Local Bid May Complicate HKT-SingTel Deal

HONG KONG (02/11/2000) - A local bid may throw a wrench into Cable & Wireless HKT Ltd.'s proposed merger with Singapore Telecommunications Ltd. (SingTel) to create a regional mega-carrier.

Pacific Century CyberWorks Ltd. (PCCW) today said it has retained an investment bank to consider its options in relation to HKT, Hong Kong's incumbent carrier.

Shares in HKT and PCCW on the Stock Exchange of Hong Kong were suspended this afternoon. Both companies said no proposal has been made.

A newspaper report this morning said a consortium including PCCW, Hong Kong conglomerate Hutchison Whampoa and Vodafone AirTouch PLC were considering a bid for HKT.

The SingTel-HKT merger plan, in discussion since last year, has received a cool response from some officials in Hong Kong's government, though the territory's telecom regulator has declined to comment on the legality of the proposed deal.

It would appear to make the Singapore government the largest shareholder in Hong Kong's largest carrier. Both governments have embarked on initiatives to create Internet hubs for Asia.

At stake in the merger talks, and in the concerns raised by Hong Kong officials, is who will dominate the emerging Internet industry in Asia, especially the emerging market in Mainland China, according to industry observers.

PCCW, a high-flying Internet holding company based in Hong Kong, might bolster its bid to dominate Mainland China's Internet industry by combining its strengths with HKT's experience in infrastructure, analysts said today.

"The challenge in China is fundamentally one of infrastructure," said Geoff Johnson, an analyst at GartnerGroup, in Brisbane, Australia. Tying up with a traditional carrier, though it may not match the pace of innovation of the Internet-focused PCCW, may make the company stronger, he said.

Another analyst expressed doubts.

For PCCW, "it seems to be selling a ferry to buy a big truck," said Bertrand Bidaud, telecom group manager at Dataquest, in Hong Kong.

"They've invested in high-growth companies, and that's why they're valuable," Bidaud said.

Apart from the political issues involved, SingTel and HKT would be a better fit, according to Bidaud.

"It's very difficult to make two national carriers merge, but in terms of business, it makes sense," he said. Both are steeped in the telecommunications world, and together they could make a powerful carrier to take on the region, he added.

Analysts have said the relatively small incumbent carriers in Asia will have to merge to face impending competition from the likes of AT&T Corp. and Deutsche Telekom AG. (See "Singapore, HK Carriers in Merger Talks," January 26.)GartnerGroup's Johnson believes a major Singapore carrier -- most likely Singtel -- eventually will merge with HKT as part of a pan-Chinese carrier dominated by China Telecom.

"The Chinese-speaking community is going to come together in a carrier alliance," Johnson said. "At the end of the day, they will need SingTel."

PCCW, in Hong Kong, can be reached online at http://www.pcg-group.com. HKT can be reached online at http://www.cwhkt.com. SingTel, in Singapore, can be reached at http://www.singtel.com/.

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