Microsoft has announced a $500 million (€432 million) investment in cable telecoms operator, NTL, paving the way for the delivery of advanced communications services to its customers in the North. NTL has already signalled a strong interest in entering the Republic's market and the alliance with Microsoft would enhance it as a potential bidder for Cablelink.
Microsoft applications will be used to deliver high speed voice, video and data communications over NTL fibre optic network. This will accelerate NTL's efforts to rapidly introduce a range of Internet, telephone and cable television services for its customers.
In particular, NTL has said this will greatly assist it in offering Web TV - television incorporating the Internet. NTL has over 1.4 million telephone, cable television and Internet customers in Britain and says it has 40 per cent penetration of the telephone and cable television services market in some areas.
NTL Cabletel, a subsidiary of NTL, entered the Northern Ireland market three years ago and has pursued an aggressive campaign against the incumbent operator British Telecom.
It has invested £600 million in a complete fibre optic network to service 80 per cent of Northern Irish homes by 2003. It currently serves about 70,000 homes in Northern Ireland.
In the Republic, NTL is a likely bidder for Cablelink, the cable television company 75 per cent owned by Telecom Eireann and 25 per cent by RTE, which will come on the market this year.
If NTL was the successful bidder, the new services introduced as part of the Microsoft link-up would be rolled into the Cablelink network to deliver digital TV services in the Republic following a comprehensive upgrade of the network. NTL is likely to offer this capability as part of the package it would offer, if, as expected, it lodges a formal bid for Cablelink.
Last October NTL Cabletel completed a £30 million fibre optic link between Britain and Ireland, and through this it is already offering telecommunications services in the Republic.
The two companies said they plan to work closely together to develop new digital services and will set up a joint technology group. According to Mr Barclay Knapp, president and chief executive officer of NTL: "NTL's pioneering marketing, network and back office resources, coupled with Microsoft's world leadership in personal computing and digital television will make for a great combination."
Microsoft will now purchase $500 million worth of NTL's convertible preferred stock. The preferred stock is convertible to common stock at a price of $100 per share. In return for the extension of Microsoft products and services to NTL, Microsoft will receive 1.2 million five year warrants to purchase NTL common stock at $84 per share.
According to Mr John Gregg, managing director of corporate finance and development with NTL, the company has put a "poison pill" provision in place to prevent Microsoft taking a higher stake in the company without the approval of its shareholders.
"Microsoft brings excellent software skills for providing digitally interactive TV, but it was also attracted to NTL because digital TV needs the high speed capacity of the cable network," Mr Gregg said.
