Microsoft loses £1.5bn on Telewest stake

Microsoft has taken a £1.5bn hit after selling its 23.6% stake in troubled cable operator Telewest for just £3m.

IDT Corporation, a US telecoms group that has been buying up stock in distressed telecoms groups, confirmed yesterday it had bought the shareholding, drawing a veil over Microsoft's ill-fated strategy of buying into cable companies around the world in the hope of establishing a new platform for its software.

Microsoft has written off about £4.25bn from its cable investments since 2001 and has trimmed its cable holdings significantly. It invested £1.58bn in Telewest three years ago.

Telewest is expected to emerge from a complex debt for equity swap over the next few months, cutting its debt from £5.3bn to £1.8bn. Once complete, existing shareholders will be left with just 3% of their original stock with the remainder going to bondholders, making Microsoft's stake virtually worthless. Telewest sources said the sale of the shareholding would not affect the restructuring process.

Microsoft prepared for the sale of its stake last year by withdrawing its three non-executive directors from the Telewest board. It had hoped to open up a new revenue stream by investing in cable operators, in the belief internet access and interactive services would migrate from the computer to the television. But cable companies were put off by technical glitches and a lack of consumer appetite for the services.

Liberty Media, the US investment vehicle owned by veteran mogul John Malone, is widely expected to take a lead role in any eventual merger between Telewest and rival UK operator NTL, which emerged from a financial restructuring in January.

Last year Liberty paid £18.3m for a 5% stake in IDT. It has also invested in Net2Phone, a pre-paid phone card company in which IDT has a stake.

Mr Malone already owns a 24% shareholding in Telewest and controls 11% of the company's bonds, but attempts to buy up more debt were blocked by rival bondholders last year. He signalled earlier this month that Liberty would focus on acquisitions in the US market, citing the entertainment assets of Vivendi Universal as possible targets.