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Telstra And Pccw To Form Convergence Alliance

Telstra And Pccw To Form Convergence Alliance



HONG KONG, April 12, 2000/ HK PRNewswire-AsiaNet/ -- Pacific Century CyberWorks Limited ("PCCW" - SEHK: 1186HK), the Hong Kong listed flagship of Pacific Century Group, and Telstra Corporation Limited [ASX: TLS.AU] of Australia have signed a memorandum of understanding to form a strategic alliance, creating Asia's leading Internet, data, IP backbone; wireless; business services; and broadband content groups.

There are six key elements to the alliance: (i) a direct investment in PCCW by Telstra of US$1.5 billion in the form of a convertible note; (ii) the creation of a global data IP backbone company through business and asset contributions by both partners; (iii) the creation of a pan-Asian mobile phone company which will involve a cash payment by Telstra to PCCW related to the size of each partner's asset contributions to the joint venture, currently estimated to be US$ 1.5 billion; (iv) a commitment to co-venture actively in value-added business services; (v) to pursue opportunities to produce an Australian- based interactive HTML content service; and (vi) agreement to facilitate use of PCCW's

Network of the World (NOW)'s content, applications and broadband channel in Australia.

The alliance partners intend to undertake separate IPOs of the IP Backbone Company and Regional Mobile Company.

The alliance brings together the substantial expertise and resources of Telstra, one of the largest communications companies in Asia, and of PCCW, one of the region's leading broadband and Internet companies. In addition, upon completion of the proposed PCCW and Cable & Wireless HKT merger, which is currently undergoing approval, the alliance will include the vast strategic and telecommunications resources of HKT.

The Directors of PCCW accept full responsibility for the accuracy of the information contained in this announcement, save that the only responsibility of the Board of PCCW in respect of information contained in this announcement relating to Telstra and the C&W HKT Group which has been compiled and reproduced from public sources, is to ensure that such information is correctly and fairly reproduced and presented. Subject as aforesaid, they confirm having made all reasonable enquiries, that to the best of their knowledge, their opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statement in this announcement misleading.

PCCW and Telstra are ideal partners with complementary assets and businesses, compatible visions and a synergistic strategic fit. Together they will be able to take advantage of rapid changes, increasing demand and consolidation in the communications markets, by creating the first pan-Asian companies with true regional capabilities in the high growth areas of IP backbone transport and wireless telephony. In addition, the parties intend to leverage their significant assets and skills in the areas of business services and converged content.

The strategic alliance is subject to a number of preconditions including the successful completion of the acquisition by PCCW of Cable &Wireless HKT (HKT [SEHK: 8.HK].

Mr. Ziggy Switkowski, Chief Executive Officer of Telstra said, "Our relationship with PCCW reflects the dynamic and industry-reshaping impact of the online and wireless environments. It is a defining moment for Telstra's position in Asia and sets in place our strategy with one of the best partners in Asia. We share similar strategies, values and aspirations. This partnership will afford our shareholders a valuable position in these emerging markets and high growth communication businesses."

"Strategically, PCCW has always identified world-recognized partners like Telstra, who share the company's vision of connectivity and broadband content for the Asia Pacific region," said Richard Li, Chairman of Pacific Century Group. "Our alliance with Telstra is another step towards achieving our vision of creating the world's largest broadband Internet business."

Creation of Two Joint Venture Companies

Two new separate joint venture companies will be created by the alliance partners. Telstra and PCCW will each contribute relevant operating assets and businesses into the new companies.

IP Backbone Company

The IP Backbone company will operate as a global carrier of data, voice and Internet services in the Asia Pacific region, and will expand aggressively regionally and ultimately globally. It is expected that PCCW and Telstra will be equal partners in this company. IP Backbone Company would own relevant submarine cable, gateways, landing points, licences, satellite assets, points of presence, subsidiary companies and other relevant backbone infrastructure assets currently owned by PCCW, HKT and Telstra.

The joint venture brings together two of the largest carriers of voice, data and Internet traffic and highly complementary points of presence across Asia.

