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Cable and Wireless plc

Cable and Wireless plc

New Mercury House
26 Red Lion Square
London WC1R 4UQ
United Kingdom
(071) 315 4000
Fax: (071) 315 5000
Web site: http://www.cwplc.com

Public Company
Incorporated:
1929 as Imperial and International Communications Company Limited
Employees: 37,488
Sales: $10.37 billion (1997)
Stock Exchanges: London New York Tokyo Hong Kong Frankfurt Geneva Basel Zürich
Ticker Symbol: CWP
SICs: 3661 Telephone & Telegraph Apparatus; 4813 Telephone Communications, Except Radiotelephone; 4841 Cable & Other Pay Television Services

As a provider of telecommunications services in more than 50 countries around the globe, Cable and Wireless plc is a leading player in a rapidly growing and evolving industry. Its operations in the late 1990s were concentrated in three major areas: the United Kingdom, the Caribbean, and Asia. The company, whose fortunes once depended on telegraphic connections between the various parts of the British Empire, operated in the late 20th century all over the world, using equipment that even Guglielmo Marconi, the inventor of the wireless and one of the companys first directors, could not have imagined.

Early History

The history of the companies that became Cable and Wireless plc began in 1852, when a Manchester cotton merchant named John Pender joined other businessmen from the north of England on the board of the English and Irish Magnetic Telegraph Company, set up to run a telegraph cable service between London and Dublin. This was only two years after the first submarine cable had been laid, between England and France, and coincided with the first laying of cables in India, then Britains largest overseas possession. Pender next became a director of the Atlantic Telegraph Company, whose first cable to the United States was laid in 1858 but failed to function properly. Six years later, when it became clear that the company could not afford to make a second attempt with its own resources, he was instrumental in creating the Telegraph Construction and Maintenance Company (Telcon) through a merger of the two leading cable-making companies, under Penders chairmanship. However, the second cable broke and fell into the Atlantic during the laying stage in 1865. Pender and his colleagues had to set up a successor to the Atlantic Telegraph Company, the Anglo-American Telegraph Company Ltd., on behalf of which Telcon not only retrieved the 1865 cable but successfully constructed and laid a transatlantic cable in 1866.

In 1868 the British government decided to buy up all the inland telegraph companies, including English and Irish Magnetic, a process completed in 1870, but left overseas telegraphy in private hands. In 1869 John Pender created three more companies. The British-Indian Submarine Telegraph Company and the Falmouth, Gibraltar and Malta Telegraph Company completed the cable system between London and Bombay in 1870, while the China Submarine Telegraph company set about connecting Singapore and Hong Kong, Britains main possessions in East Asia. Penders other company, Telcon, supplied cable not only for these ventures but also for a cable from Marseilles to Malta, which provided France with a link to its colonies in North Africa and Asia. When the governments of South Australia and Queensland, Australia, decided that the monthly steamships between Australia and Britain were too slow a means of communication, it was John Pender whom they invited to fill the telegraphic gap between Bombay and Adelaide, Australia. The All-Sea Australia to England Telegraph, supplied by Telcon, was opened in 1872. It was operated in two sections, Bombay to Singapore by the British India Extension Telegraph Company and Singapore to Adelaide by the British Australian Telegraph Company, both under Penders control.

Pender now set about reorganizing his cable interests. First, in 1872, came the amalgamation of British Indian Submarine, Falmouth, Gibraltar and Malta, and the Marseilles, Algiers, and Malta companies with the Anglo-Mediterranean, which had been created in 1868 to link Malta, Alexandria, and the new Suez Canal. Pender became chairman of the Eastern Telegraph Company that resulted from their merger. Next, in 1873, he presided over the merger of his Australian, Chinese, and British India Extension companies into the Eastern Extension Australasia and China Telegraph Company. It was also in 1873 that Pender created a holding company, the Globe Telegraph and Trust Company. The holding companys investors received portions of shares in the operating companies, chiefly the Eastern Telegraph and the Anglo-American. All the companies so far named remained within the Eastern Telegraph group, except Anglo-American, which was taken over in 1910 by a U.S. firm, Western Union. Finally, 1873 also saw the creation of the Brazilian Submarine Telegraph Company, which had several directors and shareholders in common with Eastern Telegraph and opened a cable from Lisbon, Portugal, to Pernambuco, Brazil, in 1874.

Between 1879 and 1889 Penders group added Africa to its list of cable routes through three companies, African Direct, a joint venture with Brazilian Submarine; West African, incorporated into Eastern Telegraph; and Eastern and South African. In 1892, following the expiration of the telegraph concession operated by Brazilian Submarine, that company and its main rival, Western and Brazilian, formed a new venture, the Pacific and European Telegraph Company, to renew the concession and link Brazil with Chile and Argentina. Having helped to arrange this operation, Pender became chairman of Brazilian Submarine in 1893, further reinforcing his position as the leading figure in the worldwide cable business. John Pender died in 1896; his successor as chairman of Eastern Telegraph and Eastern Extension was Lord Tweeddale, while Penders son John Denison-Pender, later Sir John, continued as managing director. The last stage in restructuring the set of companies Pender had been so instrumental in creating came in 1899, when Brazilian Submarine, having absorbed two other London-based telegraph companies operating in South America, was renamed the Western Telegraph Company.

The first confrontation between cable and the new medium of wireless ended in acrimony. Guglielmo Marconis success in sending a signal from Cornwall to Newfoundland in 1901 was soured when the Anglo-American Telegraph Company, part of the Pender group, forbade any further experiments, since they would infringe on the Pender groups monopoly of communications in Newfoundland. Marconi moved his work to Nova Scotia, and found Americans and Canadians generally more receptive to his achievement than Europeans. Certainly the Eastern Telegraph group remained unimpressed, citing lack of privacy, lack of speed, interruptions, and mixing of messages as decisive disadvantages of wireless compared with cable. Even so, the management was cautious enough to have a mast secretly installed at its Cornwall station with which to listen in on Marconis experiments and, on at least one occasion, to disrupt a demonstration of wireless transmission.

Early 20th Century Expansion

In 1900 the governments of Britain, Australia, New Zealand, and Canada had agreed on the joint financing of a Pacific Cable, for which the construction contract was won by Telcon. The project began 21 years after it had first been proposed by Sand-ford Fleming, the chief engineer of the Canadian Pacific Railway. It eventually involved the laying of the largest single piece of cable so far4,000 miles, out of a total Pacific Cable length of 7,836 milesbut was completed ahead of schedule, in October 1902. Alarmed by this competition from public enterprise, the Eastern Telegraph group reduced rates on its cables in 1900, and laid a cable across the Indian Ocean to serve the three Australian statesSouth Australia, Western Australia, and Tasmaniawhich had refused to join the Pacific project.

Throughout World War I all cable services out of Britain were controlled by the government. The Eastern Telegraph group profited enormously from the diversion of business to India and East Asia away from the German-owned overland routes and from the general use of telegrams in preference to letters, which were delayed by lack of civilian shipping. For the first time cables became targets of warfare in themselves. Eastern Telegraph, the British Royal Navy, and the British General Post Office collaborated on cutting all cable links between Germany and North America. The Germans temporarily disabled both the Pacific Cable and the cable across the Indian Ocean, by attacking island stations in each ocean. However, the most spectacular event of the first cable war came in 1917, when, following the United States entry into the war, the German cable that had been cut three years before was lifted out of its position between New York and Emden, Germany, moved to a new position between Nova Scotia and Cornwall, and taken over by the British government as a prize of war, to be operated by the General Post Office. In 1920 the government decided to keep this cable, despite U.S. protests, and to purchase a second line, the two together being renamed Imperial Cable.

