Telstra, PCCW put Reach behind them

Almost ten years to the day since it was formed, the troubled Telstra-PCCW JV Reach is being wound up as a major Asian capacity provider.

The two telcos announced today they had agreed to distribute most of Reach's international bandwidth and other assets between them.

Telstra said it would record an initial A$50m ($49.8m) accounting gain on the deal, and another A$80-A$100m on completion.

The companies would not disclose which parts of Reach’s network were being returned to the parents, but said Reach would continue to manage “certain assets” for both PCCW and Telstra.

“The restructuring is expected to result in a clear division of the majority of Reach’s assets and operations, aligning with the respective needs of each of Reach’s shareholders,” PCCW said in its press release.

“The company is expected to benefit, operationally and financially, from the restructuring of Reach through increased operational efficiencies, which are expected to contribute towards a better operating margin and an enhanced competitive position in the market for international connectivity services.

“Further, PCCW is expected to benefit from a recovery of certain assets that were previously invested in Reach.”

Telstra International’s regulatory chief, David Aitken, said it was “better to be master of one’s own destiny.”

Reach’s main assets are the Reach North Asia Loop (RNAL), Australia-Japan and Southern Cross cables. It also owns capacity on APCN2, Sea-Me-We 3, China US and the trans-Atlantic Apollo system.

The agreement all but ends an unhappy partnership between the Australian and Hong Kong incumbent telcos. The two approached the original deal – struck at the height of the dotcom boom – with radically different plans.

For Telstra, the hook-up with PCCW, in which it also bought its mobile arm CSL, allowed it to establish a footprint in fast-growing Asia. But for PCCW, which had just borrowed heavily to acquire the old Cable & Wireless Hongkong Telecom, it was a means of laying off some of its $5b in loans.

Additionally, according to former Reach executives, Telstra International had based its deal on unrealistic projections of the market for international bandwidth.

Compounded with the dotcom meltdown, this meant that Reach's older and small cables were competing with new high-bandwidth subsea cables selling at a much lower cost.

In its early years, as bandwidth prices went through the floor, neither of its parents felt bound to buy exclusively from the JV.

In the last restructure of Reach six years ago the company said all of its inventory would be consumed by Telstra and PCCW.

However, Reach’s greatest service to its owner over the decade was not as a bandwidth provider but as a means of enabling them to slash their debts. In a 2004 deal bankers settled for just $311m of the $1.2b that the two telcos owed them.

The distribution of Reach's assets is expected to be completed in the first half of 2011, Telstra said.

Huawei terminal sales up 54%

Huawei might be known for its networking gear, but its terminal group is also on a roll.

The division, which makes everything from smartphones to video-conferencing units, boosted sales 54% last year to $4.5bn.

Chinese media reports (here and here) say an un-named senior executive told staff at a company Chinese New Year function that unit shipments increased 30% in 2010 to 121mn.

Of these 30mn were smartphones, making the company the fifth biggest Android handset-maker behind Samsung, HTC, Motorola and Sony Ericsson.

The privately-held firm reported full-year earnings of 21bn yuan ($3.2b) on revenue of 149bn in 2009.

Nokia future lies on yellow(ish) Bric road

2010 was a shocker for Nokia, and if it were expecting a better start to 2011 it must be disappointed.

The former master of the handset universe has conceded defeat with its free Ovi music service, pulling the plug in 27 of the 33 markets it served.

According to the FT, the weak take-up was a result of poor marketing, limited handset choice, DRM issues and the ambivalence of operators who also offered music service. In other words, just about everything.

Nokia has also cancelled the launch of its Symbian-powered X7 phone in the US, reportedly because it was unhappy with the level of subsidies from AT&T.

The telling stat: Nokia’s flagship N8 costs $469 in the US (down from its $549 launch price). Consumers buy an AT&T-subsidized iPhone for as little as $199.

So there’s no love for Nokia from US carriers, and there won’t be until it comes up with an OS that is as user- and developer-friendly as the iOS or Android.

For that reason, we will continue to see stories like this one, reporting that Nokia is considering Windows Phone 7.

The grain of hope for Nokia – in fact more than a grain – is in emerging markets. In Q3, 65% of device sales came from Asia, Latin America and the Middle East. Greater China is now its biggest market outside Europe.

No surprise that Ovi Music Unlimited will confine itself to China, India, Indonesia, Brazil, Turkey and South Africa. According to iResearch, the Ovi Store is China’s most popular download channel, just ahead of China Mobile’s Mmarket.

So Nokia's story is not all bad. It may be losing traction in Europe and North America, but it's making new ground in the high-growth BRICs. There are worse places to be.

Messaging the Hu-Obama summit

Not quite as sexy as a TV ad featuring Yao Ming and Li Kashing - but more predictable - Chinese state media have been helpfully rehearsing Hu Jintao's economic talking points on the eve of his US visit.

A long piece on the economic relationship, first published in People's Daily, says Chinese manufacturers retain as little as a third of the value-added in exported products. As is customary, the article uses the deficit to make an unsubtle pitch for hi-tech "dual-use" exports which the US currently bans: China's hi-tech imports have apparently increased nearly fivefold over the decade to $310 billion, while the US's share has fallen by more than half to 7.5%.

The China Daily also gets on-message over the other great US anxiety, software piracy. Following the launch last week of yet another attempt to compel government agencies to use only authorised software, the National Copyright Administration (NCA) announced it had found a city - Qingdao - that had actually complied.

In another China Daily story the NCA declares that this year it will target online piracy, having discovered that "the internet has become a major battleground" for copyright violation.

Down in the flood

Acts of god aren't kind to networks so it's no surprise that underwater Brisbane is offline.

But telcos aren't exactly in a hurry to reconnect. Telstra has listed 262 exchanges as "red" (ie, no-go) zones.

Why? It might be because of the dangerous floodwaters.

It could be the sharks.

Or maybe the red-bellied black snakes.

Take your pick. Looks like phones won't be coming back today.