Cable & Wireless Hkt Business Information, Profile, and History

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History of Cable & Wireless Hkt

Cable & Wireless HKT (HKT), formerly Hong Kong Telecommunications Ltd., provides a wide range of communications services in Hong Kong. With eight offices in Asia and two in Canada, HKT has its headquarters in Hong Kong, where it maintains 3.6 million phone lines. Among the products and services offered by HKT are basic telephone services, international telephone services, Internet access, fax and data services, mobile telephone services, multimedia services, satellite links, and telecommunications equipment. The company lost its monopoly on international phone service at the beginning of 1999 and changed its name in midyear to better reflect the company's diverse array of services, particularly in Internet services. HKT is a public subsidiary of Cable & Wireless PLC (54 percent) and China Telecom, the leading telecommunications company in China (11 percent).

Early Years

The origins of HKT date back to the beginnings of Hong Kong's telecommunications history in the 1870s. John Pender, a onetime Manchester cotton merchant, extended his worldwide telecommunications empire to all corners of the British Empire by forming the China Submarine Telegraph Company in 1871. An undersea telegraph cable was put in place in Hong Kong by Pender's company, effectively connecting Hong Kong and Singapore, Britain's main colonies in the Far East, by telegraph to London. Later, in 1873, Pender completed the merger of his Australian, Chinese, and British India companies into the Eastern Extension Australasia and China Telegraph Company to look after the telegraph cable. Several decades later, this company became part of the Cable & Wireless Group.

Domestic telecommunications facilities in Hong Kong became more advanced in 1925 when the Hong Kong Telephone Company took over the interests of Pender's China and Japan Telephone and Electric Company. The company's mandate included providing all the British colonies with local telephone services. Over the next six decades Hong Kong Telephone's line capacity grew to more than 2.5 million, with the company serving approximately six million people.

Telecommunications became increasingly important following World War I, and in 1929 the British companies Marconi Wireless and Eastern Telegraph joined to establish Cable and Wireless (C&W). The company's strategy was to supply telephone and telegraph services in Britain's colonies, and it succeeded in securing an exclusive franchise to provide international communications services in Hong Kong. By 1972 the company's biggest operation was its subsidiary in rapidly growing Hong Kong. Hong Kong Telephone, meanwhile, built a new headquarters in 1972. The company's growth was said to typify the colony's transition from an economy based on manufacturing to one dependent on service industries, which created a demand for telecommunications services. In 1975 Hong Kong Telephone's franchise for domestic service in the colony was extended for an additional 20 years, to expire just ahead of Hong Kong's reversion to China's control in 1997.

Expanded Services and Growth in the 1980s

In 1981 the Hong Kong branch of C&W was established as Cable & Wireless Hong Kong (later Hongkong Telecom International) to manage its communications services, and in 1984 C&W HK purchased Hong Kong Telephone. Hong Kong Telephone, which had started to develop an all-digital telephone system for the colony and surrounding regions in 1984, boasted one of the most modern networks worldwide. The aim was to give the colony state-of-the-art telecommunications facilities and performance.

In December 1985 the eastern section of the Guangdong microwave project in southern China was opened, for which C&W provided technical assistance. A few months later, in March 1986, the western section opened, effectively linking telecommunications traffic between 25 cities in Guangdong province, which then emerged as an expanding hinterland manufacturing base next to Hong Kong.

In 1986 Hong Kong Telephone started up public facsimile service from Hong Kong to Beijing, Shanghai, Guangzhou, and Shenzhen, a newly created special economic zone. Such facilities were instrumental in helping much of Hong Kong's manufacturing base continue relocating to southern parts of China, then undergoing economic reforms and establishing closer manufacturing links with Western markets. The Cable and Wireless Group had at the time two joint ventures in China. The first, Shenda Telephone Company, of which the group had a 49 percent stake, sold and installed an overhead fiber-optic system that linked Shenzhen City, Shahe, and Nantou. The second, the Huaying Nanhai Oil Telecommunication Service Company, began helping explore for oil deposits in the South China Sea.

