Jason Nissé: Cable & Wireless has cash to spend. But can it afford to spend it?

On Friday, when most people in the UK were taking long lunch breaks to watch "our boys" put one over on the Argies, the dedicated staff of telecoms group KPNQwest were occupying their offices in London, Amsterdam, Brussels and various other European business centres and refusing to leave.

Their action reminded me of my student days, when hairy radicals would periodically occupy the university library to demand anything from high student grants to the freeing of IRA prisoners. Like those protests, these were well-intentioned but rather pointless. They weren't going to save KPNQwest. Its fate was sealed a couple of weeks ago when it ran out of cash. Its reputation was forever tarnished by its corporate problems. Its customers were already being cannibalised by the likes of Colt or Telia or even KPN, the Dutch group which is the firm's 40 per cent shareholder. More than a third of the business had already fled by Friday. Some of the more loyal supporters were clubbing together to come up with €40m (£26m) or so to keep KPNQwest going – though as KPN had not paid some €23m it owed, you could only marvel about the forgiving nature of the Continental spirit. (The other main shareholder, Qwest, is controlled by Philip Anschutz, the Dome's new owner. Let's hope it doesn't run out of money.)

Should KPNQwest survive the weekend, and banks owed €220m after lending two months ago will be praying it can, it will join the other walking wounded of the European telecoms sector: Energis, Global Crossing, Jazztel etc. They have been damaged by both the rapid rise and rapid fall of the TMT sector and the resultant excess capacity now flooding the market. Three years ago, you merely had to dig a hole and put fibre-optic wiring down it to have every money man west of the Bosphorus banging down your door. Now you can't get arrested if you offer "a full range of carrier and corporate networking solutions".

This is bad news for the company that needs no more bad news – Cable & Wireless. Graham Wallace, the group's under-pressure chief executive, has two businesses – a near-monopoly regional phone business which generates cash but is losing its market position, and a "carrier and networking solutions" business – and a lot of cash. If it were up to Mr Wallace, he would use much of this cash to buy up some of his competitors in the "carrier and networking solutions" area and wait for the upturn. Unfortunately his shareholders want him to give them the cash, and stop throwing money at the "carrier and networking solutions".

This dilemma has not been helped by C&W's recent poor results. A Goldman Sachs note last week pointed out that C&W was losing "carrier and networking solutions" business, though this is largely through customers giving up the ghost rather than rushing to competitors. C&W won't go the way of KPNQwest or Global Crossing or Energis. But it is in danger of losing the plot. If Mr Wallace wants to hang in, he needs to be buying up these stragglers. But if he proposes that, his shareholders will probably pull the rug from under him.

ÔIndependentÿ voice

Among the corporate governance reforms proposed by the New York Stock Exchange to quell the post-Enron jitters is one that at least half the directors of any quoted company should be "independent". This is substantially more than in the UK. Here, half of the non-executives should be "independent" and the non-execs need not make up more than a third of the board, so a mere one in six of all directors needs have no ties with the company's executive directors. But what is the right percentage of independent directors? The US proposals are tailored to board structures that have few executive directors, with most decisions made on off-board committees. I would argue that at least half of all directors should be non-exec and at least half non-execs should be independent. And what is independent? The Treasury has asked former merchant banker Derek Higgs to review the non-executives' role, which seems appropriate as he has more non-exec directorships than the Queen has homes. But shareholders argue that as director of British Land, which he used to advise, he has a hazy understanding of what is "independent". If he leads this review, he must leave the board of John Ritblat's property group. There is a Caesar's wife issue here.

j.nisse@independent.co.uk