STOCKWATCH: PCCW -- 2 (future prospects depend on new business model: analyst)

At 12:13 pm, PCCW was down 0.125 hkd at 3.45 on turnover of 45.325 mln shares. It hit a low of 3.35 hkd.	    The Hang Seng index was up 221.87 points at 12,805.23.	    The analyst said a lot of the items in PCCW's 2000 results will be one-off items and the company is expected to record more than 2 bln hkd in interest expenses this year.	    The analyst, who is looking at a net loss of over 3 bln hkd for PCCW last year, said unless the company comes up with a new business model, future prospects do not look very good.	    He said the fixed line business in Hong Kong will be coming under severe competition when the industry is completely liberalised in June 2003.	    He said at the moment, PCCW is still a dominant player and can increase the prices of fixed line services without any problems and see its bottom line improving.	    "I see perhaps another price increase next year," he said, adding that PCCW's fixed line business can tolerate only one more price hike. If PCCW pushes for a further increase, he said, "they will be in trouble".	    He said the regional IP backbone joint-venture with Telstra Corp is also unlikely to fare very well in the short term, given the strong competition from various players.	    "Initially, I saw the IP backbone venture as a long term strategy to get new revenue sources. The tie-up with Telstra, the biggest player in Australia, would mean that they can become a powerful force to dominate the regional market. 	    "We thought the jv would have pricing power as well but that is not the case ... at least for the time being.	    "There are a lot of newcomers who are posing a threat to the joint-venture and prices are dropping. The pace of buildup, the supply of network is rapidly increasing," the analyst added.	    In addition, PCCW's NOW venture does not seem to be taking off, with the market still not convinced of the potential for NOW.	    "PCCW needs to convince the market that the NOW venture is the new driver for the company," he added.	    "PCCW probably needs a new appealing story for the market or sentiment will weigh on the share price," he said. 

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