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Cable & Wireless drops ISP business

Following multibillion-dollar investments in the U.S., international telco Cable & Wireless decides it doesn't want to be in the consumer Internet business after all.

It took just half a year for Cable & Wireless USA to decide it didn't want to be in the consumer Internet business after all.

Cable & Wireless stormed into the U.S. market last July, buying MCI's Internet assets for $1.75 billion. Not long after the deal closed, the company rolled out a package of long distance and Internet dial-up service for consumers with some fanfare, offering Net access for $14.95 and long distance phone service for just 7 cents per minute.

The move was seen by many analysts as a gutsy shot across the bow of established U.S. players like AT&T and MCI WorldCom. But the announcement wasn't followed up with the kind of marketing needed to establish a solid national brand. In a telling move, today the company announced it was selling its consumer Internet business altogether.

Cable & Wireless executives downplayed the deal, noting that it was consistent with other recent streamlining efforts, such as the sale of its undersea cable business to Global Crossing last month.

"I don't think much has changed [since last year]," said Art Medici, Cable & Wireless USA's senior vice president of marketing. "We are refining our focus to be more consistent with our strategy of focusing on business customers."

But analysts said the company's strategic shift is an admission that one of its first major U.S. drives had failed to gain steam.

"Cable & Wireless effectively committed itself to the dial-up base when it bought MCI's assets," said Current Analysis telecommunications analyst Jilami Zeribi. "They tried to get the dial-up business up and running. This demonstrates that they failed."

The move comes several months after Cable & Wireless sued MCI WorldCom for breaching promises allegedly made as part of the Internet asset sale.

In that lawsuit, the British company said MCI had not delivered the resources needed to support Internet customers, making it impossible to grow the consumer business.

"[We] have been unable to market new services to existing customers, or even to take new orders from existing customers in a timely manner," the lawsuit said. "[We] have been unable to pursue new commercial customers, to develop and announce new products, or even to advertise for new dial-up customers."

Nevertheless, Medici said the difficulties in assimilating MCI's network were "unrelated" to the decision to leave the consumer Net market and focus on business customers.

Today's move does put the British company back in line with the traditional strategy for international companies, analysts said. It is difficult for overseas companies to establish a successful consumer brand, and so most instead tend to focus on business customers, noted Jupiter Communications' Zia Daniell Widger.

"I think business is going to be an easier market for them to crack," Widger said. "Then they don't have the issue of building a mass-market brand."

Medici said the company has yet to solidify a branding campaign for its business Internet strategy, which will likely kick off later this year. The company is still building out international Internet operations, including a recent commitment to invest $670 million in its U.S. Net backbone.

The company does have a well-established brand in Europe and Asia, but will have an uphill struggle establishing itself as a top U.S. Internet player against competitors like AT&T and Qwest, analysts said.