Hutchison in talks to sell UK telecom unit
HUTCHISON Whampoa is negotiating with two foreign telephone companies for the sale of its loss-making subsidiary, Hutchison Telecom UK.
The companies are Telstra OTC Australia and Deutsche Bundespost Telekom of Germany.
Sources close to Telstra have confirmed that it is interested in Hutchison Telecom UK but industry sources say Deutsche Bundespost Telecom is favoured to seal the deal.
Hutchison managing director Simon Murray is understood to have recently returned from Australia and Hutchison's UK managing director, Hans Snook, is said to have arrived in Hong Kong late last week.
Neither Mr Murray nor Mr Snook would comment on the negotiations.
Keith Mallinson, research director for telecommunications analysts Yankee Group Europe, said he saw the synergy between Telstra's operations and Hutchison Telecom UK.
''Telstra has a lot of ambition abroad and is bidding for the British Government's telephone network contract. Hutchison's mobile operation would complement this. They could leverage off one another, and it is that sort of synergy which will make the mobile operation a more realistic project in the present competitive marketplace.'' Hutchison Telecom UK comprises the Rabbit telepoint operation, a service provider for a cellular operation, and a personal communication network (PCN) licence.
The British operation has been a constant drain on the financial resources of the group. Chairman Li Ka-shing conceded, after the recent announcement of Hutchison's interim figures for the six months to June 30, that Hutchison Telecom UK was expected to continue to lose money as business was built up.
Mr Mallinson said the costs of developing a PCN system were massive. Setting up the network was reported to cost GBP500 million (about HK$5.8 billion).
''If it is to be done in a full-blooded way, the investment needed would be up to US$1 billion over a five-year period. That sort of burden puts a heavy strain on a company.'' The installation and roll-out of the network is scheduled to begin in the first half of 1994. Hutchison is believed to be keen to sell the operation before it has to outlay any more cash.
British Aerospace (BAe) is known to have been pushing for a quick sale of its 30 per cent holding in Hutchison Telecom UK, as the ailing defence equipment and aircraft manufacturer attempts to consolidate its operations.
Mr Snook confirmed he was helping BAe find a buyer, but implied the new stake-holder would become a partner with the Hutchison group.
''Rabbit's . . . coverage is not adequate, and it is not competitive with cellular. But the jewel in the crown is the licence to operate the full-blown mobile network. This is a risk as the PCN is still in the early stages of development and needs massive capital investment. But Hutchison is unlikely to split up the operation as it could get left with the rubbish.'' Analysts said Hutchison was still not selling into a healthy market. Mr Mallinson said: ''The economic conditions in Britain have picked up a bit, but they remain hesitant. In the mobile sector there is a lot of competition and Hutchison is coming late to the market. It is not going to be easy to sell the operation, but it only needs one buyer.'' If Hutchison is successful in unloading Hutchison Telecom UK in this fiscal year, any losses will be offset by the gains realised by the sale of Star TV, and Hutchison will be in good shape.
Local analyst GK Goh has predicted that if Hutchison cannot find a buyer for its British operations, the company will closed down by the end of the year.