Microsoft's investment in a 29.9 per cent stake in Telewest for an undisclosed sum, announced last Thursday (6 May), has been widely interpreted as a crucial vote of confidence for the cable industry, shoring up its position as a major force in the future of digital TV. The deal also gives the company access to sizeable additional funds.
'The cable industry has always been a serious player,' said David Mercer, analyst with Strategy Analytics. 'But it needed investment - Microsoft's commitment demonstrates the growing belief that there will be a market for interactive services via broadband cable.'
The purchase of the Telewest shares, with a stock market value of close to£1.9 billion, is Microsoft's biggest investment in the UK to date, but is not the company's first move into the UK cable industry.
Microsoft chairman and chief executive Bill Gates orchestrated an acquisition of $500 million (£305.5 million)-worth of shares in rival UK cable operator NTL earlier this year.
The Telewest deal is also expected to increase the prospect of further consolidation in the UK cable industry. Just last month, Telewest confirmed it was talking about a possible tie-up with Cable & Wireless Communications (CWC) (Broadcast, 9.4.99).
Mercer added: 'It wouldn't surprise me if we have just one cable company by the end of the year - having Microsoft on two sides of the table can only help things.'
Microsoft's Telewest acquisition is part of a complex deal between Microsoft and AT&T in the US. Microsoft is buying $5 billion (£3.1 billion)-worth of AT&T shares, including a stake in MediaOne, which currently holds the Telewest stake. In return AT&T will use Microsoft's interactive software in its set-top boxes.
Analysts believe Microsoft is driven by the same aims for the UK. 'Microsoft wants to do to TV what Windows did to PCs,' said Mercer. 'Gates doesn't want to operate networks. He wants a share in developments to sow the seeds for launching his own interactive platforms.'
The deal followed BSkyB's announcement last Wednesday that it will offer free set-top boxes and cheap phone calls to drive take-up of digital satellite TV from 1 June (Broadcast, 7.5.99).
Investec Henderson Crosthwaite analyst Mathew Horsman commented: 'The real target of this is cable and not (digital terrestrial operator) On Digital.'