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SCMP Reporter

WHEN First Pacific announced 1993 profits up 60 per cent over the previous year, analysts were pleased for two reasons.

  Of course, there was the climb in group earnings from $492.1 million in 1992 to $789.3 million in 1993.

 But First Pacific watchers were also pleased by the way the company seemed to have matured during the year. In the past, said Fred Bowers of Nomura Research Institute, First Pacific seemed to buy its earnings. It made a string of acquisitions at the end of the 1980s and carried that on into the 1990s.

   In 1993 it showed a new strategy was firmly underway: real organic growth powered by investment.

 One of the chief places First Pacific is putting its money into is the telecommunications business across Southeast Asia.

 The company is leveraging the knowledge of paging and mobile telephony it has built from its paging, CT2 and cellular phone businesses in Hong Kong into fresh markets. But it has also picked its new markets with care, too, choosing markets going where it already has experience in other businesses and strong government contacts.

  The premier focus for new telecommunications business is the Philippines, where First Pacific's venture is called Smart Information Systems.

  Working from an initial investment of US$35 million, Smart will be a Philippines-wide cellular network. Right now, one month on from what Thomas Yasuda, First Pacific executive director, called a soft launch, Smart has a small number of subscribers in Manila, Davos and Cebu.

  It is early days for Smart, but much of the planning has been done.

  ''Metro Manila is going to be the first significant market,'' said Mr Yasuda.

  ''We will have 14 or 15 cell sites there, but build-out is not complete, which is why the launch was quiet.''   Smart uses analogue technology - proven and reliable, says Mr Yasuda - which is cheap enough to enable Smart to offer attractive deals with which to lure new customers.

    While an analogue handset will cost anything from HK$10,000 to $15,000 in Hong Kong, Smart will practically give them away for HK$1,950. New customers will not even have to shell out that initial cost because Smart will swallow the cost if a customer signs on for two years.

  Smart has two competitors, Extelcom and a subsidiary of near-monopolist Philippine Long Distance Telephone (PhilTel).

  But Mr Yasuda reckons there is plenty of space for Smart's strategy of low entry cost. ''Extelcom is very small. It has only eight base stations in Metro Manila, I think,'' he said.

  And PhilTel now has between 70,000 and 80,000 subscribers, making its network congested, he added.

  Smart lived up to its name in funding the initial phase of its build-out. A deal with Ericsson of Sweden gave Smart a 50 per cent export credit for infrastructure offering lower than market rate interest and a five-year maturity.

 That will help the group on the next phase of development. Part of the price of developing a nationwide cellular service is that Smart must install a certain number of fixed lines as a licence requirement from the Philippine Government.

 The first requirement for Smart is that it produces 400,000 new lines for the nation.

  Mr Yasuda said First Pacific was also applying for an international gateway licence and, if successful, there would be a requirement to install another 300,000 fixed lines.

  ''That doesn't necessarily mean hard-wiring,'' said Mr Yasuda. ''When you are talking about POTS [plain old telephone service], then a combination of hard-wired lines and cellular links can be used.

  ''The rule of thumb is US$1,500 a line, but it will cost a lot less if hard-wiring can be cut down.''   The government is expected to gradually break up monopolies in the Philippines. For the purposes of issuing telecommunications licences, this will probably mean dividing the country into sectors. Mr Yasuda reckons that a licence for an urban sector will come with a price: a rural sector which will yield less and will have to be developed.

  First Pacific's second area of new telecommunications development is Indonesia, where the company's roots lie, but its initial investment is a modest US$8 million in paging infrastructure. There is, however, expected to be growth potential as Indonesia eases its tight grip on regulation.

 The first phase of the paging service is scheduled for launch in the middle of this year. It will cover Jakarta, Surabaya and Bandung.

   The government intends to restrict licences to just one per million of the population. ''In Hong Kong, there are about 30 operators for six million,'' Mr Yasuda said.

  By the end of next year, the company's reach should cover 12 Indonesian cities.

  Paging services ought also to be fiercely competitive in Indonesia. While some investors may worry that the Philippines does not yet have the kind of per capita GNP to support the luxury of mobile communications, Indonesia is growing rapidly.

  But, so far, Indonesia has done little to open its telecommunications markets.

  In the mobile sector, for example, the country is running an unusual system. There are independent cellular operators, but they receive none of the revenue from call time charges. That money is passed directly to the government.

  The operators make their money from the sale of handsets and, as a result, the price of an analogue phone in Jakarta is now between US$8,000 and $10,000. ''This is one reason why we see such a strong market in paging,'' said Mr Yasuda.

  Indonesia was expected to start making changes to that policy this year and, when it did, First Pacific would definitely apply for a licence, said Mr Yasuda. It would be well-positioned, because the company's paging partner is the Ministry of Tourism, Post and Telecommunications.

In Hong Kong, First Pacific has just launched a digital cellular system: it is marketing CT2 phones aggressively as a pager-plus system rather than as a mobile phone system under the name TeleLink and is expected to break even before the end of this year.

  Pacific Link, the analogue network which is now trying to migrate customers to its new digital system, is now the telecommunications cashbox. It is the driver behind the company's HK$139.5 million in telecommunications profits last year.

  As Asian economic growth continues investment in the region's telecommunications business will benefit the group in the long run.



First Pacific reaches out to SE Asia