Quamnet - PCCW, TWI Alliance Seen Falling Apart; Doubts on NOW Again
Apr 26, 2001 - 20:49:25 HKT
Quamnet News Service
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Pacific Century CyberWorks (0008), Richard Li's Internet investment vehicle, has yet to sign final definitive agreements with Trans World International (TWI), even though it is now more than a year after a legally binding "heads of agreement" was signed and announced.
Under that heads of agreement, which was signed in December 1999, TWI, the programming arm of International Management Group (IMG), would be granted options to subscribe for up to 5 percent in the issued share capital of Pacific Century Convergence Corp., which was intended to be the Internet service provider for its Network of the World (NOW) convergence service providing digital video viewing and web access.
Yet, as of the end of last year, "the options had not yet been granted and final definitive agreements had not yet been signed, except for a production services agreement," PCCW said on page 113 of its annual report released this week, where major strategic partner TWI was identified as "a supplier for the provision of production and sales consultancy services."
PCCW and TWI officials didn't return repeated telephone calls for comment.
The lack of progress in the partnership has again raised concerns over the viability of the Hong Kong-based company's NOW service, whose restructuring will be unveiled by end of June.
According to a press release issued by PCCW on Dec. 14, 1999, TWI was supposed to produce all of the English-language content of NOW, and also make use of the marketing and sales teams of TWI and parent IMG (based in over 40 offices worldwide) to find advertising and sponsorship revenues.
So far, however, the content of NOW has failed to attract a lot of viewers.
PCCW launched trial service for NOW in London in June last year. During the trial period from June to December, NOW's global English-language service received more than 5 million page views per month (averaging into about 166,667 page views per day) with an average visitor session length of 20 minutes, according to its annual report.
By comparison, PCCW's www.netvigator.com portal, which provides access to a range of websites based in Hong Kong and Taiwan, had 6.4 million page views per day.
Revenue from the service, and the burn rate, have never been revealed. In February this year, PCCW said it was consulting with staff about plans to cut a portion of the 50 jobs at its London facility, a move aimed at rebalancing NOW's mix of content applications and access services after broadband deployment in most non-Asia markets lagged behind forecasts. The exact number of staff cuts has never been announced.
At that time, PCCW said only staff at its NOW facility in London would be affected, sparing the 400 staff employed at the studios where it produces programs jointly with sports content firm TWI -- which are also funded by PCCW.
The plan may be changing, if it has not changed yet.
Analysts have been expecting PCCW to combine NOW with HKT's interactive television and Netvigator services, and to outsource a major part of the content to save costs, which could lead to a major staff cut at TWI's London studios.
The two companies' relationship may also be breaking up, particularly as PCCW now intends to focus on non-Japan Asian content, while TWI is known for its London-based English-language content.
To be sure, TWI isn't the only company whose relationship with PCCW has stalled. Quamnet News was first to report this week that Intel Corp. of the U.S. converted part of its interest in PCC into PCCW shares on March 2, and may have sold them since the conversion.
According to PCCW's annual report, Intel received as a result of that conversion 138.37 million shares in PCCW on March 2, representing less than 1 percent of the Hong Kong company's share capital as of the end of last year. But a PCCW spokesman told Quamnet News that the stake of Intel in the company hasn't changed so far this year, suggesting that Intel may have already sold the shares.
Intel was supposed to provide the set-top boxes and related technologies to help PCC deliver the NOW content to emerging markets including China and India. Users in those markets are supposed to access NOW via cable modems, which will pick up signals from satellites.
But the lack of capital and economy of scale in those markets has hindered the growth of broadband infrastructure, and hence the prospects of PCC and NOW.
What could be worse is that the situation may never change. According to people in the Internet infrastructure business, submarine and terrestrial cables have always been the preferred way to deliver Internet content because they provide fast enough response time to meet the demand for interactivity of the Internet.
And because satellites in space take some time to respond to requests, Web users outside major urban centers in Asia where broadband cables aren't available will find it hard to take part in interactive activities including ICQ and chat rooms.
According to PCCW's chairman Li, NOW will make a radical change to its business model, moving toward a "subscription-based" formula from its current "advertisement-based" revenue scheme following the restructuring.
"The mandate I have is: If we cannot build up a US$2 billion to US$3 billion business there, we should get out of it. That suggests the fact that we are aiming on it," Li said last month.
PCCW has so far spent about US$200 million on NOW and expects to spend as much as US$200 million more on business-to-consumer activities, including NOW, by March 2002. It hopes that the business will break even within four years.
Still, it won't be easy.
So far, few websites anywhere have succeeded in signing up a lot of pay subscribers, and Asia is particularly resistant to the concept.
PCCW may also find it hard to convert the 67,000 paying customers of its iTV service into paying NOW subscribers: the iTV service's customer base already shrank this year after PCCW canceled a special discount of more than 50 percent.
And the Internet access service provided by the more successful Netvigator has so far been limited to Hong Kong, where it had 626,000 users at end-2000, including 432,000 narrowband subscribers.
According to analysts, PCCW shares will never return to their former lofty level until NOW and some other units begin to perform in a visibly successful and coherent way.
The company failed to keep its promise to launch a Chinese version of NOW in Hong Kong in the first quarter of this year; that project, plus the launch of NOW in Taiwan and mainland China, are expected to be rescheduled. It has formed content partnerships with companies including Pearson and Taiwan's Era Group.
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