Cable and Wireless also signed agreements in 1986 to provide some 1,000 kilometers of digital trunk microwave and five long-distance toll exchanges in the Yangtze Delta region of China, linking 27 cities in Jiangsu and Zhejiang provinces. Another agreement was signed that year with the Guangdong Posts and Telecommunications Bureau to develop a mobile radio telephone and paging service in the Pearl Delta region. The unified system was aimed at allowing local subscribers to use handheld telephones. To complete this contract, Hong Kong Telephone established a nonfranchised operation, Communication Services Ltd. Its function was to introduce new mobile radio telephone and radio paging services, allowing the use of handheld equipment anywhere in Hong Kong and the Pearl Delta region. By March 1987 Communication Services Ltd. had opened 18 retail outlets.

In June 1986 Cable & Wireless also announced plans for an underwater optical fiber cable connecting Hong Kong with Japan and South Korea, to become operational in 1990. As a measure of the group's regional clout, the London-based organization became the first British company to be listed on the Tokyo Stock Exchange. This event underlined the telecommunications group's expanding role in the emerging Pacific Basin region.

In 1988 Hong Kong Telecommunications Ltd. (HKT), also known as Hongkong Telecom, was formed to serve as a holding company for Hongkong Telecom International and Hong Kong Telephone and effectively consolidated the twin international and domestic telecommunications facilities under one umbrella. The first chairman of Hong Kong Telephone was Sir Eric Sharp. A native Briton, Sharp had also been chairman of Cable & Wireless PLC since 1981. Serving as deputy chairman was Brian Pemberton, the London-based joint managing director of the Cable & Wireless Group, with responsibility for the group's activities in the Far East. Day-to-day management of Hong Kong Telephone was put in the hands of Michael Gale, who served as CEO. Gale first joined Cable & Wireless in 1959 and had earlier served as CEO of Hong Kong Telephone.

As of January 1988, HKT had 16,300 employees and was one of the largest employers in the colony. Expansion of specialty services, including nonvoice communications services, was considered a top priority for the new company. For example, Faxline, a support service for Hong Kong's facsimile terminal users, had 26,000 accounts in 1988 and was growing at the time at a rate of 2,000 new users a month. In addition, Datapak, Hong Kong's public data network for communications and networking, was expanding services between host computers and its own central database terminal. One large HKT customer, global computer maker International Business Machines Corporation (IBM), required the establishment in 1988 of a subsidiary data sales service, IBS. Its role was to represent ROLM, a subsidiary of IBM in Hong Kong, providing it with voice and data digital information systems in addition to servicing and consultation services.

Beginning in 1987, satellite communications facilities were provided to HKT through five satellite dishes located at Stanley Earth Station and geosynchronous satellites situated over the Indian and Pacific oceans. With eight permanent and one portable antenna, the earth station proved to be one of the largest commercial satellite facilities in the world. International facsimile transmissions utilizing Hong Kong Telephone's international telephone circuits grew considerably throughout the 1980s. And the creation of the HKT CSL subsidiary in 1990 allowed for the development of sophisticated paging and mobile radio telephone equipment and services.

By the end of the 1980s telephone traffic between Hong Kong and China was becoming increasingly important to HKT. This reflected both the increase in business between the colony and emerging economic centers in southern China and the expanding telecommunications facilities linking the two regions. By 1989, for example, traffic with China accounted for about 20 percent of international traffic revenues for HKT and some 38 percent of traffic volume overall. This compared with 18 percent and 34 percent, respectively, for both revenue producers a year earlier.

Diversification in the Early 1990s

In October 1990, Rt. Hon. Lord Young of Graffham, chairman of HKT, met with Premier Li Peng and Yang Tai-fang, then China's minister of Post and Telecommunications, and announced that China was to spend some US$6 billion by 1995 to expand that country's telecommunications base. By virtue of the new and expanding China business, Young was quoted in the company's 1991 annual report as saying that the "continued development of the Pacific Rim countries, and China in particular, should ensure that the region continues to enjoy strong economic growth.... Telecommunications infrastructures throughout the region are being expanded and modernized to support this growth. Hongkong Telecom is well positioned to benefit from these developments."

