British telecommunications giant Cable & Wireless (NYSE:CWP) surged higher by nearly 10% this morning after its half-year report stated that the company had swung to an operating profit, compared to last year's loss of nearly $500 million. Total net loss for the half was $4.8 million versus a loss of $7.3 billion.

C&W's revenues were down by more than 18% from the same period, reflecting a continuing weak environment, some increasing competition, but most importantly the fact that the company has disposed of several money-losing businesses.

Management believes things are on track enough that it has announced it will at the end of the fiscal year pay a dividend, which it had suspended earlier this year.

Cable & Wireless is a company that had every advantage, as it stood almost alone in its fiscal health in the beginning of 2002 while its competitors drowned in debt. What prudence can grant, aggression can take away. C&W did what many people considered the right thing: waiting until its cash-starved competitors disposed capital assets for pennies on the dollar and scooping them up on the cheap. It picked up many of the assets of bankrupt hosting company Exodus, as well as purchased Internet services company Digital Island and Japanese facility company IDC. The third of these purchases has performed well, but the first two were financial disasters.

Instead of getting quickly revivable assets, C&W bought into markets where operating revenues badly trailed even basic maintenance costs. Its wily move quickly turned into the corporate equivalent of trying to swim in molasses. It was a case of the right move done too early and executed very, very badly. It cost former CEO Graham Wallace his job -- he was replaced early this year by highly regarded skipper Richard Lapthorne. Lapthorne's new team set out to reinvent C&W as a wholesale and retail international carrier, starting with its exit of the U.S. market. The company also moved to sell the remainder of its PCCW (NYSE:PCW) shares, generating more than $366 million.

C&W still has its U.S. assets on its books, but has managed to knock off hundreds of millions of dollars of its expenses through aggressive discounting and cost cutting. Ultimate disposition of its U.S. operations has not been determined, and rumors swirled late last week that the company would simply send its U.S. division into Chapter 11 bankruptcy protection and walk away. According to the conference call transcript from CCBN, Lapthorne said today that the company was still "looking at all the options" for ultimate disposition of American assets.

No one anywhere would suggest that C&W doesn't face enormous challenges ahead. Some of its biggest cash-cow businesses, its former monopoly carriers in Caribbean and Central American countries, such as Panama, Jamaica, and Barbados, are facing increased competition in deregulated environments, and company management itself stated that it's just gotten to the beginning of a three-year plan and has yet to make a final determination of what to do with the U.S. assets, which continue to be a cash drain. But Lapthorne clearly took pleasure from getting an analyst question about why the company needed such a big cash pile. "In January, quite a lot of you said we were going bust. I can't tell you the pleasure of having a question like that after only 10 months in this job. The answer is choice."


Bill Mann owns shares of Cable & Wireless.