Telstra hamstrung by PCCW
Date: 30/03/2001
By Kevin Morrison
The grand plan by Telstra to create a pan-Asian mobile and data communications carrier with high-profile Hong Kong businessman Mr Richard Li appears to be over as the net $US5 billion ($10 billion) debt pile of Mr Li's company Pacific Century CyberWorks (PCCW) blocks it from further expansion.
This was the assessment of telecom analysts following PCCW's $US886 million loss for the year to December, which was more than double market estimates, as higher interest charges from the $US28 billion takeover of Hong Kong Telecom last year and Internet investment writedowns hit the bottom line.
PCCW's poor financial position, together with Telstra's announcement this week that Mr Dick Simpson, who headed Telstra's mobile division, will move to Hong Kong to oversee the carrier's expansion in the region, indicated that the relationship was under strain, telecom analysts said.
Last February, when Telstra and PCCW forged their joint venture, Telstra said that all further regional expansion would be done through the PCCW joint ventures.
"These two companies can't do any more joint ventures together, because one has money and the other hasn't. So if Telstra wants to do something, PCCW can't because it has no money," said one telecom analyst.
ABN Amro's Hong Kong-based analyst Mr Jahanzeb Naseer said in a research note that PCCW's high debt levels continued to be a cause of concern.
PCCW said that the Hong Kong mobile business, which is the only asset of the Telstra-PCCW Regional Wireless Company, posted revenue of $US663 million in the year, and earnings of $US152 million before interest, tax, depreciation and amortisation (EBITDA).
No prior year comparisons were given.
Telstra paid $US1.68 billion for its 60 per cent interest last year.
Merrill Lynch telecom analyst Mr Patrick Russel said the mobile EBITDA result was 20 per cent above Merrill's forecasts.
The second major joint venture between the two companies, the 50-50 owned undersea cable business, (now called Reach) posted revenue of $US941 million and EBITDA of $US357 million.
Mr Russel said revenue from Reach was 20 per cent below expectations.
"On balance, the result was neutral for Telstra, because mobiles were better than expected and Reach was weaker," Mr Russel said.
Story Picture: Grand planner ...PCCW chairman Mr Richard Li as the press hears the bad profit news. Photo: AFP
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