PCCW returns to wireless with Sunday buy

PCCW, Hong Kong's dominant fixed-line phone company, is set to return to mobile telephony after its chairman Richard Li on Monday said it planned to acquire the territory's smallest wireless operator for less than US$200m.

PCCW aims to turn Sunday Communications into the most profitable operator by 2010, according to Mr Li, who was speaking on the sidelines of a conference in Hong Kong.

?There is a lot of competition among Hong Kong's six operators now, but we are confident that Sunday will become the most profitable company with the best quality and highest average revenue per user in four to five years,? Mr Li said.

He said PCCW had not decided whether to delist Sunday, which has one of Hong Kong's four third-generation mobile licences.

The acquisition will mark PCCW's return to Hong Kong's highly saturated wireless market, which has 119 mobiles for every 100 people, after it sold its remaining 40 per cent stake in mobile carrier CSL to Australia's Telstra in 2002.

Wireless operators have been winning market share from traditional fixed-line companies, while data application is also expected to migrate to wireless.

PCCW has agreed to pay Sunday's two largest shareholders about HK$1.163bn (US$149m) in cash, or HK$0.65 per share, for their combined 59.9 per cent stake, according to the company.

It will then make a general offer to China's Huawei Technologies, Sunday's third largest stakeholder, and the public.

PCCW's offer price represents a 22.6 per cent premium over Sunday's closing price last Friday.

Kelvin Ho, an analyst at Nomura, said the deal might lead to a consolidation of the industry.

?PCCW is interested in Sunday because it has a 3G licence. But we think this is just the beginning. PCCW has to buy more mobile operators to really make any difference,? Mr Ho said.

?The question is whether PCCW wants to become the consolidator.?

A successful acquisition of Sunday, which launched a limited 3G service last week, also could help China Netcom, which has a 20 per cent stake in PCCW, when it launches its 3G service.

Through PCCW, China Netcom will have access to Sunday's 3G technology and have an opportunity to adapt the nascent platform for use on mainland China.

Sunday, which had about 684,000 subscribers at the end of last year, or about 8 per cent of the market, reported a 78 per cent drop in 2004 net profit to HK$6m on falling revenues and hefty 3G investments.

The company is expected to become unprofitable this year due to further spending on 3G.