The wartime boom in Eastern Telegraph groups business gave way to slack trading in the early 1920s, as government telegrams declined in number and length, overland rivals got back to work, and the Pacific and Imperial Cables became direct competitors for communications with North America and Australia. However, the biggest blow to the whole cable business was struck once again by Marconi when he succeeded, in 1924, in telephoning Australia from England on short-wave radio equipment. This latest kind of wireless worked faster, cost less, and used less energy than either long-wave radio transmission or cable, and offered a flexibility its rivals did not then have, since it transmitted both telephony and telegraphy. Five years later the Marconi-Wright facsimile system added picture transmission to wirelesss advantages. Within six months of its establishment, the General Post Offices system of short-wave stations had taken 65 percent of the Eastern Telegraph groups business, as well as more than 50 percent of Pacific Cables, and its service cost a fraction of the price of cabling. In the meantime, however, the cable systems were given a new lease on life, from 1925 onwards, as manual re-transmission of messages, at points where the signals weakened with distance, gave way to far less time- and labor-intensive automatic regeneration, using a system devised by Telcon.

1929 Merger Created Cable and Wireless

At the suggestion of the private Marconi company, which operated separately from the G.P.O. but under a G.P.O. license, Sir John Denison-Pender met its chairman, Lord Inverforth, in December 1927, to decide on a joint response to the Imperial Wireless and Cable Conference called for the following month. In March 1928 they both signed a letter to the conference proposing a merged holding company, owned 56.25 percent by the Eastern Telegraph groups shareholders and 43.75 percent by Marconis. This was against the wishes of the father of wireless himself, who had lost the chairmanship of his own company the year before. But the conference accepted this plan. On April 8, 1929, two new companies began trading. One, Cable and Wireless Limited, had two functions: first, to control all the nontraffic interests, such as patent rights and manufacturing, and secondly to hold all the shares in the cable companies and Marconi. They, in turn, were exclusive owners of the second company, Imperial and International Communications Limited, which owned and operated the actual cable and radio stations, cables, ships, and other assets of Eastern Telegraph and Marconi, as well as the U.K. governments Imperial and Pacific Cables and, on lease, the Post Office transmitting stations. In 1934 the companies were renamed, respectively, Cable and Wireless (Holding) Limited and Cable and Wireless Limited. From the outset they were controlled by a single board, known, on the model of the Bank of England, as the Court of Directors, as Cable and Wirelesss board still was in the early 1990s. Since Sir John Denison-Pender had died one month before the companies started up, it was his son John Cuthbert who became governor, and Lord Inverforth sole president of the Court.

The Great Depression hit the new companies badly. Between 1929 and 1935 the number of chargeable words carried fell by more than half, and net profits, just over £1 million in 1929, declined to £75,000 in 1931 and reached only £625,000 in 1934. By 1933 the work force had been reduced by about a third and the introduction of telex in 1932 helped to cut operating costs. Competition was intensifying, as U.S.-owned International Telephone and Telegraph Corporation (ITT) expanded worldwide and Imperial Airways built up its inexpensive air mail service with subsidies from the same governments whose 1928 conference had led to the creation of Imperial and International. Some expansion of the cable and wireless businesses did occur, however, with the acquisition of wireless concessions in Southern Rhodesia(now Zimbabwe), Singapore (replacing the old Bombay-Rangoon cable), Turkey, and Peru, as well as domestic telephone services in Turkey, Cyprus, and Hong Kong. The structure agreed for Cable and Wireless in 1928 was altered slightly ten years later. In return for giving the company ownership, rather than rental, of the short-wave radio system created by the General Post Office, the British government took shares in the company for the first time, although for the time being it waived its right to appoint a director to the Court. At the same time an empire flat rate scheme was introduced, cutting the companys prices to the public and improving its finances.

World War II revived the cable war of 19141918. In 1939 German-owned cables across the Atlantic were cut once again, and in 1940 Italian cables to South America and Spain were cut in retaliation for Italian action against two of the five British cables linking Gibraltar and Malta. Electra House, the companys head office and central cable station, was damaged by German bombing in 1941. However, the company made a considerable contribution to the Allied war effort, supplying, for instance, the wireless equipment with which the North African campaign was conducted in 1942, and sending staff, in army uniforms marked with Telcon flashes, into several campaigns, starting in Italy in 1943. In Britain the end of the European war was followed by the election of a Labour government on a program that included expanding state ownership of leading industries. With the consent of the governments of the other independent countries in the Commonwealthas the former British Empire was then to be knownCable and Wireless was put on the shopping list, although the holding company and the main assetscables, ships, and wireless stationswere not. All shares in Cable and Wireless were transferred to the government on January 1, 1947, while Cable and Wireless (Holding) became an investment trust. In 1948 the company made an agreement with the government of Hong Kong to provide external telecommunications for the colony.

In 1950, following another agreement among the Commonwealth governments, most of Cable and Wirelesss U.K. assets and staff were transferred to the General Post Office, just as parts of its assets overseas were acquired by governmental bodies in the other countries involved. Even so, Cable and Wireless remained the largest single international telegraphy enterprise in the world, with 186,000 miles of submarine cable still converging on a station at Porthcurno in Cornwall, England, that had been opened in 1870. By the time the station closed in 1970, the companys business had been transformed. As telegraphy became obsolete in the 1950s, the development of coaxial voice transmission offered the chance to switch over to telephone cables. The companys first venture into this new field was its participation, with American Telephone and Telegraph Company (AT&T) and the Canadian Overseas Telecommunications Corporation, in the laying of TAT-1, the first telephone cable across the Atlantic, completed in 1956. The transmission of the high frequencies needed for telephone links under the sea had been technically possible for 30 years, but plans to lay such a cable in 1928 had been aborted by the Depression. TAT-I was followed by the opening, in 1961, of CANTAT, a telephone cable between Scotland and Canada which, in a departure from its own traditions, Cable and Wireless helped to lay and owned half of but took no part in operating. CANTAT was a single cable, capable of transmitting communication simultaneously in both directions. The completion of the projected Commonwealth round-the-world cable continued in stages, with COMPAC, a system that could provide capacity of at least 60 channels over distances of several hundred miles, linking Canada to Australia, New Zealand, and Fiji, being finished in 1963; and SEACOM, linking Singapore to Australia, in 1967. Cable and Wireless retained its participation in COMPAC and SEACOM, but sold its half of CANTAT to the British Post Office in 1971.

Throughout the 1960s more and more U.K. overseas possessions became independent states. In many cases their external telecommunications systems had been operated by Cable and Wireless, which then became junior partner, with the various new governments, in East African External Communications Limited (1964), Sierra Leone External Telegraph Limited (1964), Trinidad and Tobago External Telecommunications Company (1970), and other such joint ventures. Nigerias decision, in 1966, to take 100 percent ownership was thus unusual.

Diversification: 1970s through 1990s

By 1972 Cable and Wireless largest operation was in Hong Kong, where the international telephone service it operated provided 88 percent of its profits, and it was here that it launched Cable and Wireless Systems Limited as a subsidiary offering specialized services. In its first few years these included microwave systemshigh frequency radio links for transmission over line-of-sight routesfor customers in Hong Kong, Brunei, and Thailand, a satellite earth station in Nauru, an island in the Pacific Ocean near the equator, and airline communications in the Persian Gulf. Diversification was made even more imperative in 1973, when the Brazilian government withdrew the concession first granted 100 years earlier. Another subsidiary, Eurotech BV, was set up that year as a holding company for projects in the European community, and through participation in supplying the communications network for the U.K. sector of the North Sea oil fields. By 1978 Cable and Wireless specialized projects included electronic systems for hotels, security systems, marine telex, and, under the largest contract in its history, communications systems for the Saudi Arabian National Guard. Cable and Wireless reconstruction as an international telecommunications company had been entirely self-financed. While it received no assistance at all from U.K. taxpayers, its profits went to its sole shareholder, the U.K. government. However, a new administration came into office in 1979, determined to privatize as much of the state-owned sector as possible, and in 1981 it decided to sell just less than half of the shares in Cable and Wireless. By 1985 all of the shares in the company had been sold to the private sector apart from a single golden share retained by the government. The companys franchise to provide Hong Kongs international telecommunications was renewed in 1981, when Cable and Wireless (Hong Kong) was formed. The acquisition of Hong Kong Telephone in 1984 added the domestic services to the companys portfolio. These two companies were restructured in 1988 with the formation of Hong Kong Telecom which, by 1990, still provided half of Cable and Wireless profits.

