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APAC Update: Bids, Bungs & Capex Concerns

While the world watches the U.S. political landscape turn on its head (there has been some sort of election, apparently), the Asia/Pacific telecom sector has experienced some significant upheaval of its own.

Privatization plans at PCCW
The board of PCCW Ltd. (NYSE: PCW; Hong Kong: 0008) has accepted an offer of HK$4.20 (US$0.54) per share from a consortium controlled by China Netcom Corp. Ltd. (NYSE: CN; Hong Kong: 0906) and PCCW chairman Richard Li that wants to take the Hong Kong carrier into private ownership.

China Netcom and various companies controlled by Li already own 47.58 percent of PCCW's stock, so the offer is for the remaining 52.42 percent. At HK$4.20 per share, the offer will cost the consortium as much as HK$15.49 billion ($2 billion) if all current stock options are exercised before any agreed acquisition date.

The news sent PCCW's share price up by HK$0.78, nearly 27 percent, to HK$3.68 Wednesday in the stock's first day of trading after it was suspended on October 14. That suspension followed the news that PCCW had discontinued a planned asset sale. (See PCCW Ditches HKT Sale.)

The offer from Li and Netcom's consortium has a long way to go before it might be accepted by shareholders, however, the fact that PCCW's share price is now trading some way below the offer price suggests a lack of confidence in the deal by the targeted shareholders.

If the deal goes through though, Netcom and Li will face an almost immediate payback for their efforts, as part of their takeover plan includes an almost immediate dividend payment of between HK$16.96 billion ($2.19 billion) and HK$17.57 billion ($2.27 billion), a proposal that could well stick in the craw of the current shareholders.

PCCW reported revenues of HK$10.75 billion ($1.39 billion) and net income of HK$656 million ($84.6 million) for the first six months of 2008. At the end of June, the operator had nearly 1.2 million mobile subscribers (including nearly 300,000 3G customers), and 2.6 million fixed line subscribers, including 1.28 million broadband customers. PCCW also boasts 927,000 IPTV accounts.

Capex concerns in Korea
The global economic storm appears to be affecting the spending plans of South Korea's major carriers, according to a report from the Telecoms Korea News Service.

The report cites a source who says mobile operator SK Telecom (Nasdaq: SKM) plans to cut its capex budget by up to 30 percent. The report also suggests that fellow wireless operator KT Freetel Co. plans to reduce its capex by 16 percent to 800 billion Won ($639 million), while fixed-line parent KT Corp. (Korea Telecom) will, at best, freeze its spending.

The report surfaces just as Korea Telecom's CEO, Nam Joong-soo, quit his job Wednesday after the Seoul Central District Court issued an arrest warrant for alleged bribery. See this Reuters report for the full details.

Telstra teams with Microsoft
Microsoft Corp. (Nasdaq: MSFT) has landed itself another handy carrier collaborator in the form of Austrlian incumbent Telstra Corp. Ltd. (ASX: TLS; NZK: TLS).

The two companies announced today their plans to jointly develop business services and applications to be delivered over the carrier's new fixed IP and 3G mobile networks. (See Telstra Pushes HSPA Limits, Telstra Unveils Next IP, Telstra, Alcatel Unveil IP Plan , and Telstra Unveils Switch to IP.)

The focus of the alliance is to build integrated packages of services including, according to Telstra, "a combination of telephony, email, mobility, conferencing, collaboration, and tools like presence," which will become available from mid-2009. Telstra stresses that the services will be available to small and medium-sized businesses (of which there are 1.8 million in Australia) as well as larger enterprise customers, and that hosted subscription-based services will be included in the offers.

Microsoft is already working with a significant number of major carriers to develop business applications, including BT Group plc (NYSE: BT; London: BTA), Russia's Mobile TeleSystems OJSC (MTS) (NYSE: MBT), and Telefónica SA (NYSE: TEF). (See Microsoft Tweaks Its Carrier Strategy.)

Other news of note from the Asia/Pacific region:

— Ray Le Maistre, International News Editor, Light Reading

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