A number of US and European-based venture capital funds are expected to bid for Cablelink, it has emerged. It is also expected that the final price agreed for the cable company could now exceed £300 million (€380.92).
Industry sources believe that Cablelink will attract in excess of 10 bidders initially, including European telecoms companies such as Deutsche Telecom as well as some Scandinavian operators. Venture capitalists will be among the bidders, either on their own or in partnership. However, it is thought that some funds will spurn a consortium arrangement.
"There are several examples in the US of venture capital companies buying cable groups and managing them themselves, before eventually selling out to other cable operators," said one analyst.
Players in the industry believe that there has been much "talking up" of the price. However, an information memorandum on the sale, circulated to interested parties earlier this week, is understood to contain detailed projections of how Cablelink can be developed to offer a range of new services, including home shopping, video on demand, Internet and telephony.
The Government has instructed the company's shareholders - Telecom Eireann, which holds 75 per cent, and RTE, which has the remaining 25 per cent - to sell Cablelink in order to ensure the swifter development of the telecoms sector.
Apart from preliminary Internet trials, Cablelink currently only offers television services but has healthy revenues, posting revenues of almost £37 million last year, with net profits approaching £5 million. The memorandum projects revenues of £130 million per annum in 10 years from television programming.
Under a business plan prepared by Cablelink, in conjunction with Analysys in London and PricewaterhouseCoopers, it is envisaged that digital set top boxes will replace existing analogue boxes within 12-18 months. This would pave the way for the company to eventually offer up to 300 channels. These would include basic services (i.e. BBC 1, BBC 2, RTE 1, RTE 2, TV3, Channel 4 and UTV as well as Sky 1), and other "tier services" such as premium channels, movies and sports channels and pay-per-view events.
Once upgraded - this process is estimated to cost £190 million over five years with an ongoing annual spend of £25 million - the system will be able to offer a range of broadband services. The memorandum projects that within 10 years annual revenues for Internet services will be running at around £50 million.
For telephony services it forecasts that revenues will be running at approximately £110 million per annum in 10 years. Because Cablelink is piped into so many homes, the memorandum is understood to forecast that residential telephony penetration will peak at about 30 per cent. Industry sources are divided on the telephony forecasts, with some saying they are too optimistic, because of the competitiveness of the market and others contending that the estimate is very conservative. Overall, the projections allow for annual revenues approaching £300 million in 10 years with pre-tax profits of £100 million per annum. At present, Cablelink has 360,000 subscribers, which the memorandum forecasts could rise to 440,000 in 10 years.
It is understood that the memorandum describes future subscriber growth as relatively stable. However, another 80,000 subscribers, over 10 years, is still an attractive proposition.
Industry sources - both bidders and potential bidders - readily acknowledge Cablelink's attractiveness. It has 83 per cent penetration in its market - higher than any other cable company in Europe. It is based mainly in Dublin where there is high spending power and where the take-up of personal computers is said to be 14 per cent higher than the national average.
"Cable can offer high speed Internet Internet services, telephony and television services - a one-stop shop offering," says one source.
"That makes it a very attractive proposition both to the consumer who can deal with one company for all these services, and for the company who can bundle the offers," the source says.
The new cable licence, which Cablelink recently accepted from the Office of the Director of Telecommunications Regulation (ODTR), grants the company five years exclusivity within its own platform. Formerly, Cablelink, in common with the other cable operators, had a monopoly in the areas it serves.
It is believed that the five years exclusivity condition will not be a deterrent and is generally seen as enough time for investors to get the company up to speed. Analysts seriously doubt that after five years the cable company will face competition from another cable operator in its area because it would be so expensive for a rival to install a new system.
However, again in common with other cable operators, the buyer of Cablelink will face competition from satellite and digital terrestrial operators such as RTE, which will be entering this particular market.
Analysts point out that satellite and terrestrial digital operators cannot offer the same range of services as the cable companies because they do not have what is know as a return path which allows for interactivity. Cablelink's current charges for its television based services are Dublin (£102.50); Galway (£125 approx.) and Waterford (£109). The price for its MMDS service (a wireless transmission system used in rural areas) is £145. Industry observers believe that by British and European standards these are quite low and there is potential to increase them.
It is understood that initial non-binding bids for Cablelink must be received by March 10th. Up to a dozen companies may lodge indicative bids. The advisers to Cablelink are NM Rothschild and a steering committee which includes representatives of Telecom Eireann, RTE, and the Departments of Finance and Public Enterprise.