The 1980s saw a further transformation in the companys business, from dependence on service concessions from governments to a more varied range of governmental and commercial ventures. To take just one example, in 1981 it launched its subsidiary Mercury Communications Ltd.initially a joint venture with Barclays Bank and British Petroleumto compete against British Telecom, which then held a monopoly in providing telephone services in the United Kingdom. By 1990 Cable and Wireless had invested more than £1 billion in Mercury, which was estimated to have taken 3 percent of the U.K. telephone market from British Telecom. This was a more impressive result than it may sound; a great deal of Mercurys business was in the more profitable areas of long-distance and business communications, so that it was able to generate about 25 percent of Cable and Wireless turnover. In 1991, with the entry of new competitors into the industry looking more and more likely, Cable and Wireless decided to continue Mercurys specialization in business and international services and to develop further its mobile telephone venture, Mercury PCN. Lord Young, the erstwhile trade and industry secretary, became chairman of Cable and Wireless in October 1990.

Between April 1989 and March 1990, Cable and Wireless formed new companies in Yemen and the Seychelles to continue telecommunications services. In Pakistan, a subsidiary set up a mobile telephone network, while in the Caribbean the company extended the list of countries where it provided both domestic and international services. The companys presence in the Caribbean was enhanced in 1990 by its further purchase of shares in Telecommunications of Jamaica Ltd. from the Jamaican government and raising its holding from 59 percent to 79 percent. Cable and Wireless also owned 70 percent of Grenada Telecommunications. In spite of diversification, the companys Hong Kong businesses remained central to its profitability. The company endeavored to cooperate with the Chinese government, to prepare for its takeover of Hong Kong in 1997.

This cooperation took various forms. First, in March 1990 the China International Trade and Investment Corp. (CITIC), the Chinese Governments international investment body, bought 20 percent of the shares in Hong Kong Telecom from Cable and Wireless, having already invested in Cable and Wireless subsidiary in Macao. Cable and Wireless own holding in Hong Kong Telecom was subsequently increased from 55.1 to 58.5 percent. Secondly, April 1990 saw the launch of AsiaSat, the first privately financed domestic telecommunications satellite in Asia, from a site in China into an orbit covering half the population of the planet from the China Sea to the Mediterranean. Ownership of the satellite was shared equally by Cable and Wireless, the Hong Kong company Hutchison Whampoa, and CITIC. Thirdly, in June 1990 the Chinese government decided to make Guangzhou its third point of entry for telecommunications, after Beijing and Shanghai, thus further boosting the importance of Hong Kong Telecom to the Chinese economy. Hong Kong Telecom then began to construct fiber optic cable links to southern China. When opened in March 1991, these doubled the telecommunications capacity between the crown colony and the Peoples Republic of China.

The companys main objective for the 1990s was the completion of what it called the global digital highway, linking the centers of the world economy through fiber optic cables. The highway included the private transatlantic telecommunications cable, which came into operation in the autumn of 1989. It linked customers of Cable and Wireless and of its U.S. partner, US Sprint, in the United Kingdom and the United States with the European mainland, Bermuda, and many other Atlantic countries too. The highway also included the North Pacific Cable, which opened one year later as a joint venture between Cable and Wireless, U.S. company Pacific Telecom, and Japanese company IDC, of which Cable and Wireless owned more than 16 percent.

Fighting Competition in the 1990s

In 1993 the company initiated another joint venture, this time with U S West: Mercury One2One, which provided digital cellular service in the United Kingdom. As a second-tier telecom operator, Mercury was having trouble wresting territory away from British Telecom. By 1994 it held only 13.5 percent of the British telecommunications market and faced increased competition from newcomers scrambling for market share after the 1991 deregulation. Cable and Wireless had entered numerous other markets as a second-tier player, most notably with Optus in Australia and Tele2 in Sweden, but as one of the smaller international firms it was vulnerable to finding itself spread too thin and pushed out by larger telecom concerns. Outside of Britain, its largest and strongest bases remained the Caribbean and Hong Kong, where Cable and Wireless held monopolies in providing telecom service.

Profits in 1994 rose over 18 percent from the year before to $1.6 billion. However, Mercurys trouble in the newly open market in Britain contributed to the underperformance of the companys stock in 1995. Over the previous year, the stock had fallen from a high of 540 pence to a low of 354. Another factor in the stocks weakness was uncertainty over the future of the companys Hong Kong subsidiary when Hong Kong reverted to Chinese rule in 1997. Already Hong Kong Telecommunications, which provided two-thirds of Cable and Wireless profits, had lost its monopoly. By 1995 three rivals had been granted licenses to provide fixed-wire telephone services and they were proceeding to cherry-pick Hong Kong Telecoms choicest customers.

To add to the companys problems, infighting between CEO James Ross and chairman Lord Young led the board to fire both in late 1995. The boards decision in 1996 to hire American Dick Brown as the permanent CEO replacement caused an uproar because of his nationality and his lack of international experience. The same year, merger talks with British Telecom fell apart. However, Cable and Wireless plans to merge its Mercury Communications subsidiary with cable television operators Nynex CableComms, Bell Canada International, and Videotron solidified in 1996. Cable and Wireless owned a 53 percent stake in the new venture, dubbed Cable and Wireless Communications.

In early 1997, Cable and Wireless dissolved its alliance with Veba AG and Rheinisch Westfaelisches Elektrizitaetwerk AG, two German utilities, to provide telecom services in European Union countries. In the opposite direction, Cable and Wireless increased its investment in the Australian telecom provider Optus Communications by purchasing an additional 24.5 percent stake for $735 million. In addition, it announced its intention to acquire 49 percent of Panamas state-owned telephone company for $652 million. After its failed proposal to merge with British Telecom, Cable and Wireless also appeared to be looking for another major partner. Rumors were circulating in 1997 that Cable and Wireless was bidding for the 80 percent of Sprint Corp. not owned by France Telecom and Deutsche Telekom AG.

With the reversion of Hong Kong to Chinese rule in mid-1997, Cable and Wireless had little choice but to sell a stake in Hong Kong Communications to a mainland Chinese company. Considered by the Chinese government as part of a strategic industry, Hong Kong Communications was required to be held in part by a Chinese firm. China Telecom acquired a 5.5 percent stake in the company for $1.2 billion. Cable and Wireless hoped that by sacrificing a portion of its cash cow, it would gain access to mainland China, where the telecommunications market promised to boom in the coming years.

Principal Subsidiaries

Mercury Communications Ltd.; Hong Kong Telecommunications Ltd. (58.5%); Hong Kong Telephone Company Ltd.; Hong Kong Telecom International Ltd.; Telecommunications of Jamaica Ltd. (79%); Cable & Wireless North America Inc. (U.S.A.); Companhia de Telecomunicacoes de Macau SARL (51%, Macao); Barbados External Telecommunications Ltd. (85%).

Further Reading

Barty-King, Hugh, Girdle Around the Earth, London: Heinemann, 1979.

Casting around for a Line, The Economist, November 25, 1995, p. 58.

EC Approves Pay TV and Telecom Merger, InfoWorld, January 13, 1997, p. TW3.

Girard, Kim, and Kristi Essick, Sprint Taking Suitors Call? Computerworld, March 24, 1997, p. 33.

Kupfer, Andrew, A Yank Takes over at Cable & Wireless, Fortune, August 5, 1996, pp. 1819.

