Telewest Stake Sold

Microsoft lost about US$2.6 billion on its July 2000 investment in U.K. cable and telecommunications provider Telewest, the company has reported. Microsoft has sold its 23.6% stake in Telewest to IDT, a U.S. telecommunications company, for US$5 million in cash. The deal will not affect Microsoft’s future earnings, as the company had already written off nearly the entire value of the Telewest investment, but it could raise questions among investors about Microsoft’s remaining exposure from its broadband buying spree in the late 1990s.

Slow Growth, Debt Plagued Telewest

From 1997 to 2001, Microsoft invested more than US$11 billion in cable and broadband companies to help spur the deployment of broadband Internet and advanced TV services, which the company believed would help it sell new kinds of software and networked services to consumers.

Microsoft initiated the Telewest deal as part of a May 1999 agreement to purchase US$5 billion worth of preferred securities from AT&T. At that time, AT&T had already announced plans to buy cable company MediaOne, which owned about 30% of Telewest. But for various reasons, AT&T did not buy MediaOne’s Telewest stake; instead, Microsoft bought a slightly smaller portion of Telewest (about 23%) in July 2000 with a stock swap worth US$2.6 billion. At the time, Telewest had approximately 1.4 million residential telephone, Internet, and cable subscribers.