| BUSINESSWEEK ONLINE : MAY 17, 1999 ISSUE | ||||||||
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| INTERNATIONAL BUSINESS
Size Does Matter in Asia's Cyber Race From Singapore to Taipei, old-line conglomerates are crowding out the nimble newcomers Can't get enough of U.S. Internet stocks--the ones with weak profits and outrageous prices? There's always Wharf Holdings Ltd. in Hong Kong. The $1.3 billion conglomerate has seen property prices plunge and business shrink at its hotels and stores. It's also taking big losses on its push into phone service and cable TV. Yet Wharf's stock price has nearly doubled since Apr. 1, to $2.68 on May 5. The reason: Wharf has recast itself as an Internet play. ''The Internet market will continue to grow,'' explains Daniel Ng, director of Wharf's Internet division. ''With our strength, we should be able to find our position in it.'' The Internet craze is sweeping across the Pacific. From Singapore to South Korea, shares with even vague links to cyberspace are torrid these days and adding to the euphoria in Asia's bourses. But the fever is proving a decidedly local strain. Unlike the U.S. scene, dominated by small, zippy startups, Asia's Net boom is tilted toward old-line conglomerates with established reach. Some venturesome high-tech companies plan to issue stock. But for now, the market is rewarding size more than agility. ''In the U.S. Internet boom, everyone can catch the wave,'' says Antonio Tambunan, who manages the Internet advisory group for Deloitte & Touche Corporate Finance in Hong Kong. ''In Asia, that wave's reserved for the big boys.'' That's because Asia has almost no pure Net plays. Like Wharf, just about every Net stock in the region bears heavy non-Net baggage. Asia has no NASDAQs, either. Most Asian markets are just setting up second boards--which makes it tough for startups to find capital. In effect, East Asia is passing through a phase the U.S. left a few years ago. Back then, Internet service providers (ISPs) such as Netcom were all the rage in the U.S. market. Today, while there are Asian versions of portals such as Yahoo! Inc. (YHOO) and E-commerce companies such as Amazon.com Inc. (AMZN), none is publicly traded yet. Wharf is typical of the alternatives open to investors. Its monopoly cable-TV network reaches 700,000 homes. In March, Wharf (WARFY) said that it will use the network to provide high-speed Internet access by yearend. Although the Internet is likely to remain a small part of Wharf's revenues, that was enough to send the stock soaring. Other Asian conglomerates are placing similar bets. In April, Sumitomo Corp. announced a joint venture with AtHome (ATHM) to offer cable-modem access in Japan. Even the few Asian startups that have gone public are exceptions that prove the rule. Singapore's Pacific Internet, a regional ISP, had an initial public offering on the NASDAQ in February. Its stock has since risen 30%, to 62 on May 5. But Pacific Internet is a unit of Sembcorp Industries, a state-owned conglomerate with enough muscle to support a newcomer through its infancy. Another beneficiary of deep-pocketed parents is Yahoo Japan, backed by Yahoo! and Japanese IT giant Softbank Corp. Shares in Hong Kong's Tricom Holdings (HKT), a telecom services provider, soared 1,246% on May 4 after it was taken over by Pacific Century, controlled by Richard Li, son of billionaire Li Ka-shing. The young Li plans to use Tricom to develop IT businesses. ISP BAN. Without such backing, most startups are finding Internet fever has come too soon for them to take advantage of it. And raising equity capital is only one problem for aspiring Net players. Protected markets are another. Singapore's Pacific Internet has a quasi-monopoly with two other state-backed ISPs, Singnet and Cyberway. Last year, the Singapore government let new players into the market, but it still bans foreigners from controlling a local ISP. In Hong Kong, Kevin Randolph knows what it's like to go up against entrenched market leaders. As president and CEO of Asia Online, an unlisted ISP with operations in Hong Kong and the Philippines, Randolph is challenging Hong Kong Telecom, which counts more than half the territory's 600,000 Internet subscribers as customers. Asia Online wants to offer high-speed access over phone lines. Since Softbank acquired his firm in February, Randolph has the backing he needs. But the government won't license him to sell high-speed access over existing phone wires--so he can't compete with Hong Kong Telecom, Wharf, and the two other fixed-line operators. On May 5, Hong Kong announced it would not allow newcomers to own local networks before 2002. That leaves Randolph with little choice but to lease wires from Hong Kong Telecom, which has the only broadband service in town and charges rivals $70 a month per customer for access--more than twice what it charges its own subscribers. ''The incumbent out here has an extraordinary lock on the market,'' Randolph says. That seems just as true in South Korea. Korea Telecom is spending $300 million to provide the country's fastest Net access. It might not be much easier when the battle shifts from infrastructure to content. In the U.S., most ISPs never tried to become content providers. That left an opening for companies such as Yahoo! But the big Asian ISPs want to echo the success of Yahoo! and America Online Inc. (AOL)--and freeze out any portal startups. In April, Hong Kong Telecom opened a Chinese-language portal intended to keep subscribers from venturing to sites such as Hongkong.com, backed by the Xinhua news agency. It opened an English site on May 3. BIG BACKERS. Despite the obstacles, new portals are still trying to make their mark in Hong Kong, China, and Taiwan. Some have attracted venture capital. Sina, with offices in Taipei, Beijing, and Silicon Valley, claims a daily average of 4.6 million page views on its sites. It just won backing from Goldman Sachs and Softbank. Sohu, a Sina rival in Beijing, is supported by such investors as Intel (INTC) and International Data Corp. Zhaodaola Internet (Beijing) Ltd. has some novel backers: Its controlling partners include U.S. televangelist Pat Robertson. Its site, Zhaodaola! (Mandarin for ''I've found it!'') offers a cybermenu with a men's fashion, sports, and health section called ''Macho Man.'' All the portals ''are in a race to [make an] IPO first,'' says Ted Dean, a consultant for BDA China, an Internet consultancy in Beijing. Also among the aspirants is Yahoo Korea. Says Yook J. Dong, an analyst at CSFB in Seoul: ''Everyone is thinking about listing now.'' Few startups will issue stock before midyear. Even then, they may be overshadowed. Industry sources say that Hong Kong Telecom is mulling a NASDAQ listing for its Internet subsidiary. So is Korean market leader Dacom. Asia's Internet race has barely begun. For now, most investors with a craving for the Asian Internet will head toward companies with established connections. By Bruce Einhorn in Hong Kong, with Michael Shari in Singapore and Jennifer Veale in Seoul _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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