Richard Li: Chairman and CEO, Pacific Century CyberWorks and Pacific Century Group; Chairman, Pacific Century Regional Development
Richard Li (Li Tzar-gai)
Chairman and CEO of Pacific Century CyberWorks and Pacific Century Group
Chairman, Pacific Century Regional Development
Richard Li has been trying to build a business empire overnight to rival that of his famous father, Hong Kong’s tycoon Li Ka-shing, to emerge from the elder Li’s shadow and show the world that he can thrive on his own merits. But while he is unquestionably as good a wheeler-dealer as his dad, he has yet to prove that his empire is more than a castle in the sky.
Many think his big vision to be the biggest provider of interactive television and Internet access via broadband is too far ahead of its time in Asia. Moreover, his flagship company, Pacific Century CyberWorks (PCCW), was heavily in debt after acquiring Cable & Wireless Hong Kong Telecom (HKT). As a result, the impressive PCCW share price was deemed overvalued and began to plummet in August 2000, and several major deals collapsed or had to be renegotiated on less favorable terms in September and October, further shattering investor confidence.
But Li appears so sure of himself and the viability of his dream that he continues to win converts to his cause. Once considered arrogant, bullying and a tough taskmaster, Li has mellowed somewhat, according to his employees, and he has won the intense loyalty of his executives with his generosity, informality and enthusiasm. His love affair with the media got him dubbed the "most eligible bachelor in Asia" by Fortune magazine, and his Superboy image was enhanced when a Silicon Valley investment banker said only Richard Li and Bill Gates really get how it should be done.
Network of the World project
Since he has all the money he needs for his admittedly lavish lifestyle, colleagues said Richard Li is now concentrating on making a difference in people’s lives. His Network of the World (NOW) broadband Internet service will beam cultural, business and education content to TV sets, computers and wireless devices in North America, Europe and Asia (and eventually, the whole world) through a satellite-to-cable distribution network.
Richard Li said that his project would enable ordinary Asians to participate in e-commerce and thus enrich themselves and their local economies. Soon, Li predicted, access to the best, most objective information will better correlate with prosperity than ties to the political and economic elite. Moreover, by widely disseminating information, he believes his project will improve understanding of other cultures and political systems, and thus reduce global conflict.
But others said Richard Li is mostly driven to outshine his father with a more audacious, modern business model based on selling ideas rather than tangible assets, and that he lacks the requisite experience to build and operate NOW. They added that the plan depends on super-fast broadband connections, now rare in Asia, and the cost of upgrading cable networks to handle two-way traffic over such a huge landmass will be prohibitively expensive. They said Richard Li wouldn’t see a return on his investment for decades and PCCW will go broke in the meantime, according to the Wired News.
Moreover, the strategy presupposes that PCCW can win the allies it needs to gain funds, technology and content, is not certain since PCCW’s honeymoon with investors seems to be over. Sufficient numbers of advertisers and local distributors have yet to be brought onboard.
Furthermore, most Asians are not sure what the Internet is, or have never even seen a computer, cannot type and don’t speak English. In any case, critics said, NOW’s content, even after it is improved, will still be inadequate to compete with Time Warner and Disney in the North American market when they finally start producing broadband-ready material, AsiaWeek reported.
In addition, the critics pointed out, many repressive regimes in Asia are ambivalent toward the Internet for fear that it could undermine their control of their citizenry and spark democracy movements. These regimes may therefore try to block infrastructure construction and operation of the service. NOW could also be hamstrung by unclear commerce regulations and the arbitrary rule of law, suggested Red Herring magazine.
Regarding the technological difficulties in building a satellite-to-cable distribution network, Richard Li is confident that they can be solved along the way, and believes that HKT, once fully integrated into PCCW, will be an enormous asset in this respect with its technical and managerial experience.
He has also insisted that PCCW’s low share price is merely due to a bearish market for Internet and technology stocks and other bad luck and will rebound. He said he is not worried about PCCW’s ability to attract partners and he quickly finalized a deal with Australia’s big telecom company, Telstra. As for competition, Richard Li claimed that there is no portal player or company in the world producing more broadband content than his, according to AsiaWeek.
Richard Li is planning to tailor NOW’s content to avoid provoking governments such as that of China, reported Wired News, and in any case, Asian leaders are already adopting more practical attitudes towards the Internet and realize that it is not in their interests to block the service.
