Netcom close to sealing deal for PCCW’s fixed network

2 Jul 2004

After more than two months of protracted talks, China’s second largest fixed line operator China Network Communications Group (Netcom) is said to be close to finalising a deal to purchase the fixed line network of Hong Kong’s dominant telco PCCW. The two companies began discussions at the start of May to explore the possibility of establishing a number of joint ventures in South East Asia. However, according to local press reports, Netcom has since switched its focus to PCCW’s fixed line infrastructure, which it is keen to combine with its own wireline network in southern China’s Guangdong province. Such a deal would considerably boost Netcom’s valuation ahead of the major share issue it is planning later this year, in addition to increasing its broadband knowledge and expertise to help in its domestic battle for subscribers against China’s leading telco, China Telecom Corporation; PCCW is Hong Kong’s dominant ADSL operator with around 80% of the market at the end of 2003. Despite several of Netcom’s shareholders making positive noises about the deal in recent days, PCCW managing director Jack So yesterday urged restraint, claiming that the two companies were ‘taking great care to work out a deal that will be good for both’.

PCCW-HKT, as PCCW’s fixed line subsidiary is known, is valued at approximately USD6 billion by analysts, but this figure is falling in the face of advancements in the service offerings of the numerous rivals PCCW faces in Hong Hong’s ultra-competitive telecoms marketplace. By April 2004 the country was served by no fewer than 34 fixed telecommunications network service (FTNS) licensees – a result of the government’s relaxed regulatory regime which puts no limits on the number of licences issued. Operators and investors alike have been encouraged to develop rival networks and infrastructure, so that by 2004 Hong Kong could boast near 100% broadband coverage of businesses and 98% of residential households. As a result of the active rollout of the new FTNS operators since 1995, over 50% of residential households in Hong Kong have a choice of local fixed line providers.

According to official statistics, the overall fixed line market in Hong Kong contracted marginally in 2003 to 3.82 million lines in service, of which 1.7 million were connected to businesses and 2.12 million to residential customers. Of this figure, PCCW claimed a market share of both the residential and the business segments of 73%, down from 79% and 84% respectively at the end of 2002. The total number of PCCW’s direct exchange lines in service dropped by 11.4% in 2003, however, from 3.14 million to 2.78 million; business lines numbered 1.23 million (1.34 million) and residential 1.54 million (1.8 million). Alternative operators made some significant gains during the course of the year: Wharf T&T (formerly Wharf New T&T) reported that it had bucked the overall downward trend, to end the year with 433,000 customers, a market share of 11%. Meanwhile, New World Telecom (NWT) said it had signed up 200,000 customers and City Cable was close behind with 194,000.

The high number of alternative operators has added impetus to the development of broadband services. Densely populated island states such as Hong Kong and Singapore were among the first in the world to adopt ADSL services in 1998, and by the end of 2003 broadband cable or ADSL technology was available to approximately 98% of Hong Kong households. By March 2004 there were 197 licensed internet service providers providing dial-up and broadband services. Since September 2003 the number of broadband subscribers has outnumbered that of dial-up customers; at that date there were 1.25 million customers using broadband services at speeds of up to 10Mbps, accounting for 18% of the market. In the residential market 53% of the total population subscribe to a broadband service.

Ofta, PriMetrica's GlobalComms Database