Analysts are mixed on NOW Broadband and its potential impact on earnings When Hong Kong's biggest telecommunications firm reported its results last week, investors were looking for signs that the decline in its market share was slowing and healthier times beckoned. They returned a mixed score card after PCCW reported worse than headline profits and an 8 per cent drop in its core telecommunications revenue. On the same day was the formal launch of a pay-television service that lacks critical content but advances the notion of an integrated provider of multimedia services. Few observers expect its mixture of largely foreign content to threaten established media players but the launch promises to reinforce its position as Hong Kong's dominant broadband player. Yet the real news in PCCW's half-year statement was perhaps the formal launch of a campaign to roll back the regulatory straitjacket that enforces mandatory interconnection to its network and imposes a raft of restrictions aimed at curbing its dominance. PCCW has applied to the relevant authorities for a change of status to a 'non-dominant' carrier, saying such constraints unfairly restrict the way it competes. Since 1995, Hong Kong's telecommunications liberalisation has been achieved through the introduction of new carriers, mandated inter-connection agreements to PCCW's core network and a lengthy approval process that must offer price cuts and cross-selling of services. A recent Credit Suisse First Boston report said it expected the company to gain some concessions on the regulatory front in the next six to 12 months and that the rate of its market share loss would start to decline in that time. PCCW announced a net profit of $703 million for the first half which included an unexpected $385 million loss in its 50 per cent-owned undersea cable carrier Reach. PCCW will launch its pay-television service this month using Internet multicasting technology over digital subscriber lines, in the hope of enticing its 480,000 existing broadband users to subscribe. The NOW Broadband TV service has a pricing system that bills customers on the number of channels selected. However, PCCW is weighing into a tough market dominated by i-Cable Communications, recently joined by City Telecom and set to be followed in the fourth quarter by Television Broadcasts' Galaxy service. PCCW says its service will offer DVD quality. While demo presentations have been impressive, BNP Paribas Peregrine analyst Voon San Lai said broadband delivered systems might suffer bandwidth problems, affecting picture quality. 'A five-second delay is okay when waiting for a web page, but for broadcast programmes it's unacceptable,' Mr Lai said. Others, however, see a potentially profitable niche market in the pay-as-you go format that bills customers only for channels used. CLSA analyst Charle Peza said its 'user-friendliness, flexible billing and variable cost base' meant it was likely to be profitable. However, he said the target market might be much smaller than PCCW thought, given that it did not offer Cantonese shows or live sports. He said the new service would add about 4 per cent to the firm's net profit next year. Citigroup Smith Barney analyst Rohit Sobti said 'incremental stimulus' such as broadband television made sound business sense for PCCW because it gave customers added incentives to stick with the company in such a competitive market. Because of such measures Mr Sobti said he saw little downside for PCCW at current levels. The counter yesterday closed 0.56 per cent firmer at $4.475 in the half-day session.