Panda on Hong Kongs line, The Economist, May 10, 1997, pp. 5758.

Poacher or Gamekeeper: Cable & Wireless, The Economist, May 28, 1994, pp. 6264.

Reier, Sharon, Cable & Wireless: Can It Capture the Sum of Its Parts?, Financial World, April 25, 1995, pp. 2021.

Schonfeld, Erick, The World of Telecom Is Calling, Fortune, January 13, 1997, p. 166.

Unravelled, The Economist, February 8, 1997, p. 7.

Patrick Heenan
updated by Susan Windisch Brown

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Cable and Wireless plc

Cable and Wireless plc

New Mercury House
26 Red Lion Square
London WCIR 4UQ
United Kingdom
(071) 315 4000
Fax: (071) 315 5000

Public Company
Incorporated: 1929 as Imperial and International Communications Company Limited
Employees: 37,681
Sales: £2.32 billion (US$4.34 billion)
Stock Exchanges: London New York Tokyo Hong Kong Frankfurt Geneva Basel Zürich

As a provider of telecommunications services in some 50 territories around the globe, Cable and Wireless plc is a leading player in an industry that is growing at more than twice the average growth rate of those countries which it services. The company, whose fortunes once depended on telegraphic connections between the various parts of the British Empire, now operates all over the world, using equipment that even Guglielmo Marconi, the inventor of the wireless and one of the companys first directors, could not have dreamed of.

The history of the companies that became Cable and Wireless plc began in 1852, when a Manchester cotton merchant named John Pender joined other businessmen from the north of England on the board of the English and Irish Magnetic Telegraph Company, set up to run a telegraph cable service between London and Dublin. This was only two years after the first submarine cable had been laid, between England and France, and coincided with the first laying of cables in India, then Britains largest overseas possession. Pender next became a director of the Atlantic Telegraph Company, whose first cable to the United States was laid in 1858 but failed to function properly. Six years later, when it became clear that the company could not afford to make a second attempt with its own resources, he was instrumental in creating the Telegraph Construction and Maintenance Company (Telcon) through a merger of the two leading cable-making companies, under Penders chairmanship. However, the second cable broke and fell into the Atlantic during the laying stage in 1865. Pender and his colleagues had to set up a successor to the Atlantic Telegraph Company, the Anglo-American Telegraph Company Ltd, on behalf of which Telcon not only retrieved the 1865 cable but successfully constructed and laid a transatlantic cable in 1866.

In 1868 the British government decided to buy up all the inland telegraph companies, including English and Irish Magnetic, a process completed in 1870, but left overseas telegraphy in private hands. In 1869 John Pender created three more companies. The British-Indian Submarine Telegraph Company and the Falmouth, Gibraltar and Malta Telegraph Company completed the cable system between London and Bombay in 1870, while the China Submarine Telegraph company set about connecting Singapore and Hong Kong, Britains main possessions in East Asia. Penders other company, Telcon, supplied cable not only for these ventures but also for a cable from Marseilles to Malta, which provided France with a link to its colonies in North Africa and Asia. When the governments of South Australia and Queensland, Australia, decided that the monthly steamships between Australia and Britain were too slow a means of communication, it was John Pender whom they invited to fill the telegraphic gap between Bombay and Adelaide, Australia. The All-Sea Australia to England Telegraph, supplied by Telcon, was opened in 1872. It was operated in two sections, Bombay to Singapore by the British India Extension Telegraph Company and Singapore to Adelaide by the British Australian Telegraph Company, both under Penders control.

Pender now set about reorganizing his cable interests. First, in 1872, came the amalgamation of British Indian Submarine, Falmouth, Gibraltar and Malta, and the Marseilles, Algiers, and Malta companies with the Anglo-Mediterranean, which had been created in 1868 to link Malta, Alexandria, and the new Suez Canal. Pender became chairman of the Eastern Telegraph Company that resulted from their merger. Next, in 1873, he presided over the merger of his Australian, Chinese, and British India Extension companies into the Eastern Extension Australasia and China Telegraph Company. It was also in 1873 that Pender created a holding company, the Globe Telegraph and Trust Company, investors in which received portions of shares in the operating companies, chiefly the Eastern Telegraph and the Anglo-American. All the companies so far named remained within the Eastern Telegraph group, except Anglo-American, which was taken over in 1910 by a U.S. firm, Western Union. Finally, 1873 also saw the creation of the Brazilian Submarine Telegraph Company, which had several directors and shareholders in common with Eastern Telegraph and opened a cable from Lisbon, Portugal, to Pernambuco, Brazil, in 1874.

Between 1879 and 1889 Penders group added Africa to its list of cable routes through three companies, African Direct, a joint venture with Brazilian Submarine; West African, incorporated into Eastern Telegraph; and Eastern and South African. In 1892, following the expiration of the telegraph concession operated by Brazilian Submarine, that company and its main rival, Western and Brazilian, formed a new venture, the Pacific and European Telegraph Company, to renew the concession and link Brazil with Chile and Argentina. Having helped to arrange this operation Pender became chairman of Brazilian Submarine in 1893, further reinforcing his position as the leading figure in the worldwide cable business. John Pender died in 1896; his successor as chairman of Eastern Telegraph and Eastern Extension was Lord Tweeddale, while Penders son John Denison-Pender, later Sir John, continued as managing director. The last stage in restructuring the set of companies Pender had been so instrumental in creating came in 1899, when Brazilian Submarine, having absorbed two other London-based telegraph companies operating in South America, was renamed the Western Telegraph Company.

The first confrontation between cable and the new medium of wireless ended in acrimony. Guglielmo Marconis success in sending a signal from Cornwall to Newfoundland, in 1901, was soured when the Anglo-American Telegraph Company, part of the Pender group, forbade any further experiments, since they would infringe on the Pender groups monopoly of communications in Newfoundland. Marconi moved his work to Nova Scotia, and found Americans and Canadians generally more receptive to his achievement than Europeans. Certainly the Eastern Telegraph group remained unimpressed, citing lack of privacy, lack of speed, interruptions, and mixing of messages as decisive disadvantages of wireless compared with cable. Even so, the management was cautious enough to have a mast secretly installed at its Cornwall station with which to listen in on Marconis experiments and, on at least one occasion, to disrupt a demonstration of wireless transmission.

In 1900 the governments of Britain, Australia, New Zealand, and Canada had agreed on the joint financing of a Pacific Cable, for which the construction contract was won by Telcon. The project began 21 years after it had first been proposed by Sandford Fleming, the chief engineer of the Canadian Pacific Railway. It eventually involved the laying of the largest single piece of cable so far4,000 miles, out of a total Pacific Cable length of 7,836 milesbut was completed ahead of schedule, in October 1902. Alarmed by this competition from public enterprise, the Eastern Telegraph group reduced rates on its cables in 1900, and laid a cable across the Indian Ocean to serve the three Australian statesSouth Australia, Western Australia, and Tasmaniawhich had refused to join the Pacific project.

Throughout World War I all cable services out of Britain were controlled by the government. The Eastern Telegraph group profited enormously from the diversion of business to India and East Asia away from the German-owned overland routes and from the general use of telegrams in preference to letters, which were delayed by lack of civilian shipping. For the first time cables became targets of warfare in themselves. Eastern Telegraph, the British Royal Navy, and the British General Post Office collaborated on cutting all cable links between Germany and North America. The Germans temporarily disabled both the Pacific Cable and the cable across the Indian Ocean, by attacking island stations in each ocean. However, the most spectacular event of the first cable war came in 1917, when, following the United Statess entry into the war, the German cable that had been cut three years before was lifted out of its position between New York and Emden, Germany, moved to a new position between Nova Scotia and Cornwall, and taken over by the British government as a prize of war, to be operated by the General Post Office. In 1920 the government decided to keep this cable, despite U.S. protests, and to purchase a second line, the two together being renamed Imperial Cable.

