Richard Li in on Foxtel secrets
By Geoff Elliott and Finola Burke
11dec00
TELSTRA has put itself on a collision course with its Foxtel partners by striking a secret agreement with Richard Li's Pacific Century CyberWorks to give the Hong Kong entrepreneur influence over Australia's largest pay TV company.
The secret deal puts a new perspective on the crucial debate between the Foxtel shareholders, who also include Kerry Packer's Publishing & Broadcasting and Rupert Murdoch's News Limited, over the type of digital set-top boxes to be deployed in Australia.
In the two-page agreement, called the "Broadband Memorandum of Understanding", Telstra has promised to keep PCCW "informed about specification and deployment of future digital set-top boxes in Australia, so that PCCW can make a suggestion about what may be included in the box to make it compatible with the NOW service".
NOW is Mr Li's Network of the World internet and television service and the arch-rival to News Corp's Asian pay TV service, Star TV.
These high-tech boxes on the TV set will replace analog boxes and Mr Li, thanks to the secret agreement, appears to have emerged as something of a backroom lobbyist to influence Telstra's position.
The digital boxes, which will allow for more channels and interactive internet services on pay TV channels, are critical to the revenue streams at Foxtel.
Telstra's agreement with Mr Li is "subject to third-party obligations", meaning that the exclusive arrangements in the Foxtel partnership will be excluded from the agreement.
A spokesman for Telstra said yesterday the agreements gave PCCW "no rights in relation to the set-top boxes" and Telstra had no obligations to PCCW in respect to pay TV in Austra lia.
The Telstra undertakings were signed by Telstra group managing director Dick Simpson, who reports directly to chief executive Ziggy Switkowski, and PCCW deputy chairman Alex Arena.
Telstra, a 50 per cent shareholder of Foxtel, has the right of veto over everything that goes into its set-top boxes beyond the pay TV service.
That includes the potentially lucrative interactive services, which give it and, now Mr Li, a strong hand in negotiations over the type of set-top box deployed.
Foxtel has exclusive access to Telstra's hybrid fibre-optic co-axial broadband cable for its pay TV service.
However, this exclusive arrangement has been challenged by the full bench of the Federal Court, which in October ruled Seven Network had the right to access Foxtel's analog set-top boxes and Telstra's cable for its pay TV channels.
Telstra's arrangements with PCCW relate only to the digital set-top boxes.
It is understood, however, neither PBL nor News had any knowledge of this Hong Kong agreement despite the fact the Foxtel partners have been debating for months about the digital set-top box rollout on Telstra's cable.
Those discussions seemed to reach an impasse in October, when Mr Murdoch described negotiations with Telstra as becoming "an artform they've been going on for so long".
PBL executive chairman James Packer said Foxtel had the potential to be the BSkyB of Australia if the partners could work out their differences.
Telstra and PCCW have previously said they would work together to "facilitate use of PCCW's NOW content and applications in Telstra's narrowband and broadband internet offering and distribute NOW's broadband channel in Australia".
But there had been no mention of Telstra giving Mr Li a say in the digital set-top boxes that operate on its cable.
Telstra also plans to distribute NOW on its broadband cable, its digital subscriber line high-speed internet service and satellite high-speed internet service.
While the agreement does not cover NOW TV, Telstra and PCCW have agreed to nut out the final arrangements within three months of NOW becoming available on Telstra.com.
This could leave the way open for Telstra to negotiate with its Foxtel partners to carry NOW TV.
News Corp is unlikely to agree to such a move.
In August, Mr Murdoch's younger son, James Murdoch, launched a blistering attack on Mr Li, claiming he was one of the worst offenders of "paying lip service to the notion of globalism".
James, who is the chairman and chief executive of Star TV, told a conference that PCCW continued to make the mistake of producing English-language content for Indian and Chinese audiences.
News bought Star TV from Mr Li in 1995 for $870 million, a price that many media analysts considered inflated.
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