I. Career
1. Star TV (1990 to 1993)
Having been brought back to Hong Kong in 1990 from an investment-banking job in Canada to lead the corporate fund management division of his father’s company, Hutchison Whampoa (HW), young Richard pounced on an opportunity to develop satellite television after HW failed to win a license for cable television in Hong Kong. He rallied top executives to his cause and persuaded his dubious father to lend him the money to fix a broken satellite that HW had used for telecom operations and help entrepreneurs across Asia set up satellite dishes and other local distribution equipment. Richard Li’s Satellite Television Asia Region (STAR) TV was to make money not through subscription fees, which would go to local distributors, but by selling advertising.
Through alliances with the BBC and MTV, Richard Li gained popular programs that spread Western culture throughout Asia while bypassing government broadcasting monopolies. But after three years, STAR TV still hadn’t realized its potential and was losing money. His father pressured him to sell, and Richard Li realized he could gain financial freedom if he did. In a celebrated deal, Richard Li convinced media mogul Rupert Murdoch to buy STAR TV in two installments in 1993 and 1995 for US$950 million. Many believed that Richard Li could not have extracted such a price without his father’s help. But both father and son denied the elder Li’s involvement. Richard Li paid off his father’s loan and used the remaining US$800 million to set up his own company, Pacific Century.
2. Pacific Century Group (1993 to 1999)
Pacific Century Group (PCG) initially engaged in property development, telecommunications and insurance. Richard Li tried to provide long-distance phone service to Asian businesses via satellite, but that never took off. He also toyed with various media ventures. His father had to bail him out of an unsuccessful property deal in Japan, which wounded his ego.
In 1997 Richard Li hatched a plan to develop an industrial park à la Silicon Valley that would, in addition to housing high-tech businesses, also offer residential apartments. After the Hong Kong government granted PCG prime real estate for this Cyber-Port without public bidding, the local media played up the close ties between Li’s father and Hong Kong’s Chief Executive Tung Chee-hwa, and called Richard Li an old-style property baron. The Hong Kong government insisted that it chose Richard Li for the project since he was the only one with the expertise to make Cyber-Port work.
By March 1999 Richard had secured its first tenant for Cyber-Port, a joint venture between Intel and PCG called Pacific Convergence Corp. (PCC). The JV would build NOW to enable ordinary Asians to access the Internet via television and acquire valuable applications and Western information, translated into Asian languages, on agricultural techniques, small-business finance, weather forecasting, family planning, etc., to enable Asia to compete with other developed countries.
NOW implementers would first need to build a satellite-to-cable distribution system, relying on the same cable distributors involved in the STAR TV project, to deliver interactive digital TV services to homes still lacking telephones. Then they needed to mass-market set-top boxes. Finally, they had to develop customized content for delivery to interactive television and PCs. The first markets for this project would be India, China and the rest of Asia, making PCCW the largest broadband Internet service provider in the world. Implementing the plan would involve massive spending over decades, but Richard Li expected that the payoff would be worth it.
3. Pacific Century CyberWorks (1999 to 2000)
Richard Li then created Pacific Century CyberWorks (PCCW) and secured a backdoor listing for it on the Hong Kong Stock Exchange by acquiring listed telecom firm Tricom Holdings. The company was to invest in Internet technologies through its subsidiary, CyberWorks Ventures, and inherited Cyber-Port and PCC. PCCW quickly became the most important incubator of new technology companies in Asia outside Japan, and is credited with helping bring the local economy out of recession by bringing in billions in venture capital to Hong Kong’s dot-com startups.
PCCW stock began to take off in December 1999 as Li’s Internet deals gained global attention. Partners included Japan’s cyber giant Hikari Tsushin, Chinese portals Sina.com and Sohu.com, U.S. broadband service provider SoftNet Systems and Global Crossing.
In the beginning of 2000, PCCW still had no profits or operating revenues, just an overvalued stock price based on its stakes in Internet plays and investors’ confidence in Richard Li. The latter needed to trade his paper assets for concrete assets before the Internet stock bubble burst.
Britain’s Cable & Wireless was then negotiating a deal to sell its 54 percent stake in HKT to the Singapore government’s telecom company, SingTel. But Richard Li saw that HKT’s huge broadband network would both provide steady revenue for PCCW and could handle NOW without the need to upgrade one-way cable networks. In addition, HKT was Hong Kong’s No. 1 mobile phone service provider (Li Ka-shing owned the No. 2 provider) and might soon adopt third-generation (3G) cellular technology to enable Internet access. It also had, through a deal with Rupert Murdoch, the right to sell STAR TV’s programs over its broadband network. Richard was less interested in HKT’s fixed line phone networks, whose revenues were declining.
