Hong Kong’s largest telco PCCW [NYSE:PCW] has said it made a net loss of more than HKD52 billion in 2002 under US accounting principles, compared to the HKD7.76 billion loss it reported in March under local accounting methods. PCCW, which yesterday filed its annual report with the US Securities and Exchanges Commission (SEC), said the seven-fold difference in the representation of its results was largely the result of the two countries’ different ways of accounting for the goodwill connected with PCCW’s USD28 billion acquisition in 2000 of Hong Kong’s dominant fixed line operator Cable & Wireless HKT. Under the US accounting system, companies are required to write down the goodwill arising from acquisitions immediately, whereas under Hong Kong methods goodwill can be amortised over a number of years. In 2002 PCCW wrote down a number of other investments from its balance sheet, including its 50% stake in Reach – a regional IP backbone joint venture with Australia’s Telstra – and its 30% shareholding in Singaporean cellular operator MobileOne. PCCW recorded total revenues of HKD20.1 billion in 2002, down from HKD21.96 billion in 2001, whilst EBITDA reached HKD8.12 billion, up from HKD7.4 billion.
Most analysts have chosen to dismiss the news of the SEC filing as little more than a local representation of PCCW’s credit quality, pointing to the fact that the company did the same in 2001 – reporting a profit of HKD1.34 billion under Hong Kong rules and a loss of almost HKD19 billion under US methods. Shares in the operator nevertheless fell more than 3% to HKD4.6 yesterday, meaning PCCW has lost more than a fifth of its share value since the start of the year. Jittery investors are understandably concerned about PCCW’s ability to record future growth in Hong Kong’s highly competitive fixed-line sector. By April 2003 the territory was served by no fewer than 34 fixed telecommunications network service (FTNS) licensees. According to official statistics released by the telecoms regulator Ofta, the overall fixed line market in Hong Kong contracted by 2% in 2002 to 3.84 million lines in service. Of this figure, PCCW claimed a market share of 82%, and more specifically an 84% share of the residential and 79% share of the business segments respectively. The total number of PCCW’s direct exchange lines dropped by 10%, however, from 3.49 million to 3.14 million; business users stood at 1,336,000 (1,470,000) and residential at 1,802,000 (2,019,000).