Monday, May 12, 2008

Maybe Telstra Ziggied when it should have zaggied?

For those not from Down Under, Telstra is the arrogant bastard born of the nearly-aborted privatization of Australia's once monopoly telecommunications monster. Actually, its abortion took place once for each trimester, in T's 1, 2 and 3. Long accustomed to sucking from its milked patrons, the government just couldn't seem to let it go, not even piecefully, until it just wasn't worth guarantying its worth.

Back in its heyday, it broke free of Australia to strut its stuff on the world stage. Mind you, it was so flippant, it did this in the face of the, telecom bust, without a lesson learned.

February 8, 2001
Telstra, PCCW Finalize Alliance

Telstra has completed its alliance with Hong Kong's Pacific Century CyberWorks (PCCW), after almost a year of negotiations and amendments to the deal.

Telstra and PCCW will establish three joint ventures as part of their relationship. These JVs are the IP backbone company Reach, which will merge international infrastructure assets and businesses of the partners

The Internet Data Centre Company is a greenfields venture that is intended to draw on partners' strengths, as it rolls out its data centre business model across the region. The venture will leverage the links between its own operations and the carrier hotel operations of Reach to build its business.

Telstra CEO Dr Ziggy Switkowski sees the alliance and the joint ventures as providing clear growth options for the telco through the Asia Pacific region.

"These businesses offer enormous potential by giving Telstra greater access to the growth markets of Asia and across the Pacific," said Switkowski.

RWC's principle asset is CSL, 60 per cent of which Telstra acquired from PCCW as part of the deal for around $3.05 billion. PCCW retains the other 40 per cent of CSL.

Telstra, PCCW give birth to junior telcos

The joint-venture companies have been valued at around $US15 billion dollars and comprise of the newly named Reach Limited, Regional Wireless Company and the Internet Data Centre Company.

Reach - which supplies submarine cables across a global network - will become the IP backbone company.

Telstra chief executive Ziggy Switkowski said the deal would provide Telstra with clear growth options for the future.

This report was archived in July 2007 and was last updated in January 2005:
It contains several analyses by Paul Budde relating to the Telstra/PCCW joint venture, from its inception to early 2005. This includes Paul’s original disquiet at the nature, cost and desirability of the deal, up to the realisation of those concerns. With continuing financial disasters for PCCW, its only viable asset is the old Hong Kong Telecom. With the collapse of the original PCCW concept, the Internet company basically doesn’t exist anymore and the mobile business remains a big question mark. The Reach deal has also been written off. Telstra has bought itself a big lemon and we haven’t seen the end of it yet.

May 10, 2008

Another Lesson in Value Destruction: PCCW Loses Blue-Chip Status
On Friday, the compilers of Hong Kong’s blue-chip Hang Seng Index announced a reshuffle that has finally kicked off the once proud, but long-suffering stock known as PCCW Ltd.

PCCW is Hong Kong’s main telecom provider. It’s also a potent symbol of value destruction, a reminder –- like the “AOL” since dropped from Time Warner’s name –- of what can happen when asset values get inflated and companies use them to do deals.

Back in 1999 and 2000, a Hong Kong-listed company with no actual operating business called Pacific Century CyberWorks was riding the global tech boom by snapping up stakes in Internet start-ups. The value of its shares soared along with that of the company’s holdings. Boosting PCCW’s perceived value was the family background of its chairman, Richard Li, son of Li Ka-shing, one of Asia’s wealthiest and most powerful men.

With its soaring share price, PCCW was able to make a successful play for the Hong Kong-listed subsidiary of Cable & Wireless PLC, known as Hongkong Telecom. Beating back a rival offer from Singapore Telecom, Li sealed a deal in March 2000 for cash and shares valued at around $28.5 billion at the time the deal closed. It was a landmark M&A deal for Asia.

Once, Hongkong Telecom was the bluest of Hong Kong’s blue chips: a must-hold stock for foreign fund managers.

Eight years later, the buzz has long worn off. The stock price cratered more than 90%


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