By Bruce Einhorn
Recently, I was chatting with an analyst from a major U.S. investment bank in Hong Kong about local media giant Television Broadcasts (TVB). Rumor had it that TVB was talking to Pacific Century CyberWorks about a possible joint venture. Pacific Century, better known as PCCW, is the company founded and run by tycoon-in-the-making Richard Li, younger son of billionaire Li Ka-shing, who had rapidly turned it into the second-biggest Internet company in Asia, right after mighty Softbank, before the bottom fell out of Asia's high-tech markets.
This analyst didn't think the deal would happen -- not because it didn't make sense for TVB, but because the market had so soured on Li and PCCW that the company had become, in the analyst's words, "like a poison chalice."
Rough stuff. These days hardly anybody seems to have a kind word to say about Li. But it wasn't that long ago that investors and the media (including BusinessWeek) were singing his praises. And for good reason: Like Steve Case of AOL -- and unlike Tim Koogle of Yahoo! -- Li had the smarts to recognize that his company's inflated stock price in early 2000 provided a great chance to take a still-unproven Internet business and anchor it by buying a real, bricks-and-mortar company.
In Li's case, that was Hong Kong Telecom, which he bought from Cable & Wireless after a bitter fight with Singapore Telecom and its partner, Rupert Murdoch's News Corp. Had Li made the mistake of sitting still, like Koogle & Co. at Yahoo, then today he would have little but a bombed-out Internet holding company. Instead, he controls Hong Kong's dominant provider of voice and data services.
Still, Li's fall from grace has been dramatic. A year ago, PCCW seemed to have captured the imagination of American investors like no other company outside of Japan. People who seemed to know very little about Asia were betting their money on brash Li and his dealmaking prowess. Readers of BusinessWeek and Business Week Online asked about him all the time.
In fact, I could almost track the health of the Internet sector by the e-mail that I got from readers. In the first half of 2000, when young Li was still making dot-com deals left and right and PCCW was in the midst of its successful battle to take over HKT, I got simple messages like this one from a reader named Bob: "What is your opinion of the prospects of PCCW?"
Later in the year, things started to sour for Li and the Net sector in general. In December, with PCCW's stock price crashing and the value of its dot-com investment portfolio shrinking by the minute, Bob wrote back with a plaintive "Is this company going to be a leader in the Internet, or is this company's business model flawed beyond rebuilding?"
Today, the e-mail keeps coming -- but not about Li. I'm afraid that's because Bob and burned investors like him have given up on the entrepreneur. PCCW is the worst-performing major stock in Hong Kong, and the 34-year-old Li is no longer a boy wonder. Instead, he's still coping with the worldwide telecom meltdown and the embarrassment of having to admit that, despite claims to the contrary by some of his companies, he never graduated from Stanford University, having dropped out before getting his bachelors degree in engineering. Last week the Financial Times reported that a headhunting firm was on the prowl for a new CEO to take over from Li, who would remain as chairman. Li tried to quell speculation that he's on the way out right away, but he did say publicly that he might step aside next year. Whether it happens sooner or later, though, it does seem likely that Li will stay on as chairman. My guess: He'll probably allow someone else to run PCCW's day-to-day operations.
FEW WOULD FIT.
But who? It won't be asy to find the right person. PCCW faces some unique challenges. First, there's a political issue. Some analysts believe the new CEO will have to be ethnic Chinese, given the sensitivity of the position in a city now ruled by Beijing. If so, that would severely limit the talent pool from which PCCW can choose.
The new CEO will also have to find a way to dispel the bad feelings that exist toward PCCW among soured investors and analysts. He or she will have to figure out what to do about Network of the World (NOW), the broadband Internet and TV network PCCW launched last year. It has been a major disappointment to date.
And can the new exec work well with Li? Even if he does step aside as CEO, Li will remain the founder of PCCW and still the company's biggest shareholder. Li is known to be a very demanding boss.
Then there's the challenge of squeezing earnings out of the ultracompetitive Hong Kong telecom market. The city of almost 7 million people has four fixed-line carriers and six cellular operators. Despite longstanding predictions by analysts that consolidation is upon us, that number hasn't budged for years as companies resist selling out or closing shop.
Last year it seemed that the high cost of acquiring so-called third-generation (3G) telecom licenses and installing the necessary equipment to make the newfangled high-speed networks run would force marginal players out of the market. But with doubts increasing about 3G (see BW Online, 5/17/01, "A Wireless Generation Gap"), some of those companies seem to have won a reprieve.
Finally, a big question mark surrounds PCCW's giant partnership with the Hong Kong government, a real-estate project dubbed Cyber-Port. When the government unveiled the plan in 1999, the IT industry was booming, and it seemed a sure thing to get companies to move to Cyber-Port's new high-tech buildings on the relatively remote south side of Hong Kong island. Today, that -- like much of the rest of the PCCW story -- may be a much harder sell. Anybody for filling Richard Li's shoes?
Einhorn covers technology from Hong Kong for BusinessWeek. Follow his weekly Online Asia column, only on BW Online
Edited by Edited by Douglas Harbrecht