Demo Press Release: Pacific Century Cyberworks and Telstra sign comprehensive agreement

Pacific Century Cyberworks and Telstra sign comprehensive agreement

"We have been working for some time to make this alliance a reality," said PCCW Chairman and Chief Executive Richard Li. "It is a great step forward for both companies. It brings together two communications and convergence powerhouses and positions them for stunning growth in explosive businesses." He added, "For PCCW, we will receive US$3.555 billion in cash. This will allow us to reduce our debt to less than US$5.5 billion - a level few thought possible when we acquired Hong Kong Telecom just seven weeks ago."

Major components of the deal include the following:

Connectivity Joint Venture: PCCW and Telstra will form a global connectivity (IP backbone) company in which PCCW and Telstra will each hold a 50 percent equity stake. Subject to raising US$ 2 billion in debt finance, this company will pay US$ 1.125 billion to PCCW and $375 million to Telstra after contribution of their respective assets and business. The Hong Kong-based joint venture - which will be the third largest carrier of voice traffic in the world - will combine the strength of PCCW's and Telstra's substantial international infrastructure assets at a time when many analysts have predicted explosive growth in the IP backbone sector.

Internet Data Center Joint Venture: PCCW and Telstra will form a regional, and potentially global, network of internet data centres. The company, in which PCCW and Telstra will each hold a 50 percent equity stake, will initially focus on the Asia Pacific region, including key markets such China, Japan, Singapore, South Korea, Taiwan and New Zealand. The joint venture will subsequently explore opportunities to expand to other locations where PCCW or Telstra has an internet protocol backbone presence.

Mobility Joint Venture: PCCW and Telstra will form Asia Pacific's first regional mobile company. The joint venture will assume the costs of implementing strategies and technology connected with 3G telephony. Telstra will pay PCCW US$1.68 billion for 60 percent of the company, while PCCW will retain a 40 percent stake. Telstra's payment is the equivalent to US$2,926 per PCCW mobile subscriber (based on the customer base at end March, 2000), a rate that exceeds the regional average by 50 percent.

Referring to the adjustment from US$3,950 per subscriber in PCCW's earlier agreement with Telstra in August, Alex Arena, Deputy Chairman of PCCW's Executive Committee, noted that the change was in line with the average decline experienced by other mobile companies around the world.

He continued, "This alliance positions PCCW and Telstra in a very strong position to tap the high-growth wireless market, including the wireless internet market, in the world's fastest growing mobile region."

Broadband Distribution and Production Arrangement for NOW: Under the PCCW-Telstra signed agreement, Telstra will provide PCCW with distribution services for its Network of the World (NOW) internet service. NOW will initially be accessed via a button prominently displayed on the "telstra.com" home page. Telstra will distribute NOW via Telstra's HF, xDSL and satellite high-speed Internet services. Telstra currently has 2.5 million HFC homes passed and has provisioned more than 200 exchanges with xDSL capability. It intends to provide access to broadband services to 90 percent of the Australian population within 24 months.

Convertible Bond: PCCW will issue to Telstra a convertible bond for US$750 million. The agreement allows PCCW to redeem the bond in full at any time, unlike the previous agreement which did not allow for early redemption by PCCW. In the event PCCW does not redeem the bond early, upon full conversion, Telstra is expected to hold an equity stake in PCCW of 2.8 percent.

The conversion price will be a 15 percent premium of the volume weighted average market closing price of PCCW shares over the 45 trading days following today's signing.

Summarising the agreement, Richard Li noted that the completed deal allows PCCW to move forward at a critical juncture. "We are entering a crucial time in the Internet, connectivity, mobility and data centre industries," he said. "Our partnership with Telstra, an experienced regional company, establishes PCCW and Hong Kong as dominant force in all these industries - and puts us ahead of the curve. That's where we like to be."

About Pacific Century CyberWorks (PCCW)

Pacific Century CyberWorks is the Hong Kong-listed technology flagship of the Pacific Century Group. PCCW is one the largest Internet companies in the world by market capitalisation.

Focused on global growth, PCCW is developing a full spectrum of broadband Internet capabilities, and is aiming to become the premiere provider of telecommunications, digital technology and new media services. With the August 2000 Cable & Wireless HKT merger, the Company has developed an innovative 8 X 3 business model that runs eight business units within three operating sectors:

Telecommunications Services - Principally comprising telecommunications and other value-added services based on the Company's fibre-optic network in Hong Kong.

Global Communications Services - Mobility and global connectivity services.

Net Enterprises - NOW, B2B business services, Data Centre services and CyberWorks Ventures, which invests in synergistic core businesses. Infrastructure Services directly supports all three sectors. To learn more about Pacific Century CyberWorks, go to www.pcg-group.com.


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