PCCW to target stronger fixed-line profits

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PCCW, Hong Kong’s biggest telecoms operator, said on Thursday it would focus on increasing profitability in its core fixed-line business in the second half of this year after reporting disappointing interim results.

The company also aims to reduce losses at its three-year-old pay TV operation, despite planning to bid for the right to broadcast English Premier League football in Hong Kong, which is expected to cost a hefty HK$1bn (US$128m) for a three-year contract.

PCCW, which was at the centre of a high-profile takeover tussle earlier this year, has built a strong broadband business, a pay TV operation and acquired a mobile phone service operator in the last few years as it seeks new growth to compensate for its sluggish fixed-line business.

The traditional telephony business, which has been losing market share, rebounded in the second half of last year, largely because PCCW slashed prices. But growth has stalled, with new lines gained slowing from 50,000 in the last six months of 2006 to 15,000 in the first half.

“The slowing line growth is intentional as we try to get higher average revenue per user from the business. We are not too worried as our focus is profitability,” said Jack So, deputy chairman and group managing director.

PCCW said it also wants its pay TV operation to be profitable by the end of this year on the basis of earnings before interest, tax, depreciation and amortisation (ebitda).

The operation, which had 654,000 users at the end of August, reported ebitda losses of $24m in the first half of this year, compared with $15m for the same period last year, as PCCW invested more in content.

Analysts said PCCW’s content cost should rise substantially if it won the right to broadcast EPL, making it more difficult for the company to achieve its target. “Ebitda break-even is achievable, but it’s not an easy task,” an analyst said.

Mr So said that forthcoming changes in ownership would not affect the company.

Richard Li, PCCW chairman, sold his controlling interest in the company in July to veteran investment banker Francis Leung for HK$9.2bn after China Netcom, PCCW’s second-largest shareholder, blocked two buy-out proposals from private equity groups.

PCCW on Thursday reported a 17 per cent drop in net profit to $102m due to lower investment gains. But operating profit rose 11 per cent thanks to strong income growth in its property arm.

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