Telstra CEO Defends Pacific Century CyberWorks Alliance
Wednesday January 10 4:43pm
Source: Dow Jones
SYDNEY -(Dow Jones)- Ziggy Switkowski, chief executive of Telstra Corp. (TLS), defended Wednesday in the U.S. the cost of Telstra's multibillion dollar alliance with Hong Kong's Pacific Century CyberWorks Ltd. (PCW), arguing the tie up gives it a strong footprint in Asia and the possibility of expansion into China.
"I urge you to look at the price paid for the transaction as a whole, Switkowski said at a Salomon Smith Barney conference in Arizona - just days after Telstra and Richard Li's PCCW agreed to swallow a higher interest rate margin on a US$1.5 billion syndicated loan arranged for their joint venture.
The alliance between Telstra and PCCW includes the creation of an Internet protocol backbone company, or IPBC, Telstra taking a 60% stake in a mobile telephony business and purchasing a US$750 million PCCW convertible note.
"From its first day of operation, the IPBC will be the largest carrier of traffic in Asia outside Japan," said Switkowski. The business also will have an established customer base, revenue streams and earnings from day one. It will be distinctive from its competitors because it will not just sell capacity on a pipe to a single destination, but instead sell connectivity from any point to any point on an international network, he said.
The international traffic growth by target customers - second-tier domestic carriers - "will be enormous over the next five years," said Switkowski. So- called first tier carriers that don't have the economies of scale to operate an international network also are seen as target customers.
"We believe there will be a number of carriers in this position as the market consolidates into three to five global carriers over the next five years."
The mobiles business gives Telstra access to the "highest-quality and second- largest" customer base in Hong Kong and a platform for further growth in Asia, he said.
"Whilst nothing has been promised regarding access to China, and we haven't counted on any benefits from this in our analysis of the PCCW/HKT (Cable & Wireless HKT Ltd.) transaction, we clearly have options to expand north to China in the medium term. We also have the option of expanding in Southeast Asia," he said.
PCCW effected a takeover of Cable & Wireless HKT in August.
Around 0025 GMT, Telstra shares were down 8 cents, or 1.2%, at A$6.57.
-By Helen Ubels, Dow Jones Newswires;
61-2-8235-2950; helen.ubels@dowjones.com
(This story was originally published by Dow Jones Newswires)
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