Bad week for Hong Kong telecoms

14 Jul 2006

Hong Kong commentators are widely-agreed that Richard Li's self-funded exit from PCCW only harms the city's image as a regional business center.

It doesn't do much for its reputation as a telecom hub, either.

Events of the past few weeks have confirmed once more that foreign investment in China's best telecom assets is not welcome.

There is no law against investing in PCCW, or any other Hong Kong service provider. But for political reasons PCCW's shareholders were denied the chance to sell to bidders who were pushing up the stock price.

Richard Li was forced to sell to a Beijing-approved investor who freely confesses he has no interest in running a telecom firm.

The saga of Li and the company that once was Hongkong Telecom over the last six years is a sorry one. He came, he saw, he trashed a vast amount of shareholder value.

Banker Francis Leung is paying $1.2 billion for Li's 23% share of PCCW, of which nearly three-quarters is provided by Li himself.

Leung is widely believed to be acting on behalf of Li's billionaire father, although Richard Li has denied this.

Leung has several months to gather the further $200 million balance required. The two private syndicates invited by Li to bid for PCCW's assets, Australia's Macquarie and US buyout group TPG-Newbridge, may yet be persuaded to stump up for the balance.

Not unusual
It is not unusual for a national government to keep telecom assets off-limits to foreign investors. The reaction of US authorities to Li Ka-shing, for one, reminds that this is not purely a Chinese response.

Yet it is not the statute books that prevent foreigners from buying PCCW. We know the foreign bids were unacceptable only because its 20% owner, China Netcom, acting as a mouthpiece for the central government, made its displeasure known.

This style of sly, opaque and unpredictable policy-making is standard practice in Beijing.

Unfortunately, instead of the mainland becoming more like Hong Kong, it seems Hong Kong is becoming more like the mainland.

The result is the territory has missed out on the fresh investment that Macquarie and TPG-Newbridge might have brought to the territory's telecom sector.

PCCW's long-suffering minority shareholders, who have seen the carrier's stock price shrink 90% in the Richard Li years, might have been able to recoup a little of their losses.

Meanwhile, foreign carriers are yet to set foot on the mainland, despite China's WTO commitment to allow for entry by 2007. Beijing has five months to make good on that promise, but shows no sign of removing the biggest impediment, a requirement of a $240 million minimum capital base for all foreign entrants.

The mainland telecom market's impressive numbers are the result of subscriber growth, not innovation.

Inevitably, consumers, businesses and China's economic competitiveness will suffer by limiting the pool of investment and expertise that can grow the market. But that is not a lesson that Beijing policy-makers are yet willing to learn.

Robert Clark is Editor at Large for Telecom Asia [email protected]

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