The UK's third largest cable operator NTL has bought the consumer cable network of its larger rival Cable & Wireless Communications (CWC) for �8.2bn ($13bn).

The take-over will create the UK's largest cable firm with 2.8m customers.

NTL, which is listed in the United States, recently got the backing of France Telecom to finance the deal.

France Telecom also announced that it would raise its stake in NTL from 10% to 25% by investing a further $4.5bn in the company.

Consumer vs corporate business

Under the agreement, NTL will buy CWC's consumer cable telephone, Internet and television operations.

The corporate business of CWC will be merged back with parent company Cable & Wireless.

This would value the whole of CWC - including the business services and consumers side of the operation - at �14.7bn including debt.

The deal has still to be approved by US phone company Bell Atlantic, which holds a significant stake in CWC.

Three-way merger?

The link-up of NTL and CWC could be the first step towards a much bigger deal.

CWC had originally planned to merge with the UK's third big cable company, Telewest.

Both NTL and Telewest have a shareholder in common, US software giant Microsoft.

NTL's management now says that Microsoft may play a role in future talks with Telewest - for a three-way merger.

NTL's President and Chief Executive Barclay Knapp said the company had "made no secret about the fact that further industry consolidation would be desirable under the right terms".

However, he added that there were no "present plans" to add Telewest to the merger with CWC.

Rapid consolidation likely

When cable came to the UK, there were more than 20 operators. Competition from satellite television has forced the sector to consolidate, and soon there may be only one player left.

The move may accelerate the launch of digital television and high speed Internet services via the cable industry's fibre optic network.

The long-awaited take-over is seen by analysts as a first step along the road to creating a powerhouse bridging the media and telecommunications sectors. If successful, it could challenge the positions of market leaders like BSkyB and British Telecom.

"The game is not about media it is about the Internet," said Commerzbank analyst Kevin Lapwood.

In the United States, the telecoms giant AT&T has spent $100bn acquiring the capacity to deliver television, telephony, and Internet services via the cable television network.

In the UK, BT has recently announced it will roll out its own high speed Internet service using the existing telephone system and DSL (digital subscriber line) technology.