CyberWorks India Venture Cuts Back on Expansion (Update2)
By Abhay Singh
New Delhi, June 1 (Bloomberg) -- Data Access (India) Ltd., an online service provider that Hong Kong's Richard Li hoped would spearhead his push into India, will target four cities instead of 26 after slashing its investment plan.
Data Access, backed by Li's Pacific Century CyberWorks Ltd. and founder Siddhartha Ray, will spend $40 million to offer dial- up services in New Delhi, Mumbai, Bangalore and Chennai. The company said in August it would spend $100 million for high-speed broadband connections across India.
Chasing subscribers made sense ``when the stock markets were giving valuations on the basis of number of connections,'' Ray said in an interview. ``But that valuation is gone.''
By trimming expansion, Data Access hopes to post its first profit next March and to sell shares to the public by the middle of 2002, Ray said. CyberWorks, whose shares sank 83 percent in 12 months, is scaling back in Asia after losing $886 million last year, reflecting $667 million of Internet investments write-offs.
``CyberWorks was trying to invest beyond Hong Kong amid slowing growth in its Hong Kong business,'' said David Loo, an investment adviser at Coutts Bank (Schweiz) AG in Hong Kong, which owns CyberWorks shares in a private fund. ``The cost of running those investments has in turn impaired their financial positions which are already very weak.''
CyberWorks shares rose for the first time this week, gaining 1.0 percent to HK$2.575 while Hong Kong's key Hang Seng Index was little changed, rising 0.1 percent.
Taiwan, Telstra
Data Access spent $26 million so far, a quarter of that on advertising. If stock markets rebound, ``we are ready to go public by the second quarter of next year,'' said Ray, who has known Li since he served as general manager for India and South Asia at what's now known as Star Group Ltd., the unprofitable satellite broadcaster Li sold to Rupert Murdoch's News Corp. in 1995.
CyberWorks said it's satisfied with the progress of Data Access. ``We fully support Data Access's market strategy and are happy with the results so far,'' said Joan Wagner, a CyberWorks spokeswoman.
The Hong Kong company has run into trouble elsewhere in Asia. GigaMedia Ltd. of Taiwan scrapped plans last September to form a venture with CyberWorks to deliver content through the Internet.
That failure allowed Star Group to form a $100 million venture with GigaMedia. That pact was later upgraded to a $240 million investment by Star in the Koos Group, which owns GigaMedia, for Internet over televisions.
A CyberWorks partnership with Telstra Corp., Australia's biggest phone company, also experienced hiccups before it was completed in October. CyberWorks gave up control of the venture's mobile phone business to Telstra and was able to raise 50 percent less from a convertible notes issued to the Australian company.
Japan
In Japan, CyberWorks closed its arcade game plant and aquarium store, saving about 1.2 billion yen ($9.6 million) over the next 12 months. Its Japanese unit lost 3 billion yen over the last three years.
``CyberWorks is very much a Hong Kong telecom company,'' said Eric Tomter, an analyst at Dresdner Kleinwort Wasserstein. ``There's a lot of concern about their strategy outside Hong Kong.''
In India, meantime, Data Access said it's pushing ahead with its scaled-back expansion plans. The Indian company is 74 percent owned by CyberWorks through Pacific Century Convergence Ltd.
Its dial-up service has signed up 107,000 subscribers so far and hopes to more than triple that number this year to 350,000 by the end of this year. The total market in India for Internet access services is expected to grow to 10 million subscribers by March 2003 from about 2.5 million now, according to industry group National Association of Software and Service Companies. The number of users could reach 32 million by that time as more than one person can use a single connection.
``Two years from now, once you have the base, you can add more value to the service and start charging for it,'' said David Manion, chief executive at Corporate Access, a CyberWorks unit that offers satellite-based network communications services in Asia. ``We're building a future here,'' said Manion, to whom Ray reports.
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