Reach to get help from Telstra, PCCW

SYDNEY - Australia's Telstra and Hong Kong's PCCW will let their Reach undersea cable business off the hook for US$1.2 billion ($1.7 billion) in debt, partly in return for exclusive rights to its data capacity, the latest move to shore up the struggling joint venture.

The pair will also fund Reach's committed capital expenditure until 2022, a spend of around US$106 million each, Telstra said yesterday.

Battered by falling prices due to a glut of capacity industry-wide, Reach said in January it would stop selling new data capacity to third-party customers because it could not generate acceptable returns.

The debt-for-equity swap, which will have no cash impact on the two partners, comes after Telstra and PCCW wrote off about $1.8 billion over the past two years on Reach and brings Reach's data service full circle back to its original owners.

"It makes sense, because it's still an overcapacity business and [PCCW and Telstra] refuse to invest more in the network," said Credit Lyonnais Securities Asia analyst Elinor Leung.

"It's good that they're not investing more in the company, because it's not going to be a very profitable business."

Data and Internet Protocol services accounted for about one-quarter of Reach's business in 2003 and was forecast to rise to 40 per cent in 2004, a source familiar with Reach's operations said.

The move does not affect Reach's voice and satellite services.

Telstra shares fell 0.2 per cent to A$5.03, a defensive haven in a broader market that was down 1.3 per cent.

PCCW shares, 20 per cent owned by the state-owned parent of Hong Kong-listed Netcom Group, slid 3.3 per cent to HK$4.40, falling more than the Hong Kong market.

PCCW said Telstra and PCCW would each convert US$445 million of debt Reach owes them into equity.

- REUTERS