Hong Kong's Li Races to Launch Mobile-Phone Service in the U.K.
March 23, 2001
Business and Finance - Asia
By MATT POTTINGER and GREN MANUEL
Staff Reporters of THE WALL STREET JOURNAL
HONG KONG -- Swimming against industrywide pessimism about the prospects for next-generation mobile-phone service, Hong Kong businessman Li Ka-shing announced he is racing to launch third-generation wireless service in the U.K. by the middle of next year and is eyeing new markets in Asia.
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Mr. Li's vote of confidence in the service -- which allows the delivery of high-speed Internet and streaming video to handsets -- was made during a press conference Thursday to reveal 2000 results for his conglomerates Cheung Kong (Holdings) Ltd. and Hutchison Whampoa Ltd.
Hutchison, which owns the business empire's telecommunications holdings as well as supermarket chains and shipping ports, announced a net profit of 34.1 billion Hong Kong dollars (US$4.37 billion), down 71% from a year earlier and below the forecasts of many analysts.
The drop was largely attributable to a HK$34 billion provision the company had to make for its stake in top mobile-phone company Vodafone Group PLC, whose share price has plummeted. The drop also appeared steep given the company's unprecedented 1999 profit of HK$117.3 billion, which resulted from the sale of its 49% stake in U.K.-based Orange PLC to Mannesmann AG of Germany.
In 1999, "Hutchison's profits were the highest in the world," Mr. Li said. "It's not easy to repeat this." Operating profit in 2000 was HK$13.3 billion, almost unchanged from a year earlier.
Asked about future prospects, Mr. Li appeared most animated when talking about the third-generation wireless services. "We have full confidence in the future of 3G," Mr. Li said. "This will be an excellent business for Hutchison."
Hutchison is putting its money where Mr. Li's mouth is. It said its unit in the U.K. has already lined up project-financing agreements, signed deals with handset manufacturers and has employed a large staff to launch the business, although it didn't disclose financial details.
The U.K. unit "has commenced the network rollout to meet an initial launch target date in mid-2002," Mr. Li said. That could put him on track to beat incumbents British Telecommunications PLC and Vodafone to the punch, analysts said.
As for new markets for which Hutchison might make a bid, he said there was a chance it would target one more country in Europe, where the company already controls third-generation licenses in Sweden, Austria and Italy. But Mr. Li's mind seemed to be focused on Asia. A Hutchison unit has landed licenses to provide third-generation service in several Australian cities. Mr. Li also is seeking a license this year in his home base of Hong Kong. "In Europe, I don't think we will go much more, but in other countries in the world we still are quite interested," he said.
The third-generation push stands in contrast to general industry sentiment, where auctions for such licenses have drawn lukewarm responses, and many companies have postponed plans for the service, fearing the demand won't be there. Companies that spent billions of dollars for licenses in Europe last year have seen their share prices battered as investors fear they will fail to make back the costs of the licenses.
Hutchison's mix of profit, low debt and HK$200 billion in cash put it in a good position to press ahead with the service, which has long been talked about in the industry but has yet to be rolled out by any operator, analysts said.
"Hutchison is not standing still and worrying whether 3G is going to work the way everyone else is," said John Godfray, a partner at Dresdner Kleinwort Wasserstein. "They're marching ahead quite successfully."
Cheung Kong a property developer and Mr. Li's main holding company, reported net profit dropped 67% for the year to HK$19.4 billion, pulled down by a sharply lower contribution from Hutchison, of which it owns 50%.
Hutchison shares closed Thursday at HK$80.25, down 3.3%, while Cheung Kong shares fell 4.6% to HK$82.25 amid a declining market in Hong Kong.
Mr. Li damped speculation that he was saving huge cash reserves for a blockbuster deal, saying he wanted to keep a "large pool of cash and other liquid assets" that could provide a low-risk cash flow for the group. He also said that keeping liquid assets higher than the company's debt was one of his bedrock principles.
He did hint that he liked the prospects of Deutsche Telekom AG, which is merging with VoiceStream Wireless Corp. of the U.S. When the merger is completed Hutchison will receive a mix of cash and Deutsche Telekom shares in exchange for its 18.4% stake in VoiceStream.
Even with no earth-shaking acquisitions in the pipeline, Mr. Li's empire has been globalizing fast in recent years, particularly its ports and telecom arms, and he has warned on occasion that he may reduce his investment in his home city if policies became unfavorable. On Thursday, however, he said, "Sometimes it's good weather, sometimes it's bad weather, but our home is here."
Write to Matt Pottinger at matt.pottinger@awsj.com3 and Gren Manuel at gren.manuel@awsj.com4.
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