An interesting telecoms news story broke last week which touches on the very heart of the OPLAN issue.  It concerned PCCW - Hong Kong's incumbent telecoms company.  Like all such beasts, in its home territory, PCCW is a vertically integrated business comprising the local network infrastructure and a bag full of service offerings ranging from plain old telephony through to broadband internet and TV for the residential market and 'you name it' for the corporate market.

Richard Li (younger son of legendry Li Ka-shing, No 10 on the Forbes billionaire list) who put together PCCW in the conventional vertically integrated mould, found that the company never really took off and neither did its shares.  So it was not surprising that eagle-eyed private equity players (Australia's Macquarie Bank and America's TPG-Newbridge) could see unrealised shareholder value to the extent that they made an offer of HK$60 billion for all the assets - including the local network infrastructure.

Then enter stage left, China Network Communications Group (China Netcom) which owns 20% of PCCW and expresses concern at the possible deal which would involve Chinese telecom infrastructure falling into foreign hands.  On July 10th, Francis Leung, a local tycoon, pops up with an offer to purchase Richard Li's 23% stake in PCCW for HK$9.2 billion ($1.2 billion).  China Netcom welcomed this with the statement,  "We think Francis Leung's participation can help PCCW develop in a sustainable and healthy manner".

Now if you read the serious press you will see all sorts of specuation and chat; Who was pulling Mr Leung's strings?  Was Richard Li entirely up front with Macquarie and Newbridge about a pact he had with Netcom not to dispose of PCCW assets without Netcom's OK?  Were the minority shareholders unfairly dumped on by Mr Leung scuppering the far higher Macquarie and Newbridge offer?   All very intriquing but a far more interesting question engages me.

Did the Chinese Government in Beijing (via China Netcom) get the right answer for the right reason or the wrong reason?  I think it is worth considering.

If Beijing/China Netcom's objection to foreign ownership of PCCW assets was to do with exercising strict control over what 'content' ran over their networks or some paranoia that in the hand of foreign ownership free and open peer-to-peer communication might be let lose within the People's Republic of China from Hong Kong, then without doubt, they have encouraged and supported Mr Leung's bid for entirely the WRONG reason.

However, (and I have to say that this may be wishful thinking on my part) maybe the reasoning in the corridors of Beijing went like this:

"PCCW is made of various bits and pieces - vital local infrastructure serving the Chinese People of Hong Kong - and all sorts of services that run over that infrastructure.  Now we couldn't care about the latter being owned by foreigners because we already have proof that by and large, they see the potential size of the Chinese market as being so massive, that in order to get a piece of the action, they will comply with what we ask them to do.  Look at Google and Yahoo - when we asked then to 'censor the web' by blocking content we do not like - they obliged more or less without a whimper!   We reckon we could rely on Macquarie and Newbridge being equally compliant with our wishes in order not to fall out with us.

No - the real reason we would be unhappy about foreign ownership of PCCW are the implications it would have for those using the local Hong Kong network assets - namely our beloved Chinese citizens.  Every $ generated by those assets which exceeds their longterm financing, maintenance and operating costs, and which is 'free' to reward the 'absent owners' and their shareholders, is a $ added to the cost of doing business or living in, or undertaking the public administration of, Hong Kong.  Sadly, PCCW does not operate its Hong Kong network uner an OPLAN model which would ensure that the primary short and longterm value and benefit of the network will rest with those using it.  Although there a many ways of achieving this through legal and corporate governance mechanisms, none of them are in place and therefore Macquarie and Newbridge would have more freedom than the good Chinese People of Hong Kong might like, to use the local network as a cash cow.  If Hong Kong (and China) is to become globally competitive, we must make sure that we are 'the most accessible place on earth' and ensuring that the local access infrastructure operates on as close as possible to a cost basis, is key to that.  Let's make sure it is owned and managed by someone who we can rely on to 'do the sensible thing' and comply with our wishes.   What about Francis Leung?  We can rely on him as he has to rely so much on us!   Let's give him a call!"