Not even a year ago, Pacific Internet was the envy of Asia's first generation of Net companies. It was the Singapore service provider's February listing on the Nasdaq that started the Net fever that consumes the region. But the easy days are suddenly gone--and probably for good. On Sept. 13, Singapore regulators lifted restrictions that have kept foreigners out of the local market. It was behind those barriers that Pacific Internet became a pathbreaker in the Asian Internet industry. Now, it has to swim in a larger sea.
There's not much time to learn the strokes. With foreigners permitted 100% ownership of ISPs, foreign rivals such as MCI WorldCom and AT&T are likely to pile into Singapore. Pacific Internet President Nicholas M.T. Lee isn't treading water. He wants to make his company an Asian answer to America OnLine Inc. But he's starting from a position of weakness. Pacific Internet's stock has languished since its listing. Local competition has eroded margins. "The pressures are getting severe," says Rohit Sobti, telecom analyst at Prudential-Bache International in Hong Kong. "They need to do something."
Lee doesn't lack for ideas. He wants to make Pacific Internet a bigger regional player. After buying two small Australian ISPs earlier this year, Pacific Internet now has almost 250,000 subscribers. Over the summer, Pacific Internet bought the 49.9% of Hong Kong ISP Pacific Supernet that it didn't already own. It also launched satellite access to the U.S. for its Philippines ISP. Lee plans to be operating in India by yearend. After that, he wants to look at China, Japan, South Korea, and Taiwan.
At home, Lee wants to expand into higher-end markets such as high-speed broadband access. As margins shrink in the traditional dial-up business, he's also targeting electronic commerce. The company recently launched an online mall through which 60 retailers sell flowers, electronics, and books. In its own online store, Pacific Internet offers discounts on Microsoft Office software, 3Com PalmPilots, and similar products.
DOLDRUMS. Lee hopes these new directions will help Pacific Internet recover lost ground. In essence, the company blew much of its advantage by failing to promote itself after its Nasdaq listing. Even with a recent rise, the stock trades at much lower valuations than highfliers such as China.com Corp. "We didn't know how to play the game," Lee admits. More worrisome is a drop in average revenue per subscriber in the Singapore market: Analysts say it has gone from $18 a month last year, to about $13. Last year, Pacific Internet made $7.4 million on revenue of $43.5 million. Having spent heavily on expansion, analysts say, it is likely to break even this year on sales of $62 million.
For many observers, it's not clear whether Lee's strategy will get Pacific Internet past its doldrums. E-commerce may work in the future, they say, but for now, access is more important. And Pacific Internet lacks the backing of a powerful telecom operator. Unlike rival Singapore Telecom, Pacific Internet doesn't own much of the infrastructure it uses. "The telcos are in the best position," says Rajeev Gupta of Goldman, Sachs & Co. in Hong Kong. "Pacific Internet can't reap the same economies." SingTel has just upped the ante, too. On Sept. 14, it announced a $50 million deal with U.S. portal Lycos Inc. to develop sites across the region.
Nonetheless, Lee insists that Pacific Internet will benefit from Singapore's market opening. Freed from the previous 49% cap on foreign ownership, he claims, Pacific Internet can pursue deals with foreign telecom operators. The company has already discussed partnerships with U.S. and Asian operators.
Lee suggests he's looking for more acquisitions in Asia. "To play in regional markets, we need to be a certain size," he says. "We need a little bit more to help us." As he moves into more glamorous businesses, Nicholas Lee may discover just how true that is.