The wartime boom in Eastern Telegraph groups business gave way to slack trading in the early 1920s, as government telegrams declined in number and length, overland rivals got back to work, and the Pacific and Imperial Cables became direct competitors for communications with North America and Australia. However, the biggest blow to the whole cable business was struck once again by Marconi when he succeeded, in 1924, in telephoning Australia from England on short-wave radio equipment. This latest kind of wireless worked faster, cost less, and used less energy than either longwave radio transmission or cable, and offered a flexibility its rivals did not then have, since it transmitted both telephony and telegraphy. Five years later the Marconi-Wright facsimile system added picture transmission to wirelesss advantages. Within six months of its establishment, the General Post Offices system of short-wave stations had taken 65% of the Eastern Telegraph groups business, as well as more than 50% of Pacific Cables, and its service cost a fraction of the price of cabling. In the meantime, however, the cable systems were given a new lease on life, from 1925 onwards, as manual re-transmission of messages, at points where the signals weakened with distance, gave way to far less time- and labor-intensive automatic regeneration, using a system devised by Telcon.

At the suggestion of the private Marconi company, which operated separately from the G.P.O. but under a G.P.O. license, Sir John Denison-Pender met its chairman, Lord Inver-forth, in December 1927, to decide on a joint response to the Imperial Wireless and Cable Conference called for the following month. In March 1928 they both signed a letter to the conference proposing a merged holding company, owned 56.25% by the Eastern Telegraph groups shareholders and 43.75% by Marconis. This was against the wishes of the father of wireless himself, who had lost the chairmanship of his own company the year before. The conference accepted this plan. On April 8, 1929, two new companies began trading. One, Cable and Wireless Limited, had two functions, first, to control all the nontraffic interests, such as patent rights and manufacturing, and secondly to hold all the shares in the cable companies and Marconi. They, in turn, were exclusive owners of the second company, Imperial and International Communications Limited, which owned and operated the actual cable and radio stations, cables, ships, and other assets of Eastern Telegraph and Marconi, as well as the U.K. governments Imperial and Pacific Cables and, on lease, the Post Office transmitting stations. In 1934 the companies were renamed, respectively, Cable and Wireless (Holding) Limited and Cable and Wireless Limited. From the outset they were controlled by a single board, known, on the model of the Bank of England, as the Court of Directors, as Cable and Wirelesss board still was in the early 1990s. Since Sir John Denison-Pender had died one month before the companies started up, it was his son John Cuthbert who became governor, and Lord Inverforth sole president of the Court.

The Great Depression hit the new companies badly. Between 1929 and 1935 the number of chargeable words carried fell by more than half, and net profits, just over £1 million in 1929, declined to £75,000 in 1931 and reached only £625,000 in 1934. By 1933 the work force had been reduced by about a third and the introduction of telex in 1932 helped to cut operating costs. Competition was intensifying, as U.S.-owned International Telephone and Telegraph Corporation (ITT) expanded worldwide and Imperial Airways built up its inexpensive air mail service with subsidies from the same governments whose 1928 conference had led to the creation of Imperial and International. Some expansion of the cable and wireless businesses did occur, however, with the acquisition of wireless concessions in Southern Rhodesia(now Zimbabwe), Singapore (replacing the old Bombay-Rangoon cable), Turkey, and Peru, as well as domestic telephone services in Turkey, Cyprus, and Hong Kong. The structure agreed for Cable and Wireless in 1928 was altered slightly ten years later. In return for giving the company ownership, rather than rental, of the short-wave radio system created by the General Post Office, the British government took shares in the company for the first time, although for the time being it waived its right to appoint a director to the Court. At the same time an empire flat rate scheme was introduced, cutting the companys prices to the public and improving its finances.

World War II revived the cable war of 1914#x2013;1918. In 1939 German-owned cables across the Atlantic were cut once again, and in 1940 Italian cables to South America and Spain were cut in retaliation for Italian action against two of the five British cables linking Gibraltar and Malta. Electra House, the companys head office and central cable station, was damaged by German bombing in 1941. However, the company made a considerable contribution to the Allied war effort, supplying, for instance, the wireless equipment with which the North African campaign was conducted in 1942, and sending staff, in army uniforms marked with Telcom flashes, into several campaigns, starting in Italy in 1943. In Britain the end of the European war was followed by the election of a Labour government on a program that included expanding state ownership of leading industries. With the consent of the governments of the other independent countries in the Commonwealthas the former British Empire was then to be knownCable and Wireless was put on the shopping list, although the holding company and the main assetscables, ships, and wireless stationswere not. All shares in Cable and Wireless were transferred to the government on January 1, 1947, while Cable and Wireless (Holding) became an investment trust. In 1948 the company made an agreement with the government of Hong Kong to provide external telecommunications for the colony.

In 1950, following another agreement among the Commonwealth governments, most of Cable and Wirelesss U.K. assets and staff were transferred to the General Post Office, just as parts of its assets overseas were acquired by governmental bodies in the other countries involved. Even so, Cable and Wireless remained the largest single international telegraphy enterprise in the world, with 186,000 miles of submarine cable still converging on a station at Porthcurno in Cornwall, England, that had been opened in 1870. By the time the station closed in 1970, the companys business had been transformed. As telegraphy became obsolete in the 1950s the development of coaxial voice transmission offered the chance to switch over to telephone cables. The companys first venture into this new field was its participation, with American Telephone and Telegraph Company and the Canadian Overseas Telecommunications Corporation, in the laying of TAT-1, the first telephone cable across the Atlantic, completed in 1956. The transmission of the high frequencies needed for telephone links under the sea had been technically possible for 30 years, but plans to lay such a cable in 1928 had been aborted by the Depression. TAT-1 was followed by the opening, in 1961, of CANTAT, a telephone cable between Scotland and Canada which, in a departure from its own traditions, Cable and Wireless helped to lay and owned half of but took no part in operating. CANTAT was a single cable, capable of transmitting communication simultaneously in both directions. The completion of the projected Commonwealth round-the-world cable continued in stages, with COMPAC, a system that could provide capacity of at least 60 channels over distances of several hundred miles, linking Canada to Australia, New Zealand, and Fiji, being finished in 1963; and SEACOM, linking Singapore to Australia, in 1967. Cable and Wireless retained its participation in COMPAC and SEACOM, but sold its half of CANTAT to the British Post Office in 1971.

Throughout the 1960s more and more U.K. overseas possessions became independent states. In many cases their external telecommunications systems had been operated by Cable and Wireless, which then became junior partner, with the various new governments, in East African External Communications Limited (1964), Sierra Leone External Telegraph Limited (1964), Trinidad and Tobago External Telecommunications Company (1970), and other such joint ventures. Nigerias decision, in 1966, to take 100% ownership was thus unusual.

By 1972 Cable and Wirelesss largest operation was in Hong Kong, where the international telephone service it operated provided 88% of its profits, and it was here that it launched Cable and Wireless Systems Limited as a subsidiary offering specialized services. In its first few years these included microwave systemshigh frequency radio links for transmission over line-of-sight routesfor customers in Hong Kong, Brunei, and Thailand, a satellite earth station in Nauru, an island in the Pacific Ocean near the equator, and airline communications in the Persian Gulf. Diversification was made even more imperative in 1973, when the Brazilian government withdrew the concession first granted 100 years earlier. Another subsidiary, Eurotech BV, was set up that year as a holding company for projects in the European community, and through participation in supplying the communications network for the U.K. sector of the North Sea oü fields. By 1978 Cable and Wirelesss specialized projects included electronic systems for hotels, security systems, marine telex, and, under the largest contract in its history, communications systems for the Saudi Arabian National Guard. Cable and Wirelesss reconstruction as an international telecommunications company had been entirely self-financed. While it received no assistance at all from U.K. taxpayers, its profits went to its sole shareholder, the U.K. government. However, a new administration came into office in 1979, determined to privatize as much of the state-owned sector as possible, and in 1981 it decided to sell just less than half of the shares in Cable and Wireless. By 1985 all of the shares in the company had been sold to the private sector apart from a single golden share retained by the government. The companys franchise to provide Hong Kongs international telecommunications was renewed in 1981, when Cable and Wireless (Hong Kong) was formed. The acquisition of Hong Kong Telephone in 1984 added the domestic services to the companys portfolio. These two companies were restructured in 1988 with the formation of Hong Kong Telecom which, by 1990, still provided half of Cable and Wirelesss profits.

