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Carolyn Ong

Raymond Chang, chief executive of Taiwan-based broadband services provider GigaMedia, has had an eventful two months.

He has ditched one hot partner - Pacific Century CyberWorks (PCCW) - and snuggled up with an even hotter one.

'The press in Hong Kong keeps talking about the whole PCCW-GigaMedia relationship as if we've really fallen out, but the truth is we are still friendly,' Mr Chang said.

GigaMedia last month pulled out of a three-way partnership with PCCW and ERA to develop Chinese language Internet content.

A week later, GigaMedia signed a deal with News Corp's Star TV, giving it US$200 million to US$250 million in financing to accelerate the two-way infrastructure upgrade of GigaMedia's cable partners.

In addition, Star will form a 50-50 joint venture with GigaMedia to provide interactive broadband television access using set-top boxes.

Final capitalisation of this venture may reach US$100 million.

That deal prompted a sharp response from PCCW, which also has an interactive multimedia service called Network of the World (NOW).

A PCCW official had labelled the GigaMedia-Star offering as 'limited' and said it would address only a small part of Taiwan's population.

Mr Chang said his company went with Star because 'we shared the same vision. We think that the TV and Internet as a converged platform made possible by broadband would be a really powerful vehicle and would be able to deliver all types of really great content and services people would pay for'.

He said in comparison NOW, PCCW's TV-Web service, required people to remember a URL (Uniform Resource Locator) advertised on NOW's TV programme and look it up on the Web.

'I just don't think that model will work. How many people are going to watch TV and then go check up on a URL? That was a fundamental difference in vision,' Mr Chang said.

Analysts said GigaMedia's deal with Star would rule out any further co-operations with PCCW, but Mr Chang said a partnership was still likely.

'We would still work with PCCW. We've never thought of PCCW as a competitor.

We parted ways on that deal because we didn't agree with the valuations of ERA's assets and the allocation of shares,' he said.

While Mr Chang denied ill feeling between the two companies, GigaMedia is a strong contender for the market in which PCCW's NOW is trying to establish itself.

Unlike NOW, GigaMedia is focused. It offers content relevant to Chinese communities, its target audience, in every form of popular content except pornography. Music, news, games, finance and TV guide content are offered on two sites - www.gigigaga.com and love4asia.com.

NOW's content, which is produced in Britain, provides little relevance to the Asian audience and does not provide world and finance news.

GigaMedia also sealed two content deals recently to enhance its content offering with Sega.com, the online arm of game developer Sega, and Yahoo!

GigaMedia joined forces with Yahoo! to provide content and access to the Taiwan market.

Yahoo!, via its broadcast.com site, is a serious competitor in the provision of broadband content worldwide.

In August, GigaMedia and Hong Kong-listed Sega.com Asia signed an exclusive deal to build a co-branded online computer networked gaming service in Taiwan.

The companies expected to top US$35 million in online gaming revenue in the first year.

GigaMedia is backed by one of the island's largest conglomerates, the Koos Group, which provided 80 per cent of the NT$800 million (about HK$197.44 million) in initial equity capital and controls Taiwan's largest cable TV network, offering GigaMedia instant access to more than half the island's cable market.

Merrill Lynch Internet analyst Matei Mihalcaat said: 'The cable TV industry in Taiwan is controlled by system operators who own the last mile of cable infrastructure that actually reaches into subscribers' homes, much like [South] Korea.

'That's GigaMedia's strength for now until the Taiwanese Government pursues open broadband access.

'If that happens, GigaMedia will be forced to allow other operators to share its near-monopolistic control of the last mile.'

GigaMedia has 29 cable partners in Taiwan; 22 providing GigaMedia with exclusive access.

Its gigigaga.com Web site boasted 35 million page views in June and has 252,669 registered members.

Mr Chang said: 'We own the last mile of connectivity to over 70 per cent of households in Taiwan. People realise the value of this company because it owns the pipes.'

GigaMedia claims access to more than 3.8 million households and 576,000 small and medium-size businesses.

The company offers Internet services, broadband services and interactive multimedia content in Taiwan.

Microsoft owns 10 per cent of GigaMedia and is working with the company to develop a co-branded portal using its software.

The two are teaming up to build TV set-top boxes that provide Internet access.

Unlike PCCW, which has been working on global domination, GigaMedia's offshore ambitions are limited.

Mr Chang said geographic expansion was not on the top of his list.

'We want to focus on Taiwan first before we think of other markets. I'm not entirely convinced that geographic expansion is the best way to scale up.

'We are investing in XML technology so that we can reach wireless devices. Pursuing a wireless strategy would allow us to transcend the geographic barrier.'

Mr Chang said when the company decided to replicate its business overseas, it would be done cautiously.

GigaMedia had partnered with Infocomm Development Authority of Singapore to promote and cross-distribute each other's online broadband content through co-branded Web sites.

The company struck a similar deal with South Korea's Thrunet.

Mr Chang said by partnering with good content providers, such as Yahoo! and Sega.com, users would want to pay to get good content.

'Compelling content will lure subscribers but eventually, the future of the business lies in e-commerce and finding a way to get people to pay for content.

'Content cannot always be free. Services cannot always be free. There isn't enough advertising for all of us right now,' he said.



Star tie widens GigaMedia scope