PCCW posts solid results, thin profits

30 Mar 2006

PCCW, Hong Kong’s largest fixed line operator, reported a lower than expected 2.5% net profit increase in 2005, attributed to slow growth in its core business, mobile expenditure and declining contributions from its property division. Net income rose to HKD1.59 billion (USD205 million), lower than market expectations of up to HKD2 billion, on revenues that fell 2.2% to HKD23 billion. PCCW, which has been losing fixed line customers to rivals such as iCable and Hutchison Global Communications, stemmed the decline to 3,000 lines in 2005 from more than 210,000 lines a year earlier, after it was allowed to offer a bundled package of its services. The telco gained 50,000 lines in the second half, after losing 53,000 lines in the first six months. Other units posted a decline in turnover and operating profit, with its Infrastructure and eSolutions businesses the biggest losers. The Infrastructure division’s operating profit fell 10% to HKD698 million, on a 12% drop in turnover. The eSolutions unit posted a 65% drop in operating profit to HKD31 million as sales fell 9%.

Mobile unit Sunday Communications reported a net loss of HKD197 million, compared with net profit of HKD4 million a year ago, mainly due to an increase in start-up 3G network expenses. Richard Li, chairman of PCCW, said that the mobile business would help the company become a converged telecoms operator and boost total revenue and average customer spending. ‘However,’ he added, ‘we have no intention of spending lots of resources on the 3G business as the market is still not mature enough.’ Li said many high-end mobile users were still using 2G phones because they were unwilling to pay extra for 3G services. 330,000 customers have registered for Sunday’s trial 3G service, and it has so far issued one-third of these with a free 3G handset.

Customers for PCCW’s pay-TV business NOW increased 52% to 549,000 by year-end 2005, helped by new packages bundling broadband internet and pay-TV services. The company is also planning tie-ups with China Netcom Group, which owns 20% of PCCW, in offering mobile services in mainland Guangdong and Yangtze River Delta. It is also discussing new partnerships in the directories business in the short term, which could allow it to operate in 20 Chinese provinces.

Hong Kong, HKT (incl. CSL), PCCW Group