, NTL has to deal with such formidable competitors as BSkyB and British Telecommunications PLC, which are sharpening their own services. Having such heavyweights around is one reason British regulators may permit the cable industry to consolidate down to just one player, analysts say. Knapp is the least known of the great telecom entrepreneurs. Now he has the chance to change that--for better or worse. By Stanley Reed in London _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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