After reporting enviable profit results for last year, writes GREN MANUEL, Hongkong Telecom is facing a new challenge - regulation from the newly set up Office of Telecommunications Authority. As its finance director John Tonroe says, the company is now on the verge of a new era. WHEN Mr Michael Gale, chief executive of Hongkong Telecommunications, presented his company's profits last Thursday he was unveiling a set of numbers which would make any of his rivals worldwide ill with envy. How long can it last? Even with increased pension costs, faster capital depreciation and more than $500 million being spent on a new headquarters, profits still rose 13 per cent, with underlying growth nearer 20 per cent. Analysts were left searching for superlatives to describe the results. Although there are some worries about the very high price-earnings ratio now enjoyed by the company, from an operating point of view the results were described as faultless. Although its monopoly of local calls will end in 1995, the real money-spinner of international calls has been guaranteed until 2006. International calls make up 63 per cent of the company's business and have a margin even higher than the 30 cents in the dollar of the company's overall business. But finance director John Tonroe is not keen for the company to be seen as a fortress around a gold mine. ''Our real challenge now is, of course, regulation,'' he said. As he says, the company is on the verge of a new era. At the Economic Services Branch is Mr Alex Arena, an experienced regulator from Australia who will be director-general of the Office of Telecommunications Authority. Much of the thinking behind the new regulatory structure was first put into practice in Britain in the early 1980s, when it was thought that these regulators would replace the long-standing monopoly system with a competitive one and would then wind themselves up, leaving market forces to protect the interests of bill payers. In practice, the budgets and profiles of these regulators have risen ever higher as they have been forced to intervene - or interfere - deeper and deeper into the business of the established player to protect what they see as the interests of the customers. Overseas, stock analysts spend more time learning about the regulator than the company when trying to assess future profits. In turn, the regulator may pay more attention to public opinion than the needs of the company's shareholders. Hongkong's less-developed consumer movement may slightly change these equations, with business users having the most lobbying power, particularly if they perceive Hongkong Telecom making monopoly profits from international calls. Established telecommunications providers elsewhere eyeing the Hongkong market may also try to exert pressure. Legislators have already given the company a once-over when passing the legislation which will form the framework for the new regime. Not only has the company won continued monopoly status from the Government, all four of its executive directors are Westerners and it sends $2.5 billion a year back to London as dividends to parent Cable and Wireless. Regulation could weaken the terms of the international monopoly, allowing competitors to win the most lucrative business, and handicap it so much in the local market that competitors could start making real inroads. Although local calls will almost certainly remain free for the foreseeable future, local competitors collect a slice of calls they hand on to Hongkong Telecom which are destined overseas. ''Their success will depend on the share of international revenues they can collect,'' said Mr Tonroe. ''We're moving quite rapidly from an engineering and technology-driven company to a marketing and customer-driven company. We're spending an awful lot of money on developing systems to serve customers. We're also increasing staff in marketing and sales where previously the company was a technology-driven company. ''We're saying we've got to be the best service company in Hongkong.'' One of the British ideas being imported is a customer's charter, which it hopes to get off the ground this year. This will lay out a range of numbers that will define the company's performance, such as how long the directory inquiries service takes to answer and how long it takes to fix a line fault. Asked if the company will give rebates if it does not measure up, Mr Tonroe said: ''It's possible.'' The company is also recruiting new members for its customer groups, who meet regularly to praise, criticise or offer suggestions to company management. On the issue of local management, Mr Tonroe said: ''We do recognise very much that we have to address this problem.'' Mr H. M. Fung, an executive director who ran the international services, retired two years ago and was not replaced with a local. ''I don't think that it makes us vulnerable, but we are in Hongkong and it is a Chinese community. The company's need to bend to the new regime was given a textbook demonstration last week, when it gave up its strongly-held position on separate publication of accounts for local and international businesses, which would allow a better understanding ofwhether the pricing deal reached with the Government was too generous. The company had long held to the principle that information about the relative profits of each business was private, difficult to produce, and open to misinterpretation. It was a matter of principle, but it is now a principle conceded. Legislators found the company an easy target, and it is easy to understand why.
