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27/06/2002

Cable companies may face closer scrutiny

It has been reported that the UK's cable companies could be pressured by investors to make their accounting methods more transparent after the latest corporate scandal at US telecoms giant WorldCom.
The debate, dragged into the spotlight by WorldCom's impropriety, centres around accounting methods over the posting of figures before interest, taxes, depreciation and amortisation (ebitda).
At WorldCom $3.9 billion of expenses were redesignated as investments over the last five quarters, and so massaging the figures to indicate that the company was operating at a profit when in fact it was heavily in debt.
Currently, NTL and Telewest label their set-top boxes as capital costs, and not operating expenses, as the boxes are leased to the customer – and so boosting results. BSkyB on the other hand have lower ebitda figures as they treat the set-top box as an expense write-off as customers keep their box even if they no longer receive Sky services.
Many analysts believe that as cable companies incur more expense than satellite providers through laying cable and installation under roads and footpaths, they can justify the capital costs to the customer. However, this may not be enough for investors, especially as NTL met its targets shortly before the Chapter 11 insolvency filing.
This indicates that ebitda figures will likely be increasingly derogated as the basis for judging the performance of a company. However, should investors opt to base their predictions on the future of debt-laden companies such as NTL and Telewest through cash flow, some observers believe it could further affect share prices.
The problems associated with this were evidenced at Vivendi Universal on Monday, when fears over cash flow led to a 23% slide in the parent group's share price after the company released its stock in water utility Vivendi Environment to slash debts.
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