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Cable and Wireless has lost out to BT, its arch rival, in the fight for two flagship contracts. Both were the type of deals that C&W is staking the revival of its UK telecommunications business on.

The setbacks underline the challenges faced by C&W’s UK business as it strives to hit its targets of generating £2bn of revenue and £400m of earnings before interest, tax, depreciation and amortisation by 2010.

However, John Pluthero, chairman of C&W’s UK business, said: “We are comfortable with how we are getting on.”

C&W’s shares have risen 87 per cent in the past year as investors bought into its turnround plan. The shares closed on Friday at 183.9p, up 0.2 per cent.

C&W has lost out to BT in a contract with the Post Office worth £750m. It is the largest deal secured by BT Wholesale.

The Post Office will sell to its customers BT’s wholesale phone and broadband services, using the telecoms company’s fixed-line network. C&W was bidding for the same contract.

BT has also snatched from C&W a contract with Arqiva, the company that provides transmission services to broadcasters.

The BBC signed a £1.8bn contract with Arqiva last September to roll out a digital terrestrial network. In May last year, when the BBC named Arqiva as its preferred supplier, C&W said it planned to be a subcontractor, in a deal worth £200m. But instead Arqiva signed a £100m contract with BT last December.

Mr Pluthero said: “BT sometimes writes deals that we refuse to match. Does that mean we can’t win enough of the right kind of business? It does not.”

On Thursday, C&W secured a contract with Virgin Media to provide it with wholesale telecoms services in areas not covered by the television company’s cable network.

C&W will next week publish its annual results for 2006-07, and analysts expect its UK business to show limited progress towards its revenue and earnings targets.

A poll of analysts by C&W found that they estimate the UK business to have generated £2.2bn of revenue and £150m of ebitda.

Although revenue would be up 8 per cent on 2005-06, ebitda would be flat year-on-year.

Analysts also estimate that C&W Access, the local access network that is part of the UK business, would make a loss of £85m. The UK business would therefore have ebitda of £65m.

One reason some analysts believe C&W’s turnround will succeed is the group’s long-term incentive plan. Citigroup analysts calculate that C&W’s 60 top managers could share £200m- £300m by 2010.

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