PCCW, Telstra Finalise partnership

The two companies signaled confidence that they will become big players in Asia in all three industries as they outlined a set of terms almost unchanged from those reached in a memorandum of understanding (MOU) announced in April. That MOU was announced just days before a drop in share prices on Nasdaq spread to Asian high-tech stocks.

The three joint ventures will constitute the largest data communications carrier in Asia outside Japan, the largest data-center services provider in Asia and a provider of mobile services that extends throughout the region, said PCCW Group Chief Financial Officer David Prince at a press conference here.

The companies are teaming up for expansion into regional telecommunications services in Asia, where both carriers and localities are jockeying for leadership of the rapidly expanding internet market.

"If Hong Kong would like to become the hub of telecommunications, this is a major step forward," Prince said.

The only notable changes from the MOU were that Telstra's mobile-phone subscriber base in Sri Lanka and Cable & Wireless HKT's (now PCCW's) share of Singapore wireless consortium Mobile One Asia. were not included in the wireless joint venture as planned in April.

The companies left those elements out so they could settle the terms quickly, said Francis Yuen, deputy chairman of PCCW.

The final agreement was announced just a week after PCCW completed its purchase of Cable & Wireless HKT, a deal that had to be completed before the arrangement with Telstra could become final.

Telstra's $US3 billion of assets to be injected into the ventures will help PCCW pay down debt incurred in its purchase of the dominant Hong Kong carrier, for which it took a $US12 billion loan, Prince said. With the deal completed, PCCW is now able to reach its goal of reducing net debt to about $US5 billion - a critical step toward making its regional expansion possible.

"We believe our debt has now reached a comfortable level," Prince said.

The announcement also raised the latest warning flag about the high cost of third-generation (3G) mobile licenses.

Despite its designs on being a dominant player in Asia's wireless services business, the companies' mobile venture will beg off the bidding war for 3G licenses unless current auction prices ease down from those paid last week in Germany's auction, Yuen said. A consortium including NTT DoCoMo, KPN Mobile and Hong Kong's Hutchison Whampoa paid $US7.7 billion for 10MHz of 3G spectrum in that auction.

"We won't enter into being a service provider at that price level," Yuen said, adding, "If the cost comes down to an appropriate level, we will keep the option open."

If it doesn't buy 3G spectrum, the mobile venture still plans to compete in 3G worldwide, possibly by buying airtime from other service providers and becoming a "virtual operator," he added.

The mobile communications venture will be owned 60 percent by PCCW and 40 percent by Telstra, with options to equalise ownership over the next 18 months. With Cable & Wireless HKT's services as a base, it will have 958,000 subscribers to start and will seek to expand worldwide through mergers, acquisitions and other initiatives, officials said.

Internet Protocol Backbone Carrier (IPBC), an equally owned venture, will combine PCCW and Telstra's shares in submarine and satellite backbone links for 70,000 miles of connections and a total of 2.9G bits per second, company officials said. It will sell raw capacity as well as corporate network services.

The internet data centers business, also equally owned, will provide outsourced hosting of corporate data centers at facilities across Asia, initially in Japan, New Zealand, Singapore, South Korea and Taiwan.

Also as part of the deal, Telstra will offer PCCW's Network of the World converged multimedia service in Australia, aiming for 2.5 million customers within two years. The service initially will be delivered to PCs via Telstra's DSL (Digital Subscriber Line) and HFC (hybrid fiber-optic/coaxial-cable) networks and eventually to TVs via set-top boxes, officials said.

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Stephen Lawson

PC World
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