Li Ka Shing Sneaks Back Into The Wireless Game

Two months after selling out, the tycoon makes a play in Britain

A few months ago, it looked as though Hong Kong billionaire Li Ka-shing and his conglomerate, Hutchison Whampoa Ltd., had exited Europe's telecom market for good. After all, Hutchison sold its stake in Orange, the British phone operation it built into a valuable mobile player, to Germany's Mannesmann and pocketed a $22 billion profit when Vodafone Airtouch then took over Mannesmann in February. That's more than enough to claim an early success in one of the most competitive sectors in the world and leave the battle to build infrastructure to others.

But Li, it seems, is not content to simply bow out a rich man. He's back for more--this time with another mobile deal in Britain that makes him a competitor to the company he used to own. Hutchison has teamed up with a little-known and cash-short Canadian company, Telesystem International Wireless Inc. (TIW), that's no stranger to overseas mobile networks. On Apr. 27, the two won a hotly contested British government license to offer a next-generation mobile system, known as 3G, that offers high-speed Internet connections and video for mobile phones.

"VERY SAFE." The 71-year-old tycoon used crafty means to get back into the Europe game. Hutchison stayed behind the scenes while TIW used its status as a first-time entrant in the market to make the bid. Surprised competitors who lost, including a joint venture between France Telecom and cable operator NTL Inc., didn't even know Hutchison was the big bankroll behind TIW. As a result of the tie-up, Hutchison ended up paying $2.5 billion less for the license than its competitors in a higher category designated for experienced players. Moreover, the price Hutchison will pay--$6.9 billion up front, plus up to $7.8 billion to construct the network--is far less than the $22 billion it made by selling the Orange stake in the first place. "We sold at full value, and we come back in on the ground floor," says Hutchison Group Managing Director Canning Fok, who engineered the bid.

Some industry watchers say the deal may not be such a bargain. They point to the untested nature of 3G technology and say the European Union could impose new rules that would erode profit margins. Also, 3G's as yet undeveloped content will be key, in order to get subscribers to pay for nifty, but costly, services. "There are a number of scenarios where that price will look expensive in three years," says a London investment banker. But Fok shrugs off any concerns: "Using the most conservative figures, we are very safe" with the investment.

Montreal-based TIW already has experience in Europe's telecom market, and counts 2.7 million subscribers in such places as Brazil, Romania, and India. In Western Europe, its Dolphin Telecom unit offers walkie-talkie-like mobile service for delivery and transport companies, and clients include Canary Wharf and Nestle. Its sister company, Microcell Telecommunications, is the No. 4 cellular operator in Canada.

STRONG RIVALS. But few of the eight-year-old company's operations are profitable: TIW reported a net loss of $175 million last year. And TIW's $2.4 billion market capitalization is puny compared with Hutchison's $54 billion. Its stake in the British license is merely 10%, leaving the 90% share to Hutchison. "Essentially what TIW has done is win a very, very expensive license that they didn't have the capital to win," says Dvai Ghose, telecom analyst at CIBC World Markets in Toronto.

The two sides began talking late last year, when TIW set out to find partners to build next-generation mobile services. 3G technology is primarily being developed by Qualcomm Inc. and NTT DoCoMo, so the Hutchison partnership will allow TIW the means to buy 3G services. "I met Canning Fok, and we hit it off immediately and saw eye-to-eye very quickly," says Bruno Ducharme, TIW president and CEO. "We both share a vision of the wireless world, and what is really happening with the Internet coming into the wireless world." In March, Hutchison invested $150 million in TIW and set up the venture to bid in Britain.

With its reentry into Britain, Hutchison will take on some formidable players. Besides Orange, market heavyweights British Telecommunications, Vodafone AirTouch, and One2One all won licenses for the new technology.

Despite the competition, the deal leaves Hutchison in an enviable position. It has the cash and experience to build a new-generation system in Britain, and perhaps the Continent. But if the price is right, expect Fok and Li to cash out yet again. "When it comes the time to sell, we have no hesitation," says Fok. Either way, Li Ka-shing figures he wins: That's how he likes it.

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