Take heart at C&W: it could be far worse

THERE is one consolation for Cable & Wireless shareholders. Hard to believe? After all, this is the company that had to issue three profit warnings last year. This is the FTSE 100 company whose shares performed worst in 2001 without actually being ejected from the premier league.

This is the company whose share price since current chief executive Graham Wallace took over in 1999 has underperformed the rest of the telecoms sector by a mile - quite an achievement. Nevertheless, there is one consolation: it could have been even worse.

At least Wallace has spent much of his time at C&W selling assets into a rising market - or at least a market that was rising until 18 months ago.

Certainly, he then ploughed a fair chunk of that money into capital spending to try to build the business that Wallace now wants at the core of the new-look C&W - providing all the hardware and services that any company could possibly require to meet its internet needs.

But still, C&W is emerging from this period of dramatic transformation with cash in the bank. It did not do a BT. It did not rush out when the IT and telecoms bubble was at its most inflated and borrow, borrow, borrow to buy ludicrously overpriced assets.

That is the consolation. Wallace didn't repeat the most egregious mistakes of many of his peers in the industry.

But nevertheless, we hear that several of C&W's biggest shareholders are becoming uneasy about the direction it has taken. And in particular, they feel uneasy about the deal that has taken up so much of Wallace's time of late - the $850m purchase of chunks of failed US group Exodous Communications.

For internet junkies, Exodous is a sexy operation. It owns internet data centres - huge air-conditioned buildings housing rack upon rack of computers that contain the internet sites of big corporations such as GE Medical, Merrill Lynch, BMW and Gap.

A year ago, Wallace would have paid vastly more than $850m for such a business. By comparison with the billions that he might have paid, he has now secured a bargain.

A reason to celebrate? Not if the grizzling in certain parts of the City is to be believed. There is still a real, and well-founded, worry that even at these bargain-basement prices, C&W will struggle to turn a reasonable profit on Exodous and other similar investments. C&W freely admits that the Exodous businesses is unlikely to generate cash for at least a year. And in the meantime, C&W must spend about $250m on it.

And in microcosm, this illustrates the paradox of C&W and its time under the custodianship of Wallace. It has made some smart disposals. It has brought in a great deal of money from those disposals - some £8bn in all. But only £1.8bn of that money has been handed back to investors through special dividends and share buybacks. And nobody is really convinced that the businesses C&W is left with provide a secure platform for growth. It has avoided the worst errors. It has yet to show that it can find success.

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LAST week saw the launch of the euro and with it some wonderfully muddled thinking about the currency and the benefits or otherwise of Britain's joining. In particular, the single currency's rise in the wake of its relatively trouble-free debut brought forth some particular gems of nonsense.

People really must make up their minds. Do they think that a strong currency is a good thing or not? For the past two years or so, British supporters of our joining the euro have been saying that sterling's relative strength against the new currency has been a handicap for UK exporters.

Quite so. And it has played a major role in crushing British manufacturing industry. This has been frequently used by the pro-euro lobby to bolster the argument for Britain's joining: if sterling had been tied to the currencies of our friends on the Continent, the UK would be in better economic shape. A strong currency has been a problem.

But when the euro's value rose after its smooth launch last week, the currency's fans claimed that this was a jolly good sign - not for us, but for the eurozone members. And the other side of this particular euro coin?

It was clearly a reflection of the sad state of old Blighty, having kept itself on the sidelines of this great project. And more to the point, it was unhelpful for Britain to see its currency decline against the soaraway euro. In other words, weak sterling will be a problem.

There is absolutely no need to trawl again over the economic and political arguments for and against Britain's membership of the single currency, but let us at least demand some clarity of thought. Let us demand consistency.