HK PCCW To Spend US$100M On Internet Ops In Next 24 Mos
Dow Jones Newswires
HONG KONG -- Pacific Century CyberWorks Ltd. (PCW) will spend a total of US$100 million on its Internet services business in the 24 months starting Jan. 1, 2002, Chairman Richard Li said Wednesday.
Outlining the company's new Internet strategy at an analysts meeting, Li said spending on Internet operations so far this year is in line with forecasts and will total US$190 million at the end of the year.
Earlier this year, the company said it would cap its spending on Internet operations at US$200 million in 2001.
At the meeting, which was relayed to reporters by video-link, Li also said that PCCW will keep its overseas Internet operations, but with much lower spending. It primary focus will be to enable the creation of content, he said.
According to a statement, the new strategy for the Internet business will focus on maintaining margins and growing the company's earnings before interest, tax, depreciation and amortization.
The company said it expects to reduce costs through consolidation of related business activities.
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PCCW said its Internet services business, formerly known as the group's business-to-consumer division, will play a strategic role in contributing to high-margin broadband subscriber growth in Hong Kong. This division includes PCCW's broadband multimedia project Network of the World, its Internet services provider Netvigator and its interactive TV services, iTV.
"Our Internet services strategy is designed to provide a value-added service for broadband, which is a key source of growth for the company," Li said.
Li said the company is targeting more than 500,000 subscribers for its broadband and interactive TV services in 2003 from 230,000 at the end of 2000.
The company will also launch a new "reactive and interactive" online service under the name of now.com.hk, which will be based on a subscriber revenue model rather than relying on advertising, company executives said.
The service will use intranet-based streaming technology to provide local content, the company said in the statement. The number of new content partners will be announced at the commercial launch of the service, it said.
The Internet operations, which reported a loss of US$261 million in 2000, are forecast to reach cash-flow break-even by December 2003, Li said. If that fails the company will be looking at either taking the company public, or to bring in strategic partners, he said.
In the future, NOW and iTV will share content and will have the same sales team, PCCW said, without clarifying where this content will be coming from.
Meanwhile, Jeffrey Bowden, executive vice president corporate strategy, said PCCW will save US$16 million annually from the lay off of 340 staff at its Internet services division, announced earlier Wednesday. The staff cuts will reduce the number of employees at the division to 500 from 840, he added.
Bowden declined to make any projections for staff numbers in 2002.
The executives also said the capital expenditure for the group as a whole will be less than US$10 million in 2001.
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Going forward, PCCW said it will employ a "four cell strategy" for the Internet operations. This will comprise providing Hong Kong customers with differentiated services and value that maintain margins and EBITDA growth, eliminate redundancies and reduce overhead, use scale and traditional advertising revenues to amortize content costs, and share economic gains realized from service integration.
Under the strategy, the company will roll out regional broadband infrastructure only after its Hong Kong broadband network has proven successful, it said.
Meanwhile, iTV will adopt a new and revised business model based on lower unit costs for content and new revenue sharing partnerships. The content will be delivered over broadband using PCCW set top boxes, it said.
Overall, PCCW will focus on scale and amortization of content by maximizing the benefits of using one programming source to reach several sources of revenue, it said.
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PCCW is to integrate services for personal computer users and interactive television and would shortly introduce a subscription fee-based version of its Network of the World content under a Web site called www.now.com.hk.
The site is expected to be launched by the end of July.
As mentioned earlier, PCCW expects to have 230,000 subscribers for its broadband Internet services and interactive television by the end of 2001. The split between broadband Internet users and interactive TV users is currently about 4 to 1.
Meanwhile, PCCW is to maintain its foothold in China and plans to provide two hours of original programming a week for the market.
PCCW said it will maintain about 500 staff on Internet services by the end of 2001. It had 840 staff before the announcement earlier Wednesday of plans to lay off 340 staff, who will be on paid leave until Aug. 20.
-By Sonia Tsang and Anette Jonsson, Dow Jones Newswires; 852-2802-7002; sonia.tsang@dowjones.com
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