In 1991 HKT added Citinet to its portfolio. The service, offering a private switchboard service to subscribers and operated from a central telephone exchange, was taken up by 21,200 account holders in its first year of operation. HKT also introduced radio paging that year, allowing subscribers to carry a credit card-sized pager, complete with Chinese characters, with them for instant access to calls and messages. By 1992 traffic with China continued to underpin the growth in sales at HKT. Chairman Young told shareholders in the company's 1992 annual report, "China's continuing economic development and the integration with the Pearl River Delta area encompassing Macao and Guangdong are also benefitting the Hong Kong economy. We have seen this translated into strong demand for our services, with international calls between Hong Kong and China growing 35 percent."

HKT completed the digitalization of the Hong Kong telephone network in 1993, the first full digitalization of a major urban market. Another world first was the introduction of an underground digital mobile system, designed to supply coverage on underground trains on Hong Kong's Mass Transit Railway. Also that year HKT and its parent company formed a joint venture, Great Eastern Telecommunications Limited, to take advantage of telecommunications opportunities in Asia. In 1994 HKT and the China Ministry of Post and Telecommunications developed a partnership to install undersea cables throughout Asia, and HKT became the biggest mobile telephone operator in Hong Kong.

Major Changes in the Late 1990s

Despite its continued expansion and dominance of the telecommunications industry in Hong Kong, HKT faced a significant new challenge as it entered the second half of the decade--competition. In mid-1995 HKT lost its exclusive franchise to supply domestic telephone services in the Hong Kong region, and three rivals entered the marketplace: Hutchison Communications Ltd., Net T&T Hong Kong Ltd., and New World Telephone Ltd. With the new competition and increasing inflation, HKT announced plans to cut more than 15 percent of its workforce, which amounted to 2,500 staff members, by 1998. The company maintained that the cutbacks would result not from layoffs but through attrition and a reduction in new hiring.

The introduction of competition did not have a negative effect on HKT, nor did it slow the company down. The company's net profit during the first half of fiscal 1996 increased 15 percent over the same period of fiscal 1995. In 1995 HKT completed its new corporate headquarters, opened offices in Vancouver and Toronto, and announced the formation of subsidiary Cable & Wireless HKT IMS, which would handle interactive multimedia services. The following year HKT launched a new Internet service called Netvigator, thus establishing its early commitment to the Internet, and began offering such services as ISDN (Integrated Services Digital Network) and Caller Display.

In 1997, hoping to increase opportunities in the Chinese market, C&W PLC sold a 5.5 percent stake in C&W to China Telecom, China's government-controlled telecommunications operator. The move was not unexpected. Because Hong Kong was to revert to Chinese rule in July 1997, analysts predicted that C&W PLC would diminish its stake in C&W to increase activity in China, considered a profitable area of growth. China Telecom purchased additional shares of C&W the following year to become the company's second largest shareholder.

Early in 1998 HKT made another significant announcement, that the company would give up its monopoly on international telephone services in 1999 rather than 2006 in exchange for US$865.6 million. As part of the agreement, HKT would be allowed to change the tariffs charged for leasing its telephone lines, possibly resulting in much higher local phone charges for customers. Relinquishing the exclusive rights to offer international services was made less substantial by the fact that customers had had access to numerous international direct-dial (IDD) carriers since deregulation in 1995. IDD rates, according to the Asian Wall Street Journal, had dropped by as much as 70 percent between 1995 and 1998 because of the intense competition. HKT's revenues from IDD services already showed signs of decline, and for the fiscal year ended March 31, 1998, according to the company, IDD services contributed 48 percent of total revenue. The previous year IDD calls had accounted for 53 percent of total revenue, and the year before that 56 percent. Still, HKT dominated the telecommunications industry, holding 98 percent of local services and 75 percent of the long-distance arena.

