Telstra defends Pacific Century Cyberworks deal

Shareholders fear deal threatens Australian jobs

By Grant Holloway
CNN.com writer

SYDNEY, Australia (CNN) -- Australia's largest company, Telstra Corporation Limited, got "a bargain" when it secured a half-share in an Internet backbone venture with Hong Kong-based Pacific Century Cyberworks Limited (PCCW) for $4.5 billion Australian (U.S. $2.34 billion),Telstra chairman Bob Mansfield said on Friday.

Speaking at the company's annual general meeting, Mansfield said Telstra was delighted with the final outcome of the deals, which gave the company a solid opportunity in the Hong Kong telecommunications and Internet markets.

Telstra renegotiated a deal with PCCW, announced October 13, agreeing to pay around $4.5 billion Australian for half share of an Internet backbone company in partnership with PCCW and a 60 percent stake of PCCW's mobile phone business.

The mobile phone business is run by Hong Kong Telecom, which PCCW acquired in February of this year.

Mansfield and Telstra Chief Executive Officer Ziggy Switkowski faced persistent questioning from shareholders on the wisdom of investing in Asia at the expense of Australia and in the light of significant job layoffs in domestic operations.

In reply, both emphasized the need for Telstra to expand its business operations in the Asian region because of declining revenues from its traditional Australian telephony market.

Mansfield said the PCCW deal was the best way the company's management could use the strength of Telstra to put more into the Australian scene. He said the company took a five- to 10-year view and that this deal provided a platform growth.

"We believe we got a very good bargain in the (Internet) backbone company," Mansfield said.

"We are delighted with the final outcome," Mansfield said. "We now have a solid opportunity in the Hong Kong market. We are very confident we can deliver value over time (from this investment)," he said.

"We spent $4 billion to $5 billion (Australian) getting the cream of what other companies were prepared to pay up to $20 billion for at some stages in time," he said.

Switkowski told shareholders that Telstra, which has a market capitalization of around $80 billion (Australian), did not aspire to become a global telecommunications company, "but we are determined to be a strong Asian-based regional one with international relevance and global reach."

"The relationships we are putting in place with PCCW and Hong Kong Telecom are an expansion of a significant long-term commitment to Asia," Switkowski said.

He said over the next five years he expected 20 to 25 percent of the value of Telstra to come from its Asia-based businesses.

Switkowski said the company faced declining revenues from its traditional businesses but it was expecting double-digit growth from the newer mobile, Internet and broadband operations.

"We expect to connect at least one million broadband customers within the next five years," Switkowski said. "Over that time this promises to be a new, potentially billion-dollar per year revenue stream for Telstra," he said.

Telstra reported a record profit after tax and before abnormals of $4 billion (Australian) this fiscal year, a 16 percent increase on the year previous.

The company's shares closed 14 cents (Australian) higher yesterday at $6.94.

TIME Asia: Hong Kong Cyber Kid Takes a Hit
October 2, 2000
AsiaWeek:Business: When Old Virtues Go Unrewarded
March 31, 2000

Telstra
Pacific Century CyberWorks

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