Cablelink sale alters rules of game

How much was Cablelink worth? Seldom has the price of any asset appreciated so significantly during the sale process. As when a few keen bidders chase a fine painting, the hammer finally went down at a price - £535 million (€680 million) - way above original expectations.

Now the question is: what does the advent of the US giant, NTL, mean for the industry and for consumers in Ireland?

With the dust settled after the NTL move and the subsequent court row, the rest of the players in the industry have been assessing their options. They all, no doubt, have warm feelings in their stomachs at the price paid for Cablelink and what it means for their own asset.

Princes Holdings, for example, the joint venture between Independent Newspapers and TCI of the US, could be worth more than £200 million on the basis of the Cablelink valuation, although its high proportion of MMDS - as opposed to cable - customers leaves this valuation uncertain. Likewise the UK venture funds with stakes in the smaller Cable Management Ireland - with strategic cable franchises around greater Dublin and in commuter towns - must be rubbing their hands.

The problem for the existing players, of course, is that NTL will raise the game. High valuations on cable networks now will wither away if they are not subject to the kind of investment which NTL promises.

Telecom and RTE did not bother investing in Cablelink, in the knowledge that they would have to sell it, meaning that customers in the Republic have not seen the type of innovative services delivered on cable as are now available in Britain and in parts of the North. Now the game is very much on.

There appear to be only two ways forward for the industry here. Either NTL takes out some of the remaining players - CMI would seem a particularly attractive target - or somebody else in the industry leads a consolidation of the remaining players, creating a viable competitor for NTL in the cable business.

Princes will surely be considering this option - its management is known to have mulled over a public flotation, but on its own Princes would hardly be big enough for such a move.

Esat Telecom could also lead the rationalisation of the remaining players, a move which would provide it with a platform to develop its telecommunications services.

Whether Esat, having lost out in the race for Cablelink, wants to take this route or concentrate on other ways forward - it is a likely winner of a wireless local loop licence which will also open up new opportunities - is a strategic call for the group and depends on its view of how the industry will develop over the next few years.

Such is the pace of change in the industry and the scale of the investment risk, that only big players can prosper. Even looking at the delivery of TV services, for example, it still remains to be seen whether consumers will favour cable or will opt for digital terrestrial services.

Cable does, however, appear to be emerging as a key medium, judging, for example, by the huge investments being poured into this sector by the likes of Microsoft.

In this environment, the current structure of the industry here is set for further change. Either NTL will gradually swallow up the competition, or the remaining players in the market will consolidate to form a second substantial entity.

And whichever way the chips fall, the new cable investment will provide the most significant challenge yet to Telecom Eireann in the domestic telephony market, pushing it more quickly down the diversification route.