He moved to outbid SingTel. But C&W was not interested in overvalued PCCW’s stocks. So, within 48 hours in mid-February, Richard Li sold US$1 billion in stock and used it to convince a banking consortium led by the Bank of China to loan him US$12 billion so that he could offer a package of US$38 billion in cash and shares, Asia’s biggest corporate takeover. C&W accepted his bid, impressed by his ability to raise billions overnight. He was helped along by the fact that neither the Hong Kong nor the mainland government wanted Singapore to gain control of a key local utility. The HKT deal raised PCCW’s market capitalization from US$30 billion to US$70.
Richard developed the unconventional acquisition and alliance strategy for PCCW’s other ongoing deals to advance the NOW project, approaching the problem like a jigsaw puzzle by assembling as many different opportunities as possible simultaneously, reported Business Week Online.
In April Australian telco Telstra bid to pool its mobile phone assets with those of PCCW-HKT to form a pan-Asian network, and to merge with the company’s IP infrastructure assets to form the world’s third-largest IP-backbone provider. Both JVs were to list as soon as possible. Telstra’s customers would also gain access to NOW content and applications. Richard Li welcomed Telstra’s cable and telecom network expertise, expected that the deal would help PCCW compete for 3G mobile-phone licenses in Hong Kong and elsewhere, and hoped the US$3 billion deal would reduce PCCW’s debt burden from its HKT acquisition.
PCCW also formed a partnership with U.S. Internet giant CMGI and with Hick, Muse, Tate & Furst to create @Ventures Global Partners to run a venture capital fund for Internet companies. The three partners were to work on the global media convergence project, buy traditional media companies and integrate them with the online media assets of CMGI and PCCW.
PCCW teamed up with Chinese PC maker Legend Holdings on hardware and Internet access projects to enable broadband access in China. It worked to roll out its broadband service in India and China by July 2000 and to produce English-language programs in London studios. A JV with DaimlerChrysler Aerospace was to build satellites that PCC would use to transmit programming. PCCW moved to acquire Japan’s Jaleco, a maker of entertainment software and to work with Sony to produce content for NOW. It acquired a data center and Internet facilities management company, iLink.net. In May PCCW teamed up with Taiwanese ISP GigaMedia and ERA Communications to distribute Chinese-language content to China.
Meanwhile, in August, Richard Li stepped down from his posts as deputy chairman and executive director of HW to eliminate a conflict between HKT’s and HW’s telephone interests, and began to work to integrate HKT’s massive assets and personnel with those of PCCW.
But in August the share price of PCCW began to drop after Richard Li sold 1 percent of his stake in it. C&W later dumped a quarter of its 20 percent stake in PCCW, worrying investors that C&W expected the share price to fall further. In September the JV with CMGI collapsed at the same time that GigaMedia pulled out of its partnership. PCCW could not persuade Softbank to distribute NOW service in Japan. People grumbled that NOW still didn’t provide much content. The share price continued to plummet while Richard Li played spin-doctor with the media.
Telstra demanded a more favorable renegotiation of its deal with PCCW and got it in October. Investors responded negatively to news of the deal since it would reduce less of PCCW’s debt burden. But some analysts began to say that the PCCW share price was now undervalued, especially since the renegotiated deal with Telstra was expected to generate considerable revenues. PCCW and Telstra resumed talks with overseas carriers to set up a global broadband cable network that would span Asia, North America and Europe, and would be operational by mid-2002.
II. Background
Richard Li was born in 1966 in Hong Kong. From the time he was a toddler watching his father wheel and deal in the boardroom, he was raised to take his place in the family business and made to appreciate the value of hard work. No expense was spared on his education; a British nanny tutored him every day after school until he was 13, at which point he was packed off to California to attend high school.
His father paid for groceries, school fees and rent to enable Richard to study computer engineering at Stanford University. But Richard Li had to earn his spending money by working as a cashier at McDonald’s and as a caddy at a golf course. His entrepreneurial drive and passion for business proved he was CEO material. After graduation in 1987, he worked as a fund manager at a Canadian investment bank, but was summoned home in 1990 to take up a lesser leadership role at HW while his older brother Victor was groomed to inherit the family business.
Richard is now a member of the Center for Strategic and International Studies’ International Councilors Group in Washington, D.C., a member of the World Economic Forum and a member of the International Advisory Board of the Center for International Development at Harvard University. He enjoys scuba diving and flying aircraft.
UPDATED: 25 April 2001
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