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TWST: Could we start with an outline sketch of the universe of telco stocks that you’re following?

Mr. McClure: I’ll just give you a bit of background. Old Mutual Securities is the firm I work for. It’s actually a very new firm, the product of a recent merger between Greg Middleton and Albert E. Sharp Securities. We are now under the banner of Old Mutual.

TWST: Have you got mutual fund operations, as well, or is it just brokerage?

Mr. McClure: Our focus is institutional sales and research as well as corporate finance. We look at the small- to medium-sized UK listed companies, in the middle market. My particular focus is on small- to medium-cap UK-listed telecom operators — companies with valuations of roughly GBP2 billion and below. The biggest companies I look at are Kingston Communications and Thus. Important companies also include Fibernet, Atlantic Telecom, Redstone Telecom and Easynet. I also keep an eye on Freeserve.

TWST: Are there any sorts of corporate activity which might predict how the sector is going to divide up?

Mr. McClure: What we’ve got at the moment is more of a mix-up than a split-up. Roughly speaking, we’ve got those companies that are in the transport business and those companies that are offering services directly to customers. What we’re probably going to be seeing is more of the larger companies that are in the infrastructure and backbone carriage business acquiring local service-based companies. The margins on carriage are shrinking, and these players are looking to move into the direct service business. They need to fill these pipes. These are the bigger players that have spent a lot of time and money laying down fibre networks.

TWST: Let’s turn to stock-specific issues. Have you got a list of buy recommendations that we could talk about?

Mr. McClure: Yes, I would start off with Kingston as a strong buy.

TWST: What’s the reason for buying Kingston?

Mr. McClure: I think they are very well positioned for local loop unbundling and DSL technology deployment next year. They are currently offering digital DSL-based services in Hull on a commercial basis, not on a trial basis. They’re actually rolling this service out in volume. Hull is a very nice place to build experience and skills to do the same thing across the country. I think they’re going to have a running start for local loop unbundling next year. They are rolling-out a patchwork of networks across the country, through the Torch business. We will see a total of six regional networks, which will then be connected to a national network that Kingston is developing in partnership with COLT. That national network is going to drive down the cost of interconnection for the company, but really, the Torch network is going to be a very good platform for delivering local services across the country. It’s a strategic platform, you could say. The other thing is they’ve got a 100-year-old telephone business in Hull, and they have a near-monopoly there. It generates a lot of cash that can be pushed into these growth businesses — these businesses being broadband DSL and the Torch businesses. Kingston is very nicely positioned for the coming years.