HKT ‘rejected sale of PCCW Global’ but looking at options

HKT ‘rejected sale of PCCW Global’ but believed to be looking at options

09 July 2020 | Alan Burkitt-Gray

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The owner of PCCW Global is looking at options for the international carrier following toughening relations between the US and China, especially following China’s new security law for Hong Kong.

PCCW Global is owned by Hong Kong Telecom (HKT), which itself is owned by PCCW – formerly Pacific Century Cyberworks, run by Hong Kong businessman Richard Li.

China Unicom owns an 18% share in PCCW, the parent company.

Asked by Capacity, a spokesman for HKT said: “Our official response is to reiterate that PCCW Global is an integral part of HKT’s business.”

However, a Bloomberg Quint report this month said that PCCW Global “could be valued at as much as $1 billion in a sale”, citing sources “who asked not to be identified because the matter is private”.

HKT gave a similar response to Bloomberg to the response it gave to Capacity. However, both comments simply state carefully the current position – PCCW Global is indeed part of HKT – and HKT does not speculate about any changing relationship.

Capacity understands from sources within the industry that HKT looked at a sale of PCCW Global five years ago. At the time HKT rejected the idea.

Today China’s new security law for Hong Kong means that the Federal Communications Commission (FCC), the US telecoms regulator, now looks at the special administrative region pretty much as it looks at China.

That’s why last month the FCC told the owners of Pacific Light Cable Network (PLCN) they could not put into service the last leg of their cable from Deep Water Bay in Hong Kong to Taiwan and the Philippines.

The cable terminates in Los Angeles, which is why the FCC has jurisdiction. It doesn’t want US traffic to go through any part of China, which includes Hong Kong.

For similar reasons the FCC last year refused China Mobile a licence to operate in the US. It is also threatening to withdraw operating licences from China Telecom, China Unicom and two subsidiaries of CITIC Telecom.

That’s a worry for the three big international telecoms operators based in Hong Kong: CK Hutchison, which owns the Three-branded mobile operators around the world, HGC Global Communications, and PCCW Global, the international arm of HKT.

Li Ka-sheng, the former chairman of CK Hutchison, is the father of Richard Li of PCCW.

One telecoms executive based in the region, speaking to Capacity on the guarantee of anonymity, said: “The US is doing a rebalancing. Chinese telecoms companies have been operating in the US, but no US companies can operate in China.” Non-Chinese carriers have to work with a local telecoms company to reach customers in China.

“Chinese companies can have voice switching in the US,” said this source. “The US is rebalancing the rules.”

This person, though, did not think the new Hong Kong security law will affect the telecoms industry.

Others are more doubtful, which is why Hong Kong owned operators are looking to their future: if the FBI classes them with Chinese carriers the FCC may refuse them licences to operate in the US or withdraw existing licences.

“The US interprets this as a threat to US security,” said a Hong Kong-based executive, who observed that the Covid-19 crisis has probably delayed any further consideration by HKT of PCCW Global’s future. “Coronavirus is limiting human interaction” that is needed during any transaction.

The identity of any purchaser would be crucial, not only to the future, but to the perception of HKT by Chinese and Hong Kong authorities and people – or any response in the West.

“What would be the reaction if China Telecom bought PCCW Global?” an executive said to Capacity this week. “Or what would be the reaction in China and Hong Kong if a US or British company bought it?”

Close observers of PCCW Global are understood to be favouring a non-UK European purchaser or a consortium, should HKT decide to sell.

Meanwhile, one commentator told Capacity: “Chinese and American intelligence agencies would like US submarine cables to land in Hong Kong – they each want to see the traffic.” Politicians might disagree, however, especially in a US presidential election year.

“I don’t think this will settle down before Christmas,” said this person, who was confident that it is primarily a trade war between China and the US. “The US working with China is good for commerce. It’s 20% of the world’s population and a large percentage of the technology users of the future.”

This comes at a time of a major reorganisation in the industry. Today Seaborn Networks came out of Chapter 11.