The 1980s saw a further transformation in the companys business, from dependence on service concessions from governments to a more varied range of governmental and commercial ventures. To take just one example, in 1981 it launched its subsidiary Mercury Communications Ltd.initially a joint venture with Barclays Bank and British Petroleumto compete against British Telecom, which then held a monopoly in providing telephone services in the United Kingdom. By 1990 Cable and Wireless had invested more than £1 billion in Mercury, which was estimated to have taken 3% of the U.K. telephone market from British Telecom. This was a more impressive result than it may sound; a great deal of Mercurys business was in the more profitable areas of long-distance and business communications, so that it was able to generate about 25% of Cable and Wirelesss turnover. In 1991, with the entry of new competitors into the industry looking more and more likely, Cable and Wireless decided to continue Mercurys specialization in business and international services and to develop further its mobile telephone venture, Mercury PCN. Lord Young, the erstwhile trade and industry secretary, became chairman of Cable and Wireless in October 1990.

Between April 1989 and March 1990, Cable and Wireless formed new companies in Yemen and the Seychelles to continue telecommunications services. In Pakistan, a subsidiary set up a mobile telephone network, while in the Caribbean the company extended the list of countries where it provided both domestic and international services. The companys presence in the Caribbean was enhanced in 1990 by its further purchase of shares in Telecommunications of Jamaica Ltd. from the Jamaican government and raising its holding from 59% to 79%. Cable and Wireless also owns 70% of Grenada Telecommunications. In spite of diversification the companys Hong Kong businesses remain central to its profitability. Since Hong Kong will revert to Chinese sovereignty in 1997, it is obviously very important for Cable and Wireless to work closely with the regime in Beijing, whatever unease there may have been following the massacre in Tienanmen Square in 1989.

Cooperation has taken various forms. First, in March 1990 the China International Trust and Investment Corp. (CITIC), the Chinese Governments international investment body, bought 20% of the shares in Hong Kong Telecom from Cable and Wireless, having already invested in Cable and Wirelesss subsidiary in Macao. Cable and Wirelesss own holding in Hong Kong Telecom was subsequently increased from 55.1 to 58.5%. Secondly, April 1990 saw the launch of AsiaSat, the first privately financed domestic telecommunications satellite in Asia, from a site in China into an orbit covering half the population of the planet from the China Sea to the Mediterranean. Ownership of the satellite is shared equally by Cable and Wireless, the Hong Kong company Hutchison Whampoa, and CITIC. Thirdly, in June 1990 the Chinese government decided to make Guangzhou its third point of entry for telecommunications, after Beijing and Shanghai, thus further boosting the importance of Hong Kong Telecom to the Chinese economy. Hong Kong Telecom then began to construct fiber optic cable links to southern China. When opened in March 1991, these doubled the telecommunications capacity between the crown colony and the Peoples Republic of China.

The companys main objective for the 1990s is the completion of what it calls the global digital highway, linking the centers of the world economy through fiber optic cables. The highway will include the private transatlantic telecommunications cable, which came into operation in the autumn of 1989 to link customers of Cable and Wireless and of its U.S. partner, US Sprint, in the United Kingdom, and the United States and, via connections to Ireland, the European mainland, and Bermuda, and many other Atlantic countries too. The highway also includes the North Pacific Cable, which opened one year later as a joint venture between Cable and Wireless, U.S. company Pacific Telecom, and Japanese company IDC, of which Cable and Wireless owns more than 16%. The fortunes of Cable and Wireless and its predecessors have depended, above all, on the political situation in the areas in which they have operated. The companys business could not have been built up without the approval and cooperation of governments, first in the British Empire and the Commonwealth, then all over the world, and their interest in communications has made them Cable and Wirelesss main customers, although less overwhelmingly so now than in the imperial past. However, if the company can maintain its long-established tradition of adaptability, and if the former Soviet bloc and at least some countries in the Third World enter onto paths of steady development, the next 140 years of Cable and Wireless may well be as busy and successful as most of the last 140 were.

Principal Subsidiaries

Mercury Communications Ltd.; Hong Kong Telecommunications Ltd. (58.5%); Hong Kong Telephone Company Ltd.; Hong Kong Telecom International Ltd.; Telecommunications of Jamaica Ltd. (79%); Cable & Wireless North America Inc. (U.S.A.); Companhia de Telecomunicações de Macau SARL (51 %, Macao); Barbados External Telecommunications Ltd. (85%).

Further Reading

Barty-King, Hugh, Girdle Around the Earth, London, Heinemann, 1979.

Patrick Heenan

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Cable & Wireless HKT

Cable & Wireless HKT

Hongkong Telecom Tower
39th Floor
Taikoo Place
979 Kings Road
Quarry Bay
Hong Kong
(852) 2888-2888
Fax: (852) 2877-8877
Web site: http://www.hkt.com

Public Subsidiary of Cable & Wireless PLC and China
Telecom Incorporated: 1988 as Hong Kong Telecommunications Ltd.
Employees: 14,233
Sales: US$4.18 billion (1999)
Stock Exchanges: New York Hong Kong Pacific
Ticker Symbol: HKT
NAIC: 51333 Telecommunications Resellers; 51331 Wired Telecommunications Carriers; 51334 Satellite Telecommunications

Cable & Wireless HKT (HKT), formerly Hong Kong Telecommunications Ltd., provides a wide range of communications services in Hong Kong. With eight offices in Asia and two in Canada, HKT has its headquarters in Hong Kong, where it maintains 3.6 million phone lines. Among the products and services offered by HKT are basic telephone services, international telephone services, Internet access, fax and data services, mobile telephone services, multimedia services, satellite links, and telecommunications equipment. The company lost its monopoly on international phone service at the beginning of 1999 and changed its name in midyear to better reflect the companys diverse array of services, particularly in Internet services. HKT is a public subsidiary of Cable & Wireless PLC (54 percent) and China Telecom, the leading telecommunications company in China (11 percent).

Early Years

The origins of HKT date back to the beginnings of Hong Kongs telecommunications history in the 1870s. John Pender, a onetime Manchester cotton merchant, extended his worldwide telecommunications empire to all corners of the British Empire by forming the China Submarine Telegraph Company in 1871. An undersea telegraph cable was put in place in Hong Kong by Penders company, effectively connecting Hong Kong and Singapore, Britains main colonies in the Far East, by telegraph to London. Later, in 1873, Pender completed the merger of his Australian, Chinese, and British India companies into the Eastern Extension Australasia and China Telegraph Company to look after the telegraph cable. Several decades later, this company became part of the Cable & Wireless Group.

Domestic telecommunications facilities in Hong Kong became more advanced in 1925 when the Hong Kong Telephone Company took over the interests of Penders China and Japan Telephone and Electric Company. The companys mandate included providing all the British colonies with local telephone services. Over the next six decades Hong Kong Telephones line capacity grew to more than 2.5 million, with the company serving approximately six million people.

