PCCW cuts web spending and jobs in new focus
By Joe Leahy in Hong Kong and FT.com staff
Published: July 3 2001 18:11GMT | Last Updated: July 4 2001 12:43GMT
Pacific Century Cyberworks, Hong Kong's dominant telecommunications company, on Wednesday unveiled a new strategy for its loss-making internet division, including cutting 340 jobs and strictly limiting investment in the next few years.
The long-awaited announcement signals the company's intention to see its internet services break even on a cash flow basis by the end of 2003.
PCCW said investment in the division, which includes Network of the World, its flagship broadband television website, would be cut from a previous US$200m to US$190m this year, while for the next two years it would be halved to US$100m.
Richard Li, chairman and chief executive, said the strategy supported PCCW's objective to maintain margins and group earnings.
"Our internet strategy is designed to provide a value-added service for broadband, which is a key source of growth for the company in Hong Kong."
But the new plan would allow for participation in regional broadband deployment only after success in Hong Kong - a departure from its previous strategy, which focused on attracting a global audience with its Network of the World television and internet combination service.
The new strategy comes a day after PCCW reported a loss for 2000 of HK$14.57bn (US$1.9bn) under US accounting rules, more than double the figure it reported in Hong Kong.
The discrepancy stems largely from differences in accounting treatment between the two countries of "goodwill" - the amount the company paid over book value for its US$28bn acquisition last year of Cable & Wireless HKT, Hong Kong's former telecoms monopoly.
Importantly, however, the US filing also included a goodwill impairment charge, or writedown, indicating that PCCW, like many technology companies that went on spending sprees last year, paid too much for its acquisition.
Under US GAAP, a company must book goodwill as an asset and then amortise this against its profit over a period of years.
In Hong Kong, however, companies are able to write off goodwill against shareholders' funds without impacting on their profit-and-loss statements.
While in practice goodwill is a non-cash item and does not affect valuations, it can hurt sentiment when it is seen to be undermining profits.
When PCCW announced its 2000 results in Hong Kong this year, it reported a HK$6.9bn loss, and wrote off US$22bn in goodwill against shareholders' funds.
However, the company was also required to file accounts prepared under US rules because HKT had American Depositary Receipts which were listed on the New York Stock Exchange.
In this filing, the company booked the goodwill as an asset, amortising HK$4.05bn of goodwill and intangibles against profit and writing off a further HK$4.36bn in the form of a charge for impairment of goodwill and intangibles.
The move echoes the US$12.3bn writedown in intangibles by Nortel Networks last month, which was mostly on goodwill from acquisitions. |
