NOW and Again: The PCCW Chronicles (8)
Feb 05, 2001 - 09:37:05 HKT
QuamResearch
Is Richard Li's NOW brainchild dead? Or is it hibernating? We'd just like for the Internet guru to come out and say.
The possibly phenomenal blunder used to be used to jack up the stock price, but now it's faltering and apparently being scaled back, and former HKT shareholders are being hit with the fallout from the over-enthusiasm of earlier days.
The latest scoop is that PCCW is axing a portion of its London NOW staff. The numbers are actually quite insignificant -- some 30 out of 50 -- but the implication is big: Li wants out.
But he can't. Darn those legally enforceable contracts.
Before, for his Network of the World, there was hoopla.
NOW? Virtual silence.
As rumor and innuendo proliferated, PCCW issued this powerful yet concise response:
In response to recent reports in the media, PCCW wishes to clarify that:
As previously announced, PCCW is rebalancing the mix of content applications and access services of NOW (Network of the World) in line with market opportunities. The context is that over the past six months, the company has carried out a detailed assessment of the current and anticipated markets. It has already reported that broadband deployment in most non-Asia markets has lagged behind forecasts.
As a consequence of this ongoing process of adjustment to market conditions the company is consulting with staff at NOW's London facility about staff reductions. Because the consultation process is proceeding, we cannot be specific about numbers of people involved. However these reductions will affect a proportion of the 50 PCCW staff employed at the facility. In addition to these PCCW staff, upwards of 400 production staff are engaged in the studios, employed by TWI, but funded by PCCW. The UK production facility will continue to create content at about its current levels, evolving the mix to reflect market opportunities.
The reason the "upwards of 400 production staff are engaged in the studios, employed by TWI, but funded by PCCW" will escape the bloodletting is, according to the HK iMail, because it "is restrained from making wholesale cuts to it by TWI's contract terms, which tie (PCCW) to finance the joint venture for a number of years." Otherwise, "PCCW would like to cut back its commitment to the joint venture."
This is not the first setback for NOW. The budget was originally set at US$500 to US$700 million but slashed to just US$200 million last month. Moreover, it's experiment in HK broadcasting via i-Cable's (HKSE: 1097) cable TV network turned out to be less than a resounding success despite a prominent position in the company's interim results announcement. That itself should raise some eyebrows among skeptics as the wording made it appear that the i-Cable deal was more than a three month trial: "In Hong Kong, HKT's interactive television service (iTV) and i-Cable Communications Limited's cable television service carry NOW content." In a little publicized statement following the end of the trial period is the following, courtesy of PCCW's Web site:
HONG KONG, October 30, 2000 - Network of the World (NOW) and Hong Kong Cable Television Limited (CABLE TV) announced today that the trial broadcast of the English-language NOW TV service on CABLE TV will be concluded on November 27.
Yet even then, the company persisted with the illusion. Here's a description of NOW in the same announcement. Can the discerning reader spot any tiny hint of megalomania?
NOW - Network of the World is the first truly converged Internet and digital TV content service, combining the unique capabilities of television, the PC and the World Wide Web.
The NOW service began its 18-month rollout across the globe on 30 June and is the flagship offering from Pacific Century Cyberworks (PCCW), one of the worlds largest Internet companies, founded by 33 year-old Richard Li.
NOW represents PCCW's broadband strategy and delivers original and cutting edge television programming, fully synchronized with mutimedia content available on the Internet.
The problem with NOW is that is hasn't really worked. Actually, the Web site is quite nice and rather entertaining, but a significant problem is that is not very unique. It's also terribly slow for non-broadband (try it on a 56k modem), but then it's intended for broadband anyway rather than ordinary Internet mortals. The only problem there is that broadband hasn't been made quite as broadly available as originally hoped. Even their newest NOW deal in India is sort of a middle path approach where they are hoping to distribute content to dial-up subscribers -- not true broadband -- via more dedicated phone lines.
PCCW at present has only two truly viable businesses: property and telecom. The property should end up quite profitable being a gift from the government and all. As for the telecom, that is a little more questionable given HKT's potentially declining performance. Internet? It will take a miracle, though those are not to be entirely ruled out given the Li family. Actually, considering the two truly viable businesses of PCCW, one might be so bold as to think that there bears a certain resemblance to the conglomerate activities of another Li, that perhaps the owner of PCCW is even trying to emulate someone.
The NOW news is actually rather insignificant except that it represents a mistake that the current PCCW management team seems unable to admit. On the other hand, being the supposed foundation of their Internet strategy, investors have to ask what the future for that core business is.
Considering a market capitalization of about HK$100 billion, investors -- both current and potential -- have to ask whether a single property project and a potentially ailing telecom (one that the previous owner seems curiously anxious to exit) are worth the price. According to t he HK iMail, "UBS Warburg predicted NOW would lose $1.6 billion in the four years to 2003." This does not appear to be a particularly appealing ownership proposition. The only real hopes for the stock price are that bubble-type hysteria again boosts interest to outrageous levels or that an elder, more established tycoon steps in to take up the slack. Both pipe dreams are reminiscent of lazy afternoons at Shatin, or perhaps a visit to the Lisboa, and neither seems particularly long-term in investment thought. Until PCCW's management becomes more skilled at implementation rather than hype, investors will leave the stock alone and as fodder only for gamblers.
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