A Hong Kong entrepreneur with a reputation for brash business moves and a Chinese government-owned telephone company have sealed an alliance that has left many industry analysts puzzled.
China Network Communications Group (中國網通), known as China Netcom, announced on Thursday that it would buy 20 percent of the Hong Kong telephone operator, PCCW Ltd (電訊盈科), for US$1 billion. China Netcom, which is based in Beijing, is the country's second largest fixed-line telephone operator. China Telecom is the largest.
PCCW is led by Richard Li (
The two companies said on Thursday that the deal was part of a strategic alliance that would allow them to pool their strengths and expand in China and internationally.
"This is a win-win transaction which will create opportunities for both parties," Zhang Chunjiang, general manager of China Netcom, said in a statement.
But many analysts reacted coolly to the purchase, saying there was no compelling rationale for it. Both companies, analysts said, are being pressured by debt, competitors and slow growth.
In addition, China Netcom would be paying US$0.76 a share for the stake -- a 26 percent premium on PCCW's closing price on Wednesday on the Hong Kong stock exchange. Trade in PCCW was suspended on Thursday, pending the announcement.
PCCW was begun as Pacific Century Cyberworks in 2000, when Li used his then high-flying Internet company to buy Hong Kong's former telephone monopoly. Since then, its share price has fallen 90 percent; the company sold its mobile phone service to Telstra of Australia in 2002, and its revenues from fixed-line telephones have been eroded by competition from rising rivals like Hutchison Global Communications. PCCW is US$3.8 billion in debt.
"For Netcom, I can't see why it's such a great deal," said Duncan Clark, the managing director of BDA China, a research group based in Beijing. "The asset they're buying into is pretty unexciting."
In return for Netcom's purchase, PCCW gave China Netcom three directorships on its board and promised to spend US$640 million on telecommunications projects in China.
But some analysts say PCCW is under no obligation to spend that money in China, and it is still free to pursue deals with Netcom's Chinese rivals. Allen Ng, an analyst with BOC International in Hong Kong, says PCCW is not under any obligation to invest the money with China Netcom, or indeed to spend it at all.
PCCW draws nearly 80 percent of its revenues from Hong Kong, a small and relatively settled market, and Li said the deal with China Netcom would give his company greater access to China's growing market. The number of telephone subscribers in China has been growing about 90 million a year in recent years, and this year the total may reach 750 million, about half of them for mobile phones.
Some analysts thought the alliance might help China Netcom build its market share at home. China Netcom and its Hong Kong-listed subsidiary have over 100 million subscribers, mostly in northern China, and PCCW's marketing experience may help them establish a foothold in China's richer telecommunications markets in southern China, said Joe Zhou, a senior analyst in Beijing with Analysys Consulting.
"Netcom's development has been slow, and its results in 2003-'04 were disappointing, but this may be a promising step forward," he said.
NO-LIMITS PARTNERSHIP: ‘The bottom line’ is that if the US were to have a conflict with China or Russia it would likely open up a second front with the other, a US senator said Beijing and Moscow could cooperate in a conflict over Taiwan, the top US intelligence chief told the US Senate this week. “We see China and Russia, for the first time, exercising together in relation to Taiwan and recognizing that this is a place where China definitely wants Russia to be working with them, and we see no reason why they wouldn’t,” US Director of National Intelligence Avril Haines told a US Senate Committee on Armed Services hearing on Thursday. US Senator Mike Rounds asked Haines about such a potential scenario. He also asked US Defense Intelligence Agency Director Lieutenant General Jeffrey Kruse
INSPIRING: Taiwan has been a model in the Asia-Pacific region with its democratic transition, free and fair elections and open society, the vice president-elect said Taiwan can play a leadership role in the Asia-Pacific region, vice president-elect Hsiao Bi-khim (蕭美琴) told a forum in Taipei yesterday, highlighting the nation’s resilience in the face of geopolitical challenges. “Not only can Taiwan help, but Taiwan can lead ... not only can Taiwan play a leadership role, but Taiwan’s leadership is important to the world,” Hsiao told the annual forum hosted by the Center for Asia-Pacific Resilience and Innovation think tank. Hsiao thanked Taiwan’s international friends for their long-term support, citing the example of US President Joe Biden last month signing into law a bill to provide aid to Taiwan,
China’s intrusive and territorial claims in the Indo-Pacific region are “illegal, coercive, aggressive and deceptive,” new US Indo-Pacific Commander Admiral Samuel Paparo said on Friday, adding that he would continue working with allies and partners to keep the area free and open. Paparo made the remarks at a change-of-command ceremony at Joint Base Pearl Harbor-Hickam in Hawaii, where he took over the command from Admiral John Aquilino. “Our world faces a complex problem set in the troubling actions of the People’s Republic of China [PRC] and its rapid buildup of forces. We must be ready to answer the PRC’s increasingly intrusive and
STATE OF THE NATION: The legislature should invite the president to deliver an address every year, the TPP said, adding that Lai should also have to answer legislators’ questions The Chinese Nationalist Party (KMT) yesterday proposed inviting president-elect William Lai (賴清德) to make a historic first state of the nation address at the legislature following his inauguration on May 20. Lai is expected to face many domestic and international challenges, and should clarify his intended policies with the public’s representatives, KMT caucus secretary-general Hung Meng-kai (洪孟楷) said when making the proposal at a meeting of the legislature’s Procedure Committee. The committee voted to add the item to the agenda for Friday, along with another similar proposal put forward by the Taiwan People’s Party (TPP). The invitation is in line with Article 15-2