The company said it would cut 340 jobs, or more than a third, in its internet division, which produces Network of the World (NOW). It also planned to reduce capital expenditure on the unit from $200m per year to $100m over two years starting next January.
PCCW chairman, Richard Li, warned that if the business unit did not break even by December 2003 on a cashflow basis, it would be either listed or strategic partners would be brought in.
The changes were seen as an admission that PCCW’s original concept for NOW – as an interactive web-based television service that it had planned to roll out on a global scale – had failed.
Publicity surrounding NOW created an equity spiral during the internet euphoria of last year that enabled PCCW last August to take over Cable & Wireless HKT, the city’s former telephone monopoly.
With NOW’s drastic downsizing, the original PCCW team led by Mr Li will be under pressure to show what value the merger, which was financed with large amounts of debt, has added for shareholders.
Under PCCW’s revised plan, it will offer a new service, now.com.hk, which will be offered as an additional package to subscribers of the company’s broadband internet access network.
PCCW’s interactive television services, mainly video-on-demand using set-top box technology, will be revised by setting up new revenue-sharing contracts to lower the cost of content.
Mr Li rejected suggestions the old strategy had gone wrong. We are adjusting to the market reality that internet advertising has slowed down to a small fraction of what has been a growing phenomonen in the past two years, he said.
Investors greeted the news positively, sending up PCCW’s share price 8% to HK$2.425.
