Hong Kong Telcos Promise Profits - Next Year!

by Mary Swire, Tax-News.com, Hong Kong

29 May 2001

The bombed-out Hong Kong telecommunications sector in the last few days saw two of its main operators, Hutchinson Global Crossing (HGC) and Pacific Century CyberWorks (PCCW) both promising to be in the black this year, although both have suffered substantial losses recently.

HGC, a fixed-line telephone joint venture between Hutchison Whampoa and Asia Global Crossing, is on target to achieve operating break-even this year, according to chief executive Peter Wong. If this happens - and analysts had not expected it yet - then it would bring the first operating profit since the firm won a licence in 1995.

Mr Wong said the improvement was due to a surge in demand for data and fixed-line services. "We have been very aggressive in acquiring clients who are looking for a fully integrated service," he said. "We will be even more aggressive in pushing to sell more lines in Hong Kong." The company is targetting specific business sectors, and said it would connect with 2,000 buildings in the course of the current year, covering 50% of the population. HGC, which provides both broadband and IDD services, had committed HK$5 billion in network investments, or more than half of the promised investment of HK$10 billion in the next three years, said Mr Wong.

HGC's losses for the first quarter widened 60% to US$13.48 million. The firm's operating loss was US$12.67 million, up 45% on the corresponding period last year, on turnover down 13% to US$33m in the period.

Meanwhile, at Pacific Century CyberWorks' annual meeting, chairman Richard Li Tzar-kai told angry shareholders disappointed by last year's near HK$7bn loss that the battered company would break into profits in the current year. Many shareholders said that they would not have accepted the acquisition of Hong Kong Telephone last year had they known that the company's share price was going to fall 80% to yesterday's HK$2.70 level. But then, Richard Li would presumably not have offered the deal if he had known the future.

Many analysts see the fixed-line telephony market in the SAR as having peaked and in a period of decline. According to statistics from the Office of the Telecommunications Authority, the number of fixed lines in Hong Kong has dropped 19,731 to 3.925 million, a decline of 0.5% from the end of last year.

But Mr Li told the meeting: "Our core telecom operation will drive cost-effectiveness across our company, and we aim to enhance value for our shareholders. We are confident that we will turn in some profits this year."

After the meeting, Mr Li, who has agreed under pressure to search for a replacement to take over his executive role, said he might use his own money to fund incentives to lure senior executives to the company. Last month, director Frederick Ma, a former JP Morgan banker, was offered a remuneration package to join the company that included 7.74 million shares owned by Mr Li and worth more than HK$20 million at the time.

However, Mr Li said he saw no urgent need to replace himself, and that he didn't plan to do so until after the announcement of next year's results. "The CEO search will be conducted both internally and externally," Mr Li said. "I really hope I can promote someone internally."

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