Telecommunications became increasingly important following World War I, and in 1929 the British companies Marconi Wireless and Eastern Telegraph joined to establish Cable and Wireless (C&W). The companys strategy was to supply telephone and telegraph services in Britains colonies, and it succeeded in securing an exclusive franchise to provide international communications services in Hong Kong. By 1972 the companys biggest operation was its subsidiary in rapidly growing Hong Kong. Hong Kong Telephone, meanwhile, built a new headquarters in 1972. The companys growth was said to typify the colonys transition from an economy based on manufacturing to one dependent on service industries, which created a demand for telecommunications services. In 1975 Hong Kong Telephones franchise for domestic service in the colony was extended for an additional 20 years, to expire just ahead of Hong Kongs reversion to Chinas control in 1997.

Expanded Services and Growth in the 1980s

In 1981 the Hong Kong branch of C&W was established as Cable & Wireless Hong Kong (later Hongkong Telecom International) to manage its communications services, and in 1984 C&W HK purchased Hong Kong Telephone. Hong Kong Telephone, which had started to develop an all-digital telephone system for the colony and surrounding regions in 1984, boasted one of the most modern networks worldwide. The aim was to give the colony state-of-the-art telecommunications facilities and performance.

In December 1985 the eastern section of the Guangdong microwave project in southern China was opened, for which C&W provided technical assistance. A few months later, in March 1986, the western section opened, effectively linking telecommunications traffic between 25 cities in Guangdong province, which then emerged as an expanding hinterland manufacturing base next to Hong Kong.

In 1986 Hong Kong Telephone started up public facsimile service from Hong Kong to Beijing, Shanghai, Guangzhou, and Shenzhen, a newly created special economic zone. Such facilities were instrumental in helping much of Hong Kongs manufacturing base continue relocating to southern parts of China, then undergoing economic reforms and establishing closer manufacturing links with Western markets. The Cable and Wireless Group had at the time two joint ventures in China. The first, Shenda Telephone Company, of which the group had a 49 percent stake, sold and installed an overhead fiber-optic system that linked Shenzhen City, Shahe, and Nantou. The second, the Huaying Nanhai Oil Telecommunication Service Company, began helping explore for oil deposits in the South China Sea.

Cable and Wireless also signed agreements in 1986 to provide some 1,000 kilometers of digital trunk microwave and five long-distance toll exchanges in the Yangtze Delta region of China, linking 27 cities in Jiangsu and Zhejiang provinces. Another agreement was signed that year with the Guangdong Posts and Telecommunications Bureau to develop a mobile radio telephone and paging service in the Pearl Delta region. The unified system was aimed at allowing local subscribers to use handheld telephones. To complete this contract, Hong Kong Telephone established a nonfranchised operation, Communication Services Ltd. Its function was to introduce new mobile radio telephone and radio paging services, allowing the use of handheld equipment anywhere in Hong Kong and the Pearl Delta region. By March 1987 Communication Services Ltd. had opened 18 retail outlets.

In June 1986 Cable & Wireless also announced plans for an underwater optical fiber cable connecting Hong Kong with Japan and South Korea, to become operational in 1990. As a measure of the groups regional clout, the London-based organization became the first British company to be listed on the Tokyo Stock Exchange. This event underlined the telecommunications groups expanding role in the emerging Pacific Basin region.

In 1988 Hong Kong Telecommunications Ltd. (HKT), also known as Hongkong Telecom, was formed to serve as a holding company for Hongkong Telecom International and Hong Kong Telephone and effectively consolidated the twin international and domestic telecommunications facilities under one umbrella. The first chairman of Hong Kong Telephone was Sir Eric Sharp. A native Briton, Sharp had also been chairman of Cable & Wireless PLC since 1981. Serving as deputy chairman was Brian Pemberton, the London-based joint managing director of the Cable & Wireless Group, with responsibility for the groups activities in the Far East. Day-to-day management of Hong Kong Telephone was put in the hands of Michael Gale, who served as CEO. Gale first joined Cable & Wireless in 1959 and had earlier served as CEO of Hong Kong Telephone.

As of January 1988, HKT had 16,300 employees and was one of the largest employers in the colony. Expansion of specialty services, including nonvoice communications services, was considered a top priority for the new company. For example, Faxline, a support service for Hong Kongs facsimile terminal users, had 26,000 accounts in 1988 and was growing at the time at a rate of 2,000 new users a month. In addition, Datapak, Hong Kongs public data network for communications and networking, was expanding services between host computers and its own central database terminal. One large HKT customer, global computer maker International Business Machines Corporation (IBM), required the establishment in 1988 of a subsidiary data sales service, IBS. Its role was to represent ROLM, a subsidiary of IBM in Hong Kong, providing it with voice and data digital information systems in addition to servicing and consultation services.

Beginning in 1987, satellite communications facilities were provided to HKT through five satellite dishes located at Stanley Earth Station and geosynchronous satellites situated over the Indian and Pacific oceans. With eight permanent and one portable antenna, the earth station proved to be one of the largest commercial satellite facilities in the world. International facsimile transmissions utilizing Hong Kong Telephones international telephone circuits grew considerably throughout the 1980s. And the creation of the HKT CSL subsidiary in 1990 allowed for the development of sophisticated paging and mobile radio telephone equipment and services.

Company Perspectives:

We will continue to invest in developing people and technology to reinforce Cable & Wireless HKTs standing as Asias most successful integrated communications company.

By the end of the 1980s telephone traffic between Hong Kong and China was becoming increasingly important to HKT. This reflected both the increase in business between the colony and emerging economic centers in southern China and the expanding telecommunications facilities linking the two regions. By 1989, for example, traffic with China accounted for about 20 percent of international traffic revenues for HKT and some 38 percent of traffic volume overall. This compared with 18 percent and 34 percent, respectively, for both revenue producers a year earlier.

Diversification in the Early 1990s

In October 1990, Rt. Hon. Lord Young of Graffham, chairman of HKT, met with Premier Li Peng and Yang Tai-fang, then Chinas minister of Post and Telecommunications, and announced that China was to spend some US$6 billion by 1995 to expand that countrys telecommunications base. By virtue of the new and expanding China business, Young was quoted in the companys 1991 annual report as saying that the continued development of the Pacific Rim countries, and China in particular, should ensure that the region continues to enjoy strong economic growth.... Telecommunications infrastructures throughout the region are being expanded and modernized to support this growth. Hongkong Telecom is well positioned to benefit from these developments.

In 1991 HKT added Citinet to its portfolio. The service, offering a private switchboard service to subscribers and operated from a central telephone exchange, was taken up by 21,200 account holders in its first year of operation. HKT also introduced radio paging that year, allowing subscribers to carry a credit card-sized pager, complete with Chinese characters, with them for instant access to calls and messages. By 1992 traffic with China continued to underpin the growth in sales at HKT. Chairman Young told shareholders in the companys 1992 annual report, Chinas continuing economic development and the integration with the Pearl River Delta area encompassing Macao and Guangdong are also benefitting the Hong Kong economy. We have seen this translated into strong demand for our services, with international calls between Hong Kong and China growing 35 percent.

HKT completed the digitalization of the Hong Kong telephone network in 1993, the first full digitalization of a major urban market. Another world first was the introduction of an underground digital mobile system, designed to supply coverage on underground trains on Hong Kongs Mass Transit Railway. Also that year HKT and its parent company formed a joint venture, Great Eastern Telecommunications Limited, to take advantage of telecommunications opportunities in Asia. In 1994 HKT and the China Ministry of Post and Telecommunications developed a partnership to install undersea cables throughout Asia, and HKT became the biggest mobile telephone operator in Hong Kong.

Major Changes in the Late 1990s

Despite its continued expansion and dominance of the telecommunications industry in Hong Kong, HKT faced a significant new challenge as it entered the second half of the decadecompetition. In mid-1995 HKT lost its exclusive franchise to supply domestic telephone services in the Hong Kong region, and three rivals entered the marketplace: Hutchison Communications Ltd., Net T&T Hong Kong Ltd., and New World Telephone Ltd. With the new competition and increasing inflation, HKT announced plans to cut more than 15 percent of its workforce, which amounted to 2,500 staff members, by 1998. The company maintained that the cutbacks would result not from layoffs but through attrition and a reduction in new hiring.

