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Impact Investing

IPE special report May 2018

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Cable companies carve out a niche

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The European cable industry illustrates how quickly a sector can develop in the high yield market. European cable companies entered the high yield arena as recently as the mid 1990s in the UK. Following the deregulation of British Telecom, many large US telecommunications and cable companies invested in the buildout of the European networks of Telewest and International Cabletel (now NTL). Since that time, the aggregate size of the European high yield cable market has surpassed that of the US high yield cable market.
According to UBS Warburg, aggregate face amount of high yield issuance for European cable companies in both dollars and euros stood at over $20bn as of January 22, 2001; by comparison, the aggregate size of the US high yield cable market amounted to $11.8bn.
The reasons for this fantastic growth in high yield issuance are numerous. In the UK, the buildout of the cable sector was viewed as a means to provide telephony competition to the large, incumbent provider, BT. Telewest alone has more installed telephony lines than the entire US cable industry. Because the infrastructure for cable in the UK is newly built, the networks are advanced in their capacity to offer cable telephony and high speed internet access over their robust, broadband pipe. Today, the two UK cable companies, Telewest and NTL, rival the large US cable companies in size and surpass them in terms of new service penetration and broadband capacity.
On the continent, the introduction of the euro, the ability to conduct business across borders and the privatisation of cable networks have spurred similar growth in the high yield market for cable companies. United Pan-Europe Communications (UPC) evolved as the main consolidator of formerly government-operated cable systems. These cable systems were historically used as the mechanism to deliver broadcast television within the fragmented borders of Europe. Because these networks were operated as utility-like companies, their broadband capacities were never fully utilised. UPC and others have frequently used the high yield market as a source of capital to acquire and develop these underutilised cable systems as governments across Europe privatise their cable assets.
Telecommunications deregulation throughout Europe has accelerated the acquisition and development of cable systems. This process is most evident today in Germany as Deutsche Telekom is in the process of selling its cable assets in an auction process. The acquisition financing of these auctions has the potential to almost double the size of high yield issuance by European cable companies over the next few years.
In comparison to US high yield cable companies, European issuers tend to be larger (UPC is the largest broadband company globally among high yield cable issuers). The European market for high yield issuance is also concentrated among fewer players when compared to the US. Up to now, the bulk of high yield cable issuance in Europe has been by three companies: NTL, Telewest and UPC.

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