According to Telegeography 1999 statistics, Australia and HK together account for 16 percent of all intra-Asian traffic and 20 percent of Asia-North America traffic. In addition, Australia and HK have 1.2 Gbps of Internet connectivity and total annual international voice traffic of 5 billion minutes.

The aim is for the IP Backbone Company to become the leading provider of carriage in the rapidly growing broadband environment as well as being the carriers' carrier in the region. The company will be headquartered in Hong Kong.

Regional Mobile Company

A Regional Mobile Company will be created to combine and grow key wireless properties across Asia and aggressively drive the development of wireless data utilizing WAP and 3G technologies. Initially, PCCW and Telstra will own 60% and 40% of Regional Mobile Company respectively with Telstra having the right to equalize its economic interest in the future. The company will own the mobile business in Hong Kong and all the mobile businesses of the partners outside of Australia. In addition to contributing its international wireless assets (owned or to be acquired), Telstra will make a cash payment to PCCW related to the size of each partner's asset contribution to the joint venture (currently estimated to be US$1.5 billion). The partners intend to aggressively expand this business across Asia adopting business models appropriate for each country, which could include acquisitions, virtual network operations and further strategic partnering. Both partners will have equal board representation and management rights. The company will be headquartered in Hong Kong.

Business Services

Telstra and PCCW believe there is a substantial opportunity to create the leading business across Asia in many areas such as network facilities management, data hosting, enterprise solutions, application service providers ("ASP") initiatives and business-to-business e-commerce. The partners have agreed to actively work together to create ventures to take advantage of this opportunity.

Broadband Content Production

PCCW and Telstra have also agreed to pursue opportunities to produce an interactive content service. Specifically, Telstra and PCCW would seek to build an Australian-based venture to aggregate Australian HTML content for global distribution.

Broadband Cooperation

The partners will work together to facilitate use of PCCW's NOW content and applications in Telstra's narrowband and broadband internet offerings and distribute NOW's broadband channel in Australia. NOW is PCCW's global brand for its Internet service offerings.

Company Information

Pacific Century CyberWorks Limited

Pacific Century CyberWorks Limited (Reuters: 1186.HK; Bloomberg: 1186) is the Hong Kong-listed technology flagship of Pacific Century Group ( since August 1999. In less than a year, PCCW (market capitalization more than US$25 billion on a fully diluted basis) has grown to become Asia's biggest Internet group outside Japan (the third largest in Asia) and aims to be the world's largest broadband Internet provider. Through investments in more than 40 content, technology and e- commerce providers, PCCW aims to create a one-stop shop for companies to extend their businesses onto the web and to foster rapid growth across the larger internet economy in Asia. Together with the Government of HKSAR, PCCW is building the Cyberport - an important information infrastructure project to promote the development of IT in Hong Kong.

Telstra Corporation Limited

Telstra is Australia's most significant communications carrier and is a world-class fully integrated service provider across wireline, ADSL, HFC, satellite and digital wireless networks and platforms. It is Australia's leading ISP, has the most highly accessed family of internet portals and sites and provides entertainment and multimedia content over its broadband network and through its Pay-TV joint venture, Foxtel. Telstra has indicated its interest to expand its activities in Australia and regionally in the digital media area. Telstra also has focused its B2B and B2C activities in major industry growth areas eg. entertainment, health, financial services, insurance, education and travel and has a significant stake in Australia's largest e-commerce enterprise.

Cable & Wireless HKT Limited

C&W HKT, a principal subsidiary of C&W, is a world-leading integrated communications company, and Hong Kong's major full- service communications provider, marketing a full array of quality voice and data telecommunications services backed by a state-of-the-art, fully digital fibre-optic network. C&W HKT's services include basic telephony; Interactive TV (iTV); international calls; narrow and broadband Internet access; mobile telephony; multimedia services; satellite links; specialized fax and data products; telecommunications equipment and services; teleservices, including customised solutions; and value-added services. With over 3.6 million lines in operation, the Company has more than one line for every two people in Hong Kong. PCCW proposed a merger with Cable & Wireless HKT Limited, subject to a number of pre-conditions.


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