ANALYSIS-PCCW faces no easy ride into China
finet.com.hk
19:04 02-MAR-2000
By Matt Pottinger BEIJING, March 2 (Reuters) - After grabbing Hong Kong's flagship phone company, Pacific Century CyberWorks Ltd <1186.HK> is turning its sights on mainland China, but analysts said on Thursday it faces a host of obstacles in that vast market.
PCCW's pending $38.1 billion takeover of Cable & Wireless HKT <0008.HK> will give the Internet startup a laboratory to roll out a core planned service: delivery of video programming and the Internet over broadband networks.
Chairman Richard Li, son of one of Beijing's favourite Hong Kong tycoons, Li Ka-shing, aims to beam the planned Network of the World (NOW) service across Asia through telephone lines, cable TV systems and satellite.
But while the Li family name may open doors into the sanctums of power in China, NOW is unlikely to go anywhere in that vast market unless Beijing changes a raft of regulations.
And while Hong Kong may provide a good launch pad for the system in sophisticated parts of Asia, the rich former British colony is hardly a microcosm of the China market, which has creaky infrastructure and low Web penetration.
A LINK TO JIANG ZEMIN PCCW is already pushing an ambitious business strategy in China.
This week it announced a strategic tie-up with China's largest computer maker, Legend Holdings Ltd <0992.HK>, and it has poured tens of millions of dollars into China-focused Internet firms.
"Mainland China is definitely an important market for us," said Rebecca Leung, executive vice-president of Pacific Century Group.
"We are looking into quite a few ventures." PCCW and Legend have agreed to develop broadband services and content in China. Legend will design and make personal computers with a built-in cable modem designed to carry PCCW's combination of Web content and video programming.
The partnership adds to PCCW's high-level personal connections.
Legend was founded by the Chinese Academy of Sciences, where President Jiang Zemin's son holds a senior position.
Before joining the academy last year, Jiang Mianheng helped build Shanghai's information industry.
"We have a very good relationship with the Chinese Academy of Sciences," Leung said. PCCW also has stakes in Chinese-language Web portals Sina.com, Sohu.com and Tom.com <8001.HK>, which made a spectacular debut on Hong Kong's new Growth Enterprise Market on Wednesday, soaring 335 percent from its issue price. DELIVERY PROBLEMS PCCW's problem will be delivering NOW, conceived as eight digital interactive channels focusing on areas such as sports, agriculture, entertainment and education.
For a start, China bans most foreign satellite broadcasts.
The few channels which are licensed are only allowed in tourist hotels and compounds where foreigners live. What is more, cable television systems, which PCCW is interested in using to carry its content to homes and offices, were effectively banned from connecting to the Internet last year except in a handful of cities.
"We have been talking to lots of licensed cable operators all over China," said Leung. "We have to adhere to the regulations." China is also expected to enforce restrictions on foreign investment in Internet content and service providers.
MURDOCH HAS TROUBLES TOO Richard Li would not be the first media mogul to find himself frustrated in China. Despite years of effort, Rupert Murdoch has not earned any profits out of piping News Corp's Star TV programmes into China. But analysts said by the time PCCW has a workable product, China may have eased the rules. Willie Brent, president of China Entertainment Network, said he expected China to have a change of heart and roll out a broadband network carrying video and Internet in three to five years.
"Those rules are doomed by the force of market economics," Brent said. "The convergence that's happening elsewhere will happen in China." .
PCCW Pending SFC's Approval
int.quamnet.com
PCCW will not take further action until obtaining consent for taking over Cable & Wireless HKT (0008) from the Securities and Futures Commission, said Mrs Rebecca Leung, chief vice-president of Pacific Century CyberWorks (1186), this afternoon.
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