HK Internet Exchange Unaware of Buyout Plan

HONG KONG (07/27/2000) - The Chinese University of Hong Kong (CUHK) is reported to be considering the commercialization of its local Internet traffic routing center, Hong Kong Internet Exchange (HKIX), by selling it to Pacific Century CyberWorks Ltd. (PCCW), according to a report published in the Hong Kong press. However, HKIX officials said they are not aware of any privatization plans.

Once the acquisition of HKIX is completed, the exchange will be injected into iLink.net, an Internet service and network management provider 80 percent owned by PCCW, to prepare for an initial public offering of shares in iLink.net, the Ming Pao report said.

Established by the university in 1995, HKIX provides an impartial interconnection service for local Internet service providers (ISPs) to exchange intra-territory traffic without routing data through the U.S. This saves connection time and costs, according to the HKIX Web site.

If acquisition talks have been under way between CUHK and PCCW, they are closed to only a small group of high-level executives. Both Stanislaus Hu, director of CUHK's Information Technology Service Center, which runs HKIX, and Kelvin Tang, spokesman for iLink.net, said they were unaware of an impending deal.

"I don't know anything about it . . . but we've been approached by numerous companies for the acquisition of HKIX over the years," said Hu, who referred further inquiries to University Secretary Jacob Leung, instead.

Leung did not return repeated phone calls seeking comment.

"We basically have no comment on what PCCW is doing. There might be things that PCCW is proceeding with that we're not aware [of]," said iLink.net's Tang.

A spokesman for PCCW did not return repeated phone calls seeking to confirm whether the company had sought to acquire HKIX.

A possible sale of HKIX would be significant because the exchange, which is Hong Kong's only Internet exchange, has always maintained neutrality in its operations and relationships with nearly all local ISPs and global carriers - a point that CUHK officials have stressed as the key to HKIX's success.

If it is acquired by a company with an Internet-related business scope, such as PCCW, concerns will be raised regarding whether that neutrality is undermined through a potential conflict of interest and unfair competition, industry observers said.

However, if the reported deal with PCCW does go through, at least HKIX will have been acquired by a local company, said Lane Leskela, Gartner Group Asia-Pacific's principal e-business analyst.

"We can expect a period of reconsolidating of the telecoms industry globally anyway. Why not at least have a Hong Kong-based company staying in control of most of the local infrastructure (as opposed to seeing it fall into the hands of foreign companies?)" Leskela said.

Leskela said the best way to privatize infrastructure like HKIX would be through an open tender. However, after seeing how the contract for building the Hong Kong CyberPort was awarded last year by the government, Leskela said he would not be surprised to see HKIX sold without a public bidding process. The CyberPort project was awarded to PCCW's parent company, Pacific Century Group, without an open tender.

Lap Man, chief executive officer of Hong Kong-based ISP Diyixian.com, said the acquisition of HKIX by a company with a vested interest in the Net industry would be likely to harm the neutrality of HKIX, depending on the nature of the parent company.

"This will lower the (interest) for participation in HKIX by local ISPs. There are already people out there who are interested in setting up another new Internet exchange. If HKIX is biased or not doing (a good job), ISPs might choose to route their local traffic through another exchange instead," said Man, adding that it would take approximately one month to get a new exchange up and running, given the support of local ISPs.

Asked whether Diyixian.com would pull out of HKIX if a rival company were to acquire it, Man said that would depend on whether the rival firm uses HKIX to gain a competitive advantage.

However, Jonathan Leung, chief marketing officer of NetTasking.com and former general manager of Asia Online, said the general trend for Internet exchanges worldwide is for them to be run by private companies.

"It will be beneficial for the industry if HKIX is commercialized. Right now it suffers from a lack of resources and is thus barred from taking its service to the next level," said Leung, adding that commercializing HKIX could lead to the availability of service level agreements (SLAs) to users - something not currently available.

This is not the first time that the commercialization of CUHK's Internet-related services has raised industry concerns.

When commercial exchange operator IXTech was established in mid-1998, 16 members of the Hong Kong Internet Service Providers Association, including Star Internet, Linkage Online and HKNet, staged a blockade of IXTech's traffic on grounds that the latter competed unfairly based on its access to CUHK's resources.

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