PCCW to outline revamped consumer Net strategy
Saturday, June 30, 2001
REUTERS
Pacific Century CyberWorks will impose the sober financial reality of the present on to the once grand ambition of "NOW" next week when it unveils a revamp of its consumer Internet efforts.
Network of the World (NOW), a "converged" TV and Web service, was once at the core of PCCW's sweeping Internet ambitions.
While PCCW, headed by 34-year-old tycoon Richard Li, is silent on the specifics of its plans, company watchers expect a rejigged and possibly economised effort that focuses on fees for service and eschews costly original content in favour of "aggregation".
And instead of an ambitious Network of the World style approach, the near-term effort is expected to look more like "Network of Hong Kong", with a reliance on the Netvigator Internet service provider (ISP) PCCW acquired when it bought Hong Kong's dominant telecoms business last year for US$28.5 billion.
Still, NOW is expected to survive in a scaled back incarnation while PCCW is also seen maintaining a longer-term focus on Greater China, India and Japan.
Published reports have said PCCW will reveal content deals with media firms such as Hong Kong's Television Broadcasts, Commercial Radio, Next Media and Ming Pao Enterprise. The company has also struck a content venture with Taiwan cable TV firm ERA Group.
Analyst Jay Chang of Credit Suisse First Boston said he expects PCCW may opt for an America Online-style model that bundles services such as Internet access, e-mail, instant messaging and content. "I would suspect that Netvigator is probably a critical piece of that," he said.
Tighter spending cap?
PCCW, which at this time last year had just pulled Asia's largest corporate takeover and was readying the launch of its NOW service, has said it will cap spending on its consumer Internet efforts at US$200 million a year a figure some watchers expect may be slashed when the company reveals its B2C plans.
"We believe any move to cut these losses for a company with a pro forma EBITDA (earnings before interest, taxes, depreciation and amortisation) of just under US$800 million in 2000 would be a big positive for sentiment," Deutsche Bank wrote recently.
Whatever the new plans, they will make last year's glitzy New York launch party, as well as the opening of trophy studio spaces in West London and Hong Kong's trendy Lan Kwai Fong neighbourhood (now closed) seem like the excesses of a bygone era.
The plans will also be closely watched by a market that on Thursday sold down PCCW - which carried net debt of US$5 billion at the end last year - to a post-merger closing low of HK$2.175. The shares recovered slightly on Friday to HK$2.20.
"The lack of a credible B2C strategy has been our primary concern with PCCW," Deutsche Bank wrote in a research report.
Reality lags dreams
PCCW acknowledges that its Internet reality has fallen short of its dreams, but notes that it is not the only company stymied in its efforts to make money from the medium.
"The part that we are struggling with, along with the rest of the world, is how to really make an effective Internet model," chief financial officer David Prince said in May.
Launched as an Internet company by the son of Hong Kong's richest tycoon Li Ka-shing, PCCW used a stock price that ballooned to as much as HK$28.50 early last year to buy Hong Kong's incumbent telecom, a former monopoly that has seen deregulation and price competition erode its market share.
For its part, the former Cable & Wireless HKT, like other mature market telecoms carriers, needed a growth strategy.
Combined, the telecom was meant to be the plodding but reliable cash machine that would fund Richard Li's bolder growth plans.
At the core of those plans was NOW, which counted on consumers accessing original interactive TV and Web content in several languages over broadband connections, with revenue from advertising and e-commerce, and eventually subscriptions.
Before the merger, PCCW had said NOW would spend US$1.5 billion over five years to develop content.
Tough timing
But NOW was introduced last summer just as the harsh reality of Internet economics, including the slower than hoped-for uptake of broadband connections, was setting in.
Plans to make coverage of the Wimbledon tennis tournament the centrepiece of NOW's launch were revealed and then shelved. The service, featuring fare such as games, music and sports, earned lacklustre reviews.
PCCW has not revealed NOW advertising or user figures.
In March, after PCCW announced a year 2000 net loss of US$886 million, due mostly to the plunge in value of its investment portfolio, Richard Li said the company's consumer Internet efforts would be based on a subscription model where possible and should break even within four years.
So, why bother with the Internet at all? "Without the broadband content play, there is no growth story. It's as simple as that," said SG Securities analyst Jonathan Iu.
CSFB's Mr Chang agreed: "If you're just dependent on voice, you're probably not going to be around long term, so at the end of the day I think it's something they have to look at."
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