As expected, Telstra yesterday detailed plans of a billion dollar Asia Pacific strategic alliance with Hong Kong Internet company Pacific Century CyberWorks (PCCW), owned by Richard Li.
The companies announced they will pool assets in a pair of pan-Asian ventures: one for mobile communications and one for wholesaling cable capacity.
Coming out before PCCW's acquisition of Hong Kong carrier Cable & Wireless HKT is even approved by shareholders, the companies detailed plans for businesses designed to combine the strengths of all three companies -- and to help PCCW tackle the debt load it took on to buy the territory's largest telecom company.
"Together with HKT's management, we are going to unleash a tremendous amount of value for the combined company, and this is the first step," PCCW Chairman Richard Li said at a press conference here.
All together, the deals represent approximately $4 billion of investment by Telstra, including $1.5 billion in cash that Li acknowledged will help PCCW to more quickly pay off its acquisition debts. Telstra will also subscribe to $1.5 billion worth of PCCW convertible bonds, the companies said, and eventually could hold as much as 2 percent of the merged company.
By combining the submarine cables of Telstra with C&W HKT's land-based lines in fibre-rich Hong Kong, the companies will create an IP-network wholesaler with greater revenue -- about $US1.7 billion per year from its inception -- than worldwide IP-connection wholesaler Global Crossing, according to Li.
The network's cables will land in China, Hong Kong, Taiwan, Korea, Japan, and most Southeast Asian countries, as well as India, Australia, and Western countries including the US, Canada, and the UK, the executives said. The cable venture will go public "as soon as is practicable," Li said.
The companies also will combine assets of Telstra and C&W HKT's mobile wireless operations to create a multinational mobile venture with approximately 3 million customers.
While C&W HKT will contribute its Hong Kong mobile wireless assets and its share of the Singapore-based Mobile One venture, Telstra will bring in assets in the form of approximately 1 million subscribers, executives of the companies said. Telstra will own approximately 40 percent of the mobile venture, they said.
The companies also plan to sell business services, including application service provider and business-to-business electronic commerce services, the executives said.
The ventures, both of which will be based in Hong Kong, also will extend PCCW's Network of the World -- a pan-Asian provider of Internet-based information and entertainment -- by bringing it on to wireless data platforms and extending its coverage into Australia.
For Telstra, an incumbent carrier facing tight competition in its home market, the partnership represents its strategy for expanding across Asia and becoming a world player, according to Chief Executive Ziggy Switkowski.
"We sought to partner with a company that had new-economy skills and styles," Switkowski said.
One Australian-based telecom analyst said Telstra's moves over the past several years to expand across Asia have brought disappointing returns, but the company fits particularly well with its latest partner.
Because of Telstra's financial structure, with 51 percent of its stock locked up in state ownership, it is an especially good fit with PCCW, another analyst said. A majority of Telstra's stock is tied up in government ownership, he said.
"They don't have share material they can trade with them, they only have cash. That's what makes them attractive to PCCW," said Geoff Johnson, an analyst at Gartner.