PCCW looks to China and UK for expansion

Hong Kong's PCCW is reporting encouraging results in its attempt to transform itself from an old-fashioned telecoms company to a broader-based media, internet and mobile services provider.

The company, which remains the largest fixed line telecoms provider in the semi-autonomous Chinese city with almost 70 per cent of the market, is intent on broadening its reach into greater China, the UK and elsewhere, analysts have reported.

PCCW leapt to prominence when it took over incumbent local fixed line monopoly phone provider, Hong Kong Telecom, in a highly-leveraged share deal at the height of the dotcom boom five years ago.

The company's initially unrewarding struggle to establish an IPTV network delivered over ADSL lines has begun to bear fruit in the past couple of years. While still not quite profitable, PCCW's Now TV is finally adding new subscribers rapidly in Hong Kong.

"Now TV is undoubtedly the most successful service. There were 549,000 installations in 2005, a boost of 52 per cent over last year," commented analysts from telecoms research consultancy Ovum.

"The pay TV service is even driving the promising 20 per cent growth of the broadband business. Premium content and the large broadband subscriber base pose a great threat to the market leader i-Cable. The IPTV business is expected to break even by the end of this year."

PCCW claims that its new mobile business, marketed under the Sunday brand, has registered 330,000 customers for its trial 3G services, over 100,000 of whom have been loaned a free handset.

"However, we have no intention of spending lots of resources on the 3G business as the market is still not mature enough," said chairman Richard Li.

Li is the son of prominent Hong Kong tycoon Li Ka Shing who controls mobile phone operator Hutchison, among other enterprises.

Combined with PCCW's existing broadband, TV and fixed line offerings, the 3G service will provide a variety of cross-marketing opportunities, such as selling TV shows to mobile phone users.

It will also help PCCW build up mobile experience as it prepares to expand outside Hong Kong, observers note.

"PCCW keeps eyeing expansion of its businesses beyond Hong Kong," said Ovum. "Co-operation with China Netcom and several ventures that cater for IT solutions, technical services and UK broadband are some of the examples of the operator's China and overseas strategy."

In the UK, PCCW owns telecom and internet service provider UK Broadband, which recently established the country's first, limited WiMax wireless internet network.

In China, PCCW will provide mobile services in Guangdong and the Yangtze River Delta in cooperation with China Netcom Group, which owns 20 per cent of the Hong Kong firm, the Hong Kong Standard reported.

"While the existing collaboration is moving slowly, further synergy effect is expected between PCCW and China Netcom that will allow PCCW to enter the China market and become the preferred partner of the Chinese operator in mainland China," said Ovum.

PCCW's deputy chairman Jack So added in a statement: "We are also discussing cooperation in the directories business in the short term, which could allow us to operate in 20 provinces [of China]."

However, as it pours resources into a variety of overseas expansion plans, PCCW cannot expect a positive effect on its bottom line in the short term. " Growth of these businesses is yet to come," Ovum's analysts believe.