The Leading Lights of Telecoms - PCCW
Compiled by Clement Teo, 1-Nov-2001
Picking out the telecoms achievers in Asia is no easy task, and this is exacerbated by, for example, the rate of deregulation across its markets. There are, however, some prominent players that warrant attention, either because they are growing domestically and regionally, or they have bitten the bullet to take on the incumbent in their home turf. While tele.com asian edition has interviewed these players previously, the team feels that it is also time for an update, and we present it to you, with analytical input from research consultants Frost & Sullivan.
Pacific Century CyberWorks
Pacific Century CyberWorks (PCCW, www.pccw.com) made a big splash last year with the merger of 130-year-old Hong Kong Telecom (Cable & Wireless HKT). Since then, it has been battling to steer the ship out of troubled waters. Alex Arena, deputy chairman, Executive Committee, PCCW, explains why people should put a little more faith in the company’s drive to be a regional integrated communications operator.
Which areas of your business requires greater attention next year? Why?
Much has already been done in the year since the merger. PCCW has a very strong position in the business market because of the high quality and extensive coverage of our network. We are reorganising to allow PCCW’s Commercial Group to develop total solutions of connectivity, systems integration, software development, data centres and call centres for corporate customers.
We are also reorganising to find opportunities to save costs in the business. We can make savings by streamlining our operations, i.e. by eliminating unnecessary procedures and documentation in the work process.
We have already reorganised our Internet services division and introduced a new Web service, now.com.hk. The focus in the immediate future is building the core business, delivering total solutions and ensuring that we continue to increase the value proposition to serve our customers better.
Who are your main technology/ equipment partners?
As a market-driven organisation, we always use the latest technologies that bring benefits to customers. Given the wide spectrum of products and services we offer in the IT&T solution space, we work very closely with many leading technology partners, including Avaya, Cisco Systems, Fujitsu, IBM, Intel, Microsoft, NEC, Nortel Networks, and Oracle.
Can you give us an indication of the Asia-Pacific telecoms scene in 2002. What do you expect it to be like?
The Asia-Pacific telecoms scene, as I see it, is likely to be caught up in the general global macro-economic situation and the overall assessment of the telecoms sector.
With slower economic growth and tightening funding opportunities in both the equity and debt markets, new entrants will find conditions difficult and consolidation in the industry will continue. Established players that have taken the opportunity to restructure their operations and have adapted to the new competitive markets should be best placed to emerge stronger.
3G will start to appear in various trials through 2002. Although the industry will likely be cautious about commercial deployment until technology and market circumstances are more favourable, Asia-Pacific is likely to become a global leader in deployment of 3G services.
PCCW shareholders believe the company is saddled with huge debts and losses. How would you appease these shareholders who have yet to see dividends from investments?
PCCW is in business and it is a very substantial business. The local telecoms business has an annual EBITDA of over US$1 billion, we employ over 15,000 staff, and we have a long and illustrious track record as one of the premier telecoms operators in the region.
There have been publicised failures by new entrants (in the industry) and some of the old players have not done particularly well in the market. PCCW, like any other company, is also being affected. What we can assure our shareholders is that we have within our company an exceptionally strong management team. We actually see this period of consolidation as a market opportunity and the time for us to expand. Just watch the space, just watch what we do and what sort of performances we turn in, and I think [the performance] will speak for itself.
Some sectors have been questioning PCCW’s seeming lack of concrete business plans, which may have been harshly put, as you have mentioned, especially given the negative market sentiment towards telecoms stocks. But would you tell us where exactly is PCCW after the merger?
We’ve done a lot in the last 12 months and there’s clearly been a lot for the market to digest, but you have to take everything from the perspective of time.PCCW was only publicly-listed in Aug 1999. The Hong Kong telecoms merger with Cable & Wireless was negotiated a little over a year ago at the end of Feb 2000, and we didn’t conclude that merger until Aug 2000.
Much of 2000 was about completing the merger because of the complexity of the deal. Simultaneously, we arranged a US$12 million dollar bridge loan that we didn’t draw upon until Aug 2000, and negotiated our strategic alliance with Telstra that was completed in Feb 2001.
At that point, we repaid all the bridge financing and that substantially reduced the company’s debt. We took out Asia’s biggest loan and paid it back all in a space of about 12 months.
Which of your business units are actually making money or have the potential to make money soonest?
Our local telecoms office in Hong Kong generates over US$1 billion dollar a year in EBITDA, so that is a big stable business. The international wholesale business Reach (formerly known as Hong Kong Telecom International) has proforma revenue of over US$1.5 billion per year and close to US$500 million in EBITDA, plus the mobile business which is the only profitable operator in Hong Kong whose EBITDA is around US$115 million per year. CSL is now part of RWC.
Our other businesses tend to be startup in nature and are progressively coming through breakeven and starting to contribute to group revenues. The business-to-business unit already makes US$150 million per year.
What are your prospects for Internet Data Centre Company and Reach?
If you are carrying traffic anyway and you are already putting in equipment and doing facilities management, it’s very natural for you to move or build a data centre business. PCCW has quite a few data-centre ventures: the Powerbase brand where we do facilities management for companies having mission-critical applications and iLink.net for the small- and medium-sized enterprise (SME) sector and we have investments in a variety of public companies that are into data centres. We formed a joint venture with Telstra [Internet Data Centre Company] to build base centres into the region through different interests and we are expanding into Beijing and Shanghai.
As for Reach, we aim to create this global world-class carrier based in Asia and progressively move to become the IP carrier of choice and to serve a variety of customers, whether they are ISPs, ASPs or carriers. This is a scalable business. If you can get the scale up, then you can get the cost down and that’s what gives you competitive advantage.
Frost & Sullivan’s take on: PCCW
Pacific Century CyberWorks (PCCW) positions itself as an integrated communications provider, with a core focus in telecoms services—realised through a broadband-optical-fibre and digital-subscriber-line network. PCCW derives the majority of its revenues from retail voice, local exchange, interconnection, data communications services and equipment sales.
The company intends to leverage on its significant investments in broadband infrastructure to grow its telecoms services revenue. However, its Internet satellite broadband seems to lack strategic direction. PCCW experienced major setbacks in the interactive television venture which has been poorly rated; and its iTV video-on-demand Internet interactive service has suffered the same fate.
Net Enterprises is its e-business and Internet data venture; while Global Communications Services allows it to provide connectivity to 13 countries through Reach, its 50:50 IP backbone venture with Telstra. In addition, its partnership with Telstra has also allowed it to introduce internet data services to the region, with a special capacity for China.
PCCW’s wireless business sustains one of the highest ARPUs in the industry and retains a strong critical base of quality business subscribers.
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