The Sun Never Sets on This Telecom

07/13/2010 10:43 am EST


John Snowden

Contributor, The IRS Report

The global network spin off from the old Cable & Wireless has enviable profit growth prospects, writes John Snowden in The IRS Report.

Founded in the 1860s, telecom carrier Cable & Wireless plc demerged into two separate companies on 26th March this year. The new names are Cable & Wireless Communications and Cable & Wireless Worldwide.

I am focusing on C&W Worldwide (London: CW), which [has] operations in no less than 153 countries around the world. C&W Worldwide has traded separately from its sister company for two years, the split having pre-dated the de-merger.

It specializes in communications services such as Internet protocol, data, voice, and hosting to large enterprise, reseller, and carrier customers. Core markets are the UK and Europe, Asia, the Middle East, and Africa.

In the UK, Worldwide owns the country’s largest fiber network dedicated to business users of telecoms. It is some 20,500 km in length and provides access through a combination of fiber, digital, microwave, radio, and leased circuits. The network covers 55% of the population with representation in more than 400 towns and cities in the UK. The biggest rival in the UK is BT Group (London: BT-A, NYSE: BT).

Worldwide can boast a large carrier wholesale business, [which can help] a telecom...achieve the best network economies of scale. The group has specialized in wholesale consumer broadband and supports significant industry players such as Tesco (London: TSCO) Broadband and Virgin Media (London: VMED, Nasdaq: VMED).

Worldwide’s global network has plenty of areas which can be exploited in the future, particularly given the huge demand that has developed for bandwidth around the world. Continued investment in selected parts of the network remains a priority, and the group is partaking in the Europe India Gateway due for completion later this year, [plus] the West Africa Cable System. Both these projects will strengthen the company's position in a number of emerging markets.

On an international scale, this continuing investment means that Worldwide’s global next-generation network (NGN) stretches to more than 500,000 km, which includes interests in 69 global cable systems. The company’s Multi-Service platform, an IP-based next-generation platform that operates across the NGN, offers a single environment on which voice and data applications can be converged to drive business efficiencies. This network has a unique design, with in-built resilience, and also has the capability to re-route traffic in the event of failure on one or more paths.

Given the shortage of capital generally available for large-scale investment, the company will hopefully find itself less exposed to competition in the immediate future.

C&W Worldwide [aims for] profitable revenue growth built on strong sales and growing demand for the core products, and a sustainable cash flow. This last is perhaps the easiest target, since exceptional cash charges will reduce by up to 75% over the next two years.

The annual results for the year to 31st March announced in late May reflect this steady progress, with revenues static at £2.265 billion [and] earnings before interest, taxes, depreciation, and amortization rising 32% to £431million, making an after-tax profit of £211 million.

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