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PCCW suffers after Telstra deal By Joe Leahy in Hong Kong Published: October 17 2000 17:32GMT | Last Updated: October 17 2000 22:58GMT Pacific Century Cyberworks, the Hong Kong internet and telecommunications company, suffered another sell-off on Tuesday following its recently announced partnership with Telstra, Australia`s biggest telecommunications company. The falls reflect concerns that PCCW sacrificed too much in the deal by ceding control of a proposed joint venture mobile phone business to Telstra, analysts said. The share price, which has fallen 54 per cent since PCCW took over Hong Kong`s dominant telecommunications company, Cable & Wireless HKT, on August 17, was again under attack from short-sellers on Tuesday. PCCW closed at HK$6.95, down 3.47 per cent on the day and nine per cent since Friday, when the Telstra deal was announced. Telstra and PCCW originally proposed the partnership in April but were forced to revise the terms after sharp falls in both companies` share prices. This followed the collapse last month of several high-profile deals between PCCW and other major internet companies including CMGI of the US, and Gigamedia and ERA Communications of Taiwan. "We think the Telstra deal has more to do with relieving near-term pressure on each company and less to do with long-term strategic focus," Dresdner Kleinwort Benson, the European brokerage, said in an analyst note. "PCCW becomes a smaller company after shedding its mobile and network services businesses, with a greater dependence on the traditional fixed line and IDD sectors," it said, warning the reduced revenue would pressure the stock`s valuation. Under the partnership, Telstra and PCCW plan to jointly operate a regional mobile phone company, an internet protocol fibre optic cable provider, and a data centre venture. PCCW will receive a total of US$2.43bn cash from Telstra and will hand over control of the mobile company. This is less than the US$3bn originally pledged by Telstra, but PCCW argues it will no longer have to pay for the rollout of the mobile joint venture`s third generation services. Greg Feldberg, convergence analyst with Indosuez WI Carr, said PCCW`s stock price was below his HK$9.10 target for the fair value of the company`s telecommunications assets alone, excluding its Network of the World (NOW) interactive television service and other internet offerings. "At this point the price is below what PCCW`s price should be based purely on the telecommunications assets," Mr Feldberg said. "So the market is attaching a negative value to the company`s broadband business, which I don`t think is fair." |
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