The PCCW-HKT takeover document is out, and we've read it. We'll give you the inside track on that in the next few days. But first, spare a thought for News Corp's Star TV, which in November announced a joint venture with HKT for digital TV. In another exclusive, we have seen the full joint venture agreement. The JV seems almost certain to collapse, and we'll tell you why...

Starless Now?
28 May 2000

On 10-Nov-99, with much fanfare, Rupert Murdoch breezed into town and announced a proposed joint venture between his Star TV (owned by News Corp) and Cable & Wireless HKT. At that stage it was just a Memorandum of Understanding, but the lawyers got to work and produced a binding agreement on 19-Jan-00, just 5 days before the disclosure of talks regarding a proposed merger with Singapore Telecom. And on 24-Jan, the day before those talks were disclosed, HKT and Star TV submitted a joint application for the relevant licences. And you know what happened after that....

In a exclusive, we have seen the full joint venture "Framework Agreement" which sets out how the two sides would co-operate. The scope of the venture, initially to be 60% owned by HKT and 40% by Star TV, is wide ranging, as follows:

Yes, the entire Netvigator business, including its HK, Taiwan and Canadian portals, dial-up and Ultraline broadband business were to be injected into the JV, along with the iTV video-on-demand business. Use of the HKT network would be contracted by the JV. The Netvigator portals then under development for Singapore and Malaysia (which is due to launch on 31-May-00) were also included in the Joint Venture.

For its part, Star TV was to make available all its channels (on a per-subscriber basis, with fees not specified in the Framework Agreement) and the agreement reveals that Star TV would also provide free advertising for the JV on its channels worth not less than US$30m in the first 2 years and $10m per year in years 3 to 7.

C&WHKT and Star TV are prohibited under the agreement from running competing businesses. The prohibition includes:

The only exceptions allowed were the supply of Star TV to Taiwan pay-TV operators; vertical portals, portals focused on customers outside the mass market; and provision of internet access to customers outside the mass market (in other words, business customers wanting leased lines).

Looking for an exit

Having seen the detail of the Star TV agreement, it is hard to imagine that PCCW could really want it to proceed. One of the supposed "synergies" with HKT is to be able to offer the PCCW "Network of the World" content (much of which is licensed from various sources) across the HKT broadband network. But with the Netvigator portal and access service as part of the JV, they would have to compete with the content produced in the JV's portal. And HKT is prohibited from producing a portal or running an access service outside of the JV. Legally, PCCW and its other subsidiaries (outside of the HKT group) are not bound by that agreement, but practically it would be difficult for them to compete with the JV or run the two NOW and Netvigator brands in parallel. The JV even includes Netvigator's broadband portal,

So it seems likely that PCCW would be looking for an exit and the Star TV joint venture will be one of the casualties of the merger. The only part that may survive is the provision of Star's television channels to HKT, for distribution across its broadband network in HK along with other channels, on a subscription basis. This would probably mean the end of free-to-air Star TV which we currently receive from our rooftops, but that was coming anyway as Star TV has also applied for its own pay-TV satellite-based license.

However, to date, the take-up rate of HKT's existing iTV video-on-demand service has been abysmal - the figure at 30-Sep-99 was "some 90,000", and six months later on 31-Mar-00 the figure was "some 90,000". Zero growth.

But here's the Scoop can reveal that the JV agreement is conditional upon the Chief Executive of HK in Council granting a Subscription Television Broadcasting License to the JV (or to HKT or Star) by 30th June 2000, less than 5 weeks away. That date was never previously disclosed. If there is no license by that date, then the agreement automatically terminates and neither party shall have any claim against the other.

Before that license can be granted, you need the Broadcasting Bill to pass into law to create that category of license in the first place. Although the Government had originally planned to grant licenses in "early 2000", the Bill was not even Gazetted until 28-Jan-00 and is still dragging its way through Legco, with no certainty over whether it will get passed before the Council  adjourns at the end of June and head for the polls.

So there seems little chance of the license being granted before 30-Jun-00 (just 33 days from now) and every chance that PCCW-HKT will conveniently be able to let the agreement terminate automatically. Back in November, the agreement was given great profile and there was talk about floating the JV for billions of US dollars. Now, the deal has been relegated to just a single sentence in the "Information on HKT" on page 122 of the PCCW takeover document:

"In November 1999, HKT and Star TV announced a joint venture to operate a pay television and Internet business in the Asia Pacific Region".

That was then, this is NOW!

©, 2000

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