CyberWorks, Telstra Say Deal Is On Track

After speculation in the press that no news might be bad news, Richard Li's Pacific Century CyberWorks and Australia's Telstra announced Thursday that they are indeed still happily engaged, and the wedding is still on.

At press conferences in Hong Kong and in Sydney, the companies assured the market that a memorandum of understanding signed in April is still on track.

The two companies' planned joint venture would 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 CFO David Prince at a press conference here.

CyberWorks is set to secure investment from Telstra that would go far in paying down its debt. In addition, plans to pool forces on an Internet protocol company and a mobile company are still on, said CyberWorks executives in Hong Kong.

But the devil is in the details, and no details were disclosed on some key sticking points.

This month, CyberWorks completed a takeover of Hong Kong's dominant telco player, Cable and Wireless PLC. The deal, one of the largest in Asia, required CyberWorks, a startup, to take on more than $US11 billion in debt. A tie-up with Telstra would give CyberWorks some relief in the form of a $US3 billion investment.

In return, Telstra would get the opportunity to expand regionally at a time when limited growth at home is anchoring its share price. But though Telstra needs CyberWorks and its new Cable and Wireless manpower to expand outside of Australia, many analysts in Sydney had been hoping that with the slide in technology stocks, the company would haggle to renegotiate the terms that had been penciled out in mid-April.

Instead, little seems to have changed with this new announcement except for some distracting new ornaments, such as a commitment to team up to build Internet data centers and to enumerate more ways that CyberWorks' 'Network of the World' broadband entertainment service would be served to Australian users.

In April the two sides agreed to form a 50-50 joint venture that would develop infrastructure for Internet protocol. Figures were given on how much debt each side would take on for this project, but no details were released on what assets each side would contribute or, more importantly, how much value these assets would be assigned on the negotiating table.

Presumably, the haggling is still going on, says David Webb, an independent analyst who is the editor of Webb-site.com, a site for investors in Hong Kong.

That being the case, "it's all about keeping share price up," Webb says. "It's spin, reaction to concern in the press that there was no news on this deal. It is still an agreement in principle, though there is some more meat on the bones now."Francis Yuen, deputy chairman of CyberWorks, says that the two sides have valued assets, but that not all details have been disclosed because "the negotiation of valuation is [done] all as a package. Essentially, it is 50-50.

You attach so much to that. I attach so much to that.

"That is an art rather than a science," Mr. Yuen says.

For now, what is clear is that CyberWorks would inject a debt of up to $US1.125 billion into the Internet protocol company, and Telstra would inject debt of up to $US625 million. This means that CyberWorks needs to pony up more value in assets than Telstra does, if the venture is to be evened out to its agreed 50-50 split.

Meanwhile, changes to the joint mobile phone venture deal in which Telstra would buy 40 percent of Cable and Wireless' existing mobile assets in return for $US1.5 billion aren't considered significant. CyberWorks' 15 percent stake in Singapore's MobileOne (Asia), which is an old asset accumulated from its takeover of Cable and Wireless, would not be injected, but at the same time, Telstra's 60 percent stake in Mobitel, a Sri-Lankan mobile company, was also dropped. CyberWorks group CFO Prince told reporters that while the joint mobile company would work together later to pick up overseas mobile assets, for now, "we wanted to get the deal done fast."The mobile communications venture will be owned 60 percent by PCCW and 40 percent by Telstra, with options to equalize ownership over the next 18 months.

With Cable and Wireless' services as a base, it would have 958,000 subscribers to start and would seek to expand worldwide through mergers, acquisitions and other initiatives, officials said.

Stephen Lawson of the IDG News Service contributed to this report.

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