Shareholders may welcome Cable & Wireless's (C&W) decision this week to return around GBP1.7bn via a share buy-back and special dividend, but the move illustrates uncertainties over its underlying business.
That money could be spent on winning market share or making acquisitions, taking advantage of depressed valuations. But chief executive Graham Wallace thinks it would be better spent elsewhere.
The company has net cash of GBP4.7bn thanks to a recent disposal programme. After the special dividend of 11.5p and buying back up to 15 per cent of its shares, it says only another GBP1bn will be required to reach break-even. That leaves GBP2bn for acquisitions. Mr Wallace would not comment on persistent rumours that he plans to buy rival Colt Telecom.
He argues C&W simply has more cash than it needs to maximise profitability. Cyrus Mewawalla, telecoms analyst at Nomura, says either C&W Global has a profitable strategy that warrants further investment, or investors should sell its shares: "If they have confidence in their core business, why not invest all their money in it?"
Mr Wallace acknowledges that the global communications market suffers from overcapacity, but he believes offering more sophisticated services will see C&W prosper. That assumes such services won't fall prey to the same pricing pressures being felt elsewhere across its business.
Interim revenues fell 5 per cent to GBP1.8bn at core division C&W Global, excluding its internet hosting arm, and cash profit margins fell to 2.8 per cent, delivering GBP51m. C&W remains unable to say when revenues should stop falling, undermining its claim to know how much cash is needed to reach break-even.
It all adds up to a pretty grim outlook. On the plus side, if rationalisation is needed before the telecoms industry becomes profitable, at least C&W should be a survivor. And, if returning cash is a tacit acknowledgement that the sector is not worth investing in at the moment, at least Mr Wallace is facing up to reality.