Asia & pacific: Fools gold
01 August 2001
Despite setting the early pace with a round of cross border joint ventures, two of Asia's leading telcos, Pacific Century Cyber Works and Telstra are struggling to make them work. Problems in their respective home markets could be the reason, argues Mike Newlands.
The Asia Pacific alliance between the major telcos in Hong Kong and Australia could be heading for disaster. Both Pacific Century Cyber Works, PCCW, and Telstra are running into a variety of joint and individual problems.
There are three joint ventures, Reach, a pan-Asian infrastructure venture, Regional Wireless, a mobile phone venture in which Hong Kong Telecom's CSL mobile network is the main asset, and an internet backbone business.
There are doubts over the long-term viability of each of them - particularly the mobile one.
"The foundation upon which PCCW was built, the Now Internet service, has completely collapsed," says Paul Budde, a telecoms analyst based in Australia. "And the Hong Kong Telecom business which was acquired by PCCW, hasn't delivered anything like the revenue growth, and subsequent profits, which were promised by Richard Li, chairman of PCCW."
Li created PCCW two years ago at the height of the internet bubble, and managed a smoke and mirrors buyout of Cable & Wireless Hong Kong Telecom (HKT). Now there is very little left of the original PCCW and 97 per cent of its revenues now come from the HKT arm.
"Unfortunately this small but profitable telco, operating in a declining domestic market, has been sucked dry in its efforts to service the $5 billion debt that PCCW has," adds Budde. "This is further proof that Telstra has bought itself a big lemon (in partnering with PCCW). If Telstra had made the deal based on the HKT business alone it could have saved itself several billions of dollars". During the last year, PCCW shares have fallen from $3.65 at their height to a barrel-scraping $0.28 and the question now is just how long Telstra will want to continue to be involved with PCCW.
And Telstra has its own problems at home market where it is highly unpopular in several quarters, not least amongst consumers. Its share price is at a three-year low and falling. In Telstra's most ignominious episode for some time, the powerful consumer watchdog, the Australian Competition and Consumer Commission, took it to court last month (July). The ACCC successfully obtained an injunction barring the telco from making "misleading" approaches to mobile phone owners contracted to the collapsed second-tier telco Onetel.
The federal court heard that Telstra had paid $1.5 million to the Onetel receivers for details of Onetel's mobile customers. The incumbent proceeded to call up to 200,000 of them claiming they would be saddled with an early termination charge on their contracts if they switched to any telco other than Telstra. While Telstra initially denied the accusations, so many people had received the phone calls, the denial could not stand up in court. Telstra tried to limit the damage by claiming the calls had been caused by a mistake in the call centre which had since been addressed.
The misfortunes of PCCW and Telstra are providing a boost to other regional players which are going to provide the major competition to Telstra and PCCW on the mobile front, both in their mainly Hong Kong-based mobile venture and in Telstra's own backyard where the incumbent is the mobile leader. Singapore's Singtel has investments in, and partnerships with, operators around the region, while Hutchison Whampoa is linked with NTT Docomo.
In Hong Kong, mobile market leader Hutchison Telecom, in which Docomo is the second largest shareholder, is going to use imode. Cash-strapped second-ranked CSL isn't. And Hutchison, controlled by Asia's richest man, Richard Li's father Li Ka Shing, is known for its ability to add value to just about anything it becomes involved with.
In Australia, Hutchison and Telecom of New Zealand are jointly launching a trans-Tasman third generation venture while Singtel is in the process of acquiring second-ranked telco Cable & Wireless Optus which also has a third generation licence.
The two experienced Asian operators, particularly nimble-footed Hutchison, are expected to bring high levels of service and efficiency compared to Telstras image as a slow-moving telco giant with no real ideas about its future direction.
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