Hongkong Telecom net jumps to $3.65b

HONGKONG Telecom yesterday met the high expectations of analysts by revealing ''stellar'' interim profits of $3.65 billion, up 15.3 per cent on last year.

The company also gave details of its moves into new areas and said there were ''fundamental differences'' with the Government over the licence that will govern all territory phone companies when Telecom's monopoly on local calls expires in 1995.

Earnings per share for the six months to September 30 rose 15.5 per cent to 32.8 cents and the interim dividend has been boosted from 20.3 cents to 23.4 cents.

Turnover rose 13.4 per cent to $11.95 billion, despite the move in August for price cuts on some international calls - a monopoly which is easily the company's biggest money spinner, and one which will remain until 2006.

Chief executive Michael Gale described the results as ''satisfactory'' and said ''we have achieved this by continuous investment despite political uncertainties''.

The results were released during the market's lunchtime break and led to the company's shares slipping 30 cents to close at $16.30 as the strong performance had been largely predicted.


One analyst at a retail brokerage described the figures as ''at the top end of expectations''.

Fred Bowers, analyst at Nomura Research Institute, said: ''The results are stellar, much better than I expected, particularly on the costs side. They have done quite a bit of work and it is paying off.'' The company kept the rise in wages down to 12 per cent and rental rates and utilities rose by a mere $300,000, although there is the expected sharp jump in tax: up 35 per cent to $600 million.

Mr Gale's deputy with responsibility for fending off competition in 1995, Peter Howell-Davies, said the company had just received the first draft of the general conditions that would apply to territory telephone companies.

''There are a number of fundamental differences,'' he said, over areas such as inter-connection arrangements and the use of the company's assets, and he described this as ''not surprising''.


Mr Gale also said the company was making ''positive suggestions'' about the proposals from the Office of the Telecommunications Authority to change the numbering system, which would open up space for other Hong Kong networks and allow customers to changenetworks without the expense of a number change.

''Without numbering portability, the second networks would be completely undermined,'' Mr Bowers said.


Executives indicated they were spending an increasing amount of time dealing with regulatory issues.

''After 1995 there will be competition - a lot of competition,'' Mr Gale said.

However, he was keen to say that many of the company's businesses were succeeding in a competitive environment.


For instance, he said, the mobile phone business, which competes with Hutchison and many others, increased its market share from 28 per cent to 30 per cent in the six months.

Management also commented on the video-on-demand plans unveiled earlier in the week, which is also embedded in a complex mesh of regulation.

They said the company was talking to a number of programme makers and said the announcement of the plans was partly to encourage others to come forward.


Mr Gale said he expected agreements with ''a multitude of content providers'' and expressed confidence that video-on-demand services, unlike cable TV, would be approved under its existing licence.

Executives refused to comment on rumours that a major shareholder was about to sell a large block of Hongkong Telecom shares.

However, they did reveal that nine per cent of the company's shares are now held as American Depositary Receipts, representing about one third of the free float.

Mr Gale also highlighted the potential for operating in other countries, particularly China and Vietnam, with the Great Eastern Telecommunications Company, set up with parent Cable and Wireless, as ''preferred vehicle''.

An announcement would be made ''in the not too distant future''.

Expansion in China was ''a vision, and one that will come to fruition'' because the mainland authorities had gigantic plans for the country's network which it could not fund itself.

Analysts' enthusiasm for the company, which enjoys one of the highest price-earnings ratios in the Hang Seng Index, is driven by the mix of stable earnings plus the link to China's growing economy.

Mr Gale said Telecom was building a third fibre-optic link into Guangdong province - its most advanced yet - which is expected to increase this status further.