The introduction of competition did not have a negative effect on HKT, nor did it slow the company down. The companys net profit during the first half of fiscal 1996 increased 15 percent over the same period of fiscal 1995. In 1995 HKT completed its new corporate headquarters, opened offices in Vancouver and Toronto, and announced the formation of subsidiary Cable & Wireless HKT IMS, which would handle interactive multimedia services. The following year HKT launched a new Internet service called Netvigator, thus establishing its early commitment to the Internet, and began offering such services as ISDN (Integrated Services Digital Network) and Caller Display.

In 1997, hoping to increase opportunities in the Chinese market, C&W PLC sold a 5.5 percent stake in C&W to China Telecom, Chinas government-controlled telecommunications operator. The move was not unexpected. Because Hong Kong was to revert to Chinese rule in July 1997, analysts predicted that C&W PLC would diminish its stake in C&W to increase activity in China, considered a profitable area of growth. China Telecom purchased additional shares of C&W the following year to become the companys second largest shareholder.

Early in 1998 HKT made another significant announcement, that the company would give up its monopoly on international telephone services in 1999 rather than 2006 in exchange for US$865.6 million. As part of the agreement, HKT would be allowed to change the tariffs charged for leasing its telephone lines, possibly resulting in much higher local phone charges for customers. Relinquishing the exclusive rights to offer international services was made less substantial by the fact that customers had had access to numerous international direct-dial (IDD) carriers since deregulation in 1995. IDD rates, according to the Asian Wall Street Journal, had dropped by as much as 70 percent between 1995 and 1998 because of the intense competition. HKTs revenues from IDD services already showed signs of decline, and for the fiscal year ended March 31, 1998, according to the company, IDD services contributed 48 percent of total revenue. The previous year IDD calls had accounted for 53 percent of total revenue, and the year before that 56 percent. Still, HKT dominated the telecommunications industry, holding 98 percent of local services and 75 percent of the long-distance arena.

HKT continued to expand its services so that it would not have to rely solely on revenues generated from local and international telephone services. Internet and interactive services grew considerably, with Netvigator the largest Internet service provider in Hong Kong. The companys new interactive television (iTV) service, which offered viewers the opportunity to access the Internet and view movies, signed up about 60,000 subscribers in just a few months. HKT acquired Hong Kong Star Internet Ltd., a subsidiary of Star Telecom International Holding Ltd., in late 1998, thereby joining the regions two largest Internet service providers.

In the highly competitive mobile telephone market, six operators battled for market share. HKT acquired Pacific Link Communications Limited, the Hong Kong cellular phone operations of First Pacific Holdings, in 1998. The acquisition boosted HKTs leadership of the competitive mobile telephone market. For the fiscal year ended March 31, 1998, HKT reported that cellular service revenues increased 28 percent, and HKT continued to dominate the field, boasting more than 860,000 subscribers. According to the Asian Wall Street Journal, however, the rise in revenue was due primarily to the purchase of Pacific Link. The publication reported that HKT had lost 30,000 subscribers during the first half of fiscal 1999, bringing its share of the market to 41 percent.

As HKT prepared to enter into full competition in 1999, the company struggled to maintain direction and focus amid great change and a difficult recession. The first half of fiscal 1999 did not bode well; total revenue fell three percent, and the company planned to cut the salaries of its staff of nearly 14,000. We are now changing from a monopoly situation into a highly competitive market, lamented CEO Linus W.L. Cheung in the Asian Wall Street Journal. If we cannot do something about our costs and efficiency, we will have very little room for maneuver.

As expected, the advent of 1999 brought intense price wars in the long-distance telephone service market. Because of government restrictions, HKT was unable to offer significant discounts. For the fiscal year ended March 31,1999, total revenues slipped 7.5 percent. IDD services suffered from a 22 percent drop in revenue. The declines, according to the company, were due to severe price competition in international telephone services and mobile services, as well as the recession.

Undeterred by the difficult year, HKT continued to move forward. CEO Cheung wrote in the 1999 annual report, We have moved from being a monopoly provider of basic telecommunications services to become a competitive, fully integrated communications company. HKT acquired an 85 percent stake in FIC Network Services of First International Computer of Taiwan to strengthen its Internet presence in Asia and upped its stake in Taiwan Telecommunications Network Services from 21.4 percent to 56 percent, thereby expanding its authority in Asian telecommunications markets. The company announced plans to invest US$103.3 million on its interactive television service during 1999 and formed a partnership with Microsoft Corporation to deliver increased services through iTV. HKT had already spent US$180.7 million between 1995 and 1999 developing a fiber-optic network in Hong Kong to accommodate iTV, among other services. In mid-1999 HKT indicated that it would spend US$257.7 million over the following three years to improve its mobile telephone network.

HKT adopted its new name, Cable & Wireless HKT, in June 1999 to signal its diversity of technological products and to further the companys intent to make Hong Kong the Asian center of e-commerce and the Internet. A company press release indicated that the new name and logo were part of the Companys strategy to further enhance its position to meet intensified competition on a global scale. The new logo and English trade name can better reflect the scope, dimension and the geographical reach of the various integrated communications services the Company is now offering. HKTs plans for the new millennium included entering Chinas rapidly growing telephone market, expanding into property development, and continuing to invest in its broad range of telecommunications and Internet services. CEO Leung summed up the companys future in a prepared statement: Cable & Wireless HKT is a new Company projecting the bold new image we will take into the new millennium, when the borderless infotech and communications industry will reach horizons we cannot even imagine today.

Principal Subsidiaries

Hong Kong Telecom CAS Limited; Hong Kong Telephone Company Limited; Hong Kong Telephone International Limited; Hong Kong Telecom CSL Limited; Hong Kong Telecom IMS Limited; Hong Kong Telecom VOD Limited; Computasia Limited; Monance Limited; Hongkong Telecom Finance Limited; One2Free PersonalCom Limited; Hongkong Telecom Teleservices Limited; Hong Kong Telecommunications (Pacific) Limited; FIC Network Service, Inc. (85%); Telecom Directories Limited (51%).

Further Reading

Granitsas, Alkman, Hong Kong Is Finally Getting Serious About Opening Its Telecoms Market to Competition, Far Eastern Economic Review, August 13, 1998, p. 44.

Hongkong Telecommunications Ltd.Introduction to Stock Exchange of Hong Kong Ltd, Prospectus, January 29, 1988.

Hong Kong Telephone: Guide to Customer Services, Hong Kong: Hong Kong Telephone, April 1988.

Kennedy, Sean, What Is Hongkong Telecoms Net Value? Asian Wall Street Journal, May 6, 1999, p. 4.

Ling, Connie, Hong Kong: A Wide-Open Telecommunications Market Is Becoming Even More of a Free-For-All, Asian Wall Street Journal, June 2, 1998, p. S4.

Mungan, Christina, Hongkong Telecom Girds for iTVs Next Phase, Wall Street Journal Europe, April 1, 1999, p. 4.

_____, Hongkong Telecom Tastes Hard Times, Asian Wall Street Journal, November 9, 1998, p. 3.

Etan Vlessing

updated by Mariko Fujinaka

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"Cable & Wireless HKT." International Directory of Company Histories. . Encyclopedia.com. 19 Aug. 2017 <http://www.encyclopedia.com>.

"Cable & Wireless HKT." International Directory of Company Histories. . Encyclopedia.com. (August 19, 2017). http://www.encyclopedia.com/books/politics-and-business-magazines/cable-wireless-hkt

"Cable & Wireless HKT." International Directory of Company Histories. . Retrieved August 19, 2017 from Encyclopedia.com: http://www.encyclopedia.com/books/politics-and-business-magazines/cable-wireless-hkt