HKT continued to expand its services so that it would not have to rely solely on revenues generated from local and international telephone services. Internet and interactive services grew considerably, with Netvigator the largest Internet service provider in Hong Kong. The company's new interactive television (iTV) service, which offered viewers the opportunity to access the Internet and view movies, signed up about 60,000 subscribers in just a few months. HKT acquired Hong Kong Star Internet Ltd., a subsidiary of Star Telecom International Holding Ltd., in late 1998, thereby joining the region's two largest Internet service providers.

In the highly competitive mobile telephone market, six operators battled for market share. HKT acquired Pacific Link Communications Limited, the Hong Kong cellular phone operations of First Pacific Holdings, in 1998. The acquisition boosted HKT's leadership of the competitive mobile telephone market. For the fiscal year ended March 31, 1998, HKT reported that cellular service revenues increased 28 percent, and HKT continued to dominate the field, boasting more than 860,000 subscribers. According to the Asian Wall Street Journal, however, the rise in revenue was due primarily to the purchase of Pacific Link. The publication reported that HKT had lost 30,000 subscribers during the first half of fiscal 1999, bringing its share of the market to 41 percent.

As HKT prepared to enter into full competition in 1999, the company struggled to maintain direction and focus amid great change and a difficult recession. The first half of fiscal 1999 did not bode well; total revenue fell three percent, and the company planned to cut the salaries of its staff of nearly 14,000. "We are now changing from a monopoly situation into a highly competitive market," lamented CEO Linus W.L. Cheung in the Asian Wall Street Journal. "If we cannot do something about our costs and efficiency, we will have very little room for maneuver."

As expected, the advent of 1999 brought intense price wars in the long-distance telephone service market. Because of government restrictions, HKT was unable to offer significant discounts. For the fiscal year ended March 31, 1999, total revenues slipped 7.5 percent. IDD services suffered from a 22 percent drop in revenue. The declines, according to the company, were due to severe price competition in international telephone services and mobile services, as well as the recession.

Undeterred by the difficult year, HKT continued to move forward. CEO Cheung wrote in the 1999 annual report, "We have moved from being a monopoly provider of basic telecommunications services to become a competitive, fully integrated communications company." HKT acquired an 85 percent stake in FIC Network Services of First International Computer of Taiwan to strengthen its Internet presence in Asia and upped its stake in Taiwan Telecommunications Network Services from 21.4 percent to 56 percent, thereby expanding its authority in Asian telecommunications markets. The company announced plans to invest US$103.3 million on its interactive television service during 1999 and formed a partnership with Microsoft Corporation to deliver increased services through iTV. HKT had already spent US$180.7 million between 1995 and 1999 developing a fiber-optic network in Hong Kong to accommodate iTV, among other services. In mid-1999 HKT indicated that it would spend US$257.7 million over the following three years to improve its mobile telephone network.

HKT adopted its new name, Cable & Wireless HKT, in June 1999 to signal its diversity of technological products and to further the company's intent to make Hong Kong the Asian center of e-commerce and the Internet. A company press release indicated that the new name and logo were "part of the Company's strategy to further enhance its position to meet intensified competition on a global scale. The new logo and English trade name can better reflect the scope, dimension and the geographical reach of the various integrated communications services the Company is now offering." HKT's plans for the new millennium included entering China's rapidly growing telephone market, expanding into property development, and continuing to invest in its broad range of telecommunications and Internet services. CEO Leung summed up the company's future in a prepared statement: "Cable & Wireless HKT is a new Company projecting the bold new image we will take into the new millennium, when the borderless infotech and communications industry will reach horizons we cannot even imagine today."

Principal Subsidiaries: Hong Kong Telecom CAS Limited; Hong Kong Telephone Company Limited; Hong Kong Telephone International Limited; Hong Kong Telecom CSL Limited; Hong Kong Telecom IMS Limited; Hong Kong Telecom VOD Limited; Computasia Limited; Monance Limited; Hongkong Telecom Finance Limited; One2Free PersonalCom Limited; Hongkong Telecom Teleservices Limited; Hong Kong Telecommunications (Pacific) Limited; FIC Network Service, Inc. (85%); Telecom Directories Limited (51%).