Cable & Wireless Acquires THUS As UK Turnaround Progresses

| Oct 22, 2008 | Business Telecom Services - Europe | Competitive Intelligence Report

| Analyst: Sandra O'Boyle

Current Perspective: Positive/Neutral
Vendor Importance: High
Market Impact: High

Event Summary

October 22, 2008 – THUS is now part of Cable & Wireless (C&W) after the cash offer for THUS was declared unconditional in all respects. In May 2008, C&W’s offer of 165p per share for THUS was rejected by the Board and a subsequent 180p offer per share open through the end of September 2008 was accepted by shareholders even though THUS management felt it still undervalued the company. In total, C&W has paid about GBP 329 million for THUS.

Analytical Summary

• Current Perspective: Slightly positive on Cable & Wireless’ (C&W) acquisition of THUS because this removes a key competitor to C&W in the UK and should strengthen C&W’s market position as the strongest challenger to BT, if it executes well on the integration of THUS.

• Vendor Importance: High to C&W, as the company has been active in market consolidation in the UK business telecom services segment (having acquired Energis in 2005). The added rationale behind the THUS acquisition is to strengthen C&W’s business in the UK ahead of a likely demerger of its UK (Europe, US and Asia) and international divisions (mainly focused on the Caribbean) into separate stock exchange listings. A split is expected to take effect in the first half of next year.

• Market Impact: High on the UK business telecom services market because this boosts C&W’s market share, takes out a key competitor in the managed services space and makes C&W the leading credible alternative to BT for large enterprise customers in the UK.

Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

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Recommended Competitor Actions

• Competitors can point out that the execution risk is high and that combining THUS and Cable & Wireless operations could be a challenging and messy business. There could be potential future problems with network migration, portfolio integration and massive demoralization amongst employees as headcount reductions continue to happen.

• BT should promote its experience and stability as a service provider of critical communications services. BT can also point to its leadership in new innovative services (e.g., its Application Assured Infrastructure) which allows large enterprises to manage application performance across their network both in the UK and globally).

• ntl:Telewest Business needs to work on its sales and marketing to enterprise customers in the UK. In particular ntl:Telewest Business should focus on promoting customer awareness of its ‘Telecom 2.0’ strategy. ntl:Telewest should that point out that it has heavily invested in developing the UK’s only NGN with comparable national reach to BT, and it can deliver IP VPN, IP telephony and Ethernet services. The supplier should highlight its reputation for good service and improvements it has made to customer ordering and provisioning systems.

• Global Crossing UK (GCUK) should underscore that the integration of Fibernet has greatly enhanced GCUK’s network reach, customer base, service capability and technical expertise, especially in the area of national Ethernet services. The company can position itself as a financially stable service provider with a proven track record within the corporate and public sector markets in the UK, and a solid alternative to BT, Cable & Wireless and other competitors.

Recommended End User / Customer Actions

• Small and medium-sized enterprise customers need to contact their account managers and see if their contracts are being terminated or whether changes are expected to contracts, services or prices.Smaller companies should start to contact their local resellers and look at operators such as BT, COLT, Opal Telecom and Tiscali for alternative options.

• Existing THUS customers should remain calm. The situation remains ‘business as usual’ for THUS at the moment and customers should avoid making any rushed decisions. Larger customers in particular should have no real concerns as Cable and Wireless (or any other potential suitor) will be keen to retain as many large customers as possible should a takeover materialise.

CLIENTS ONLY

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