Hong Kong's Li Ka-Shing May Expand 3G Mobile-Phone Empire to the U.S.

date: 27th December 2000

Sitting on a hefty pile of cash, Li Ka Shing is poised to bid on third-generation mobile-phone licenses, but Hong Kong's richest man will proceed carefully as he expands his telecommunications empire, according to an interview with Mr. Li in Fortune magazine.

Mr. Li, the chairman of Hutchison Whampoa Ltd. and Cheung Kong Holdings Ltd., has billions of dollars in his war chest and plans to bid on a 3G license in the U.S. once licenses go up for sale, he told Fortune.

"We are waiting for the U.S. to issue 3G licenses," he said. "If we come across a good investment opportunity, we can move in very quickly because we don't have to borrow from banks."

"We cannot disclose exactly how much we have in our cash pool," Mr. Li said in the interview. "However, we can say that we have many billions of U.S. dollars in our cash pool and that the amount is greater than our total debt at the end of 1999."

Hutchison reported about $11.5 billion total debt at the end of 1999, according to Fortune.

"Income from this cash pool is more than enough to meet annual dividend payments," Mr. Li said. "I don't want to operate under any financial pressure. We are continuing to build up this cash pool and if we come across any exciting and attractive investment opportunities, we will be ready."

But despite plenty of cash reserves, Mr. Li scaled back his widely-touted ambitions to create a pan-European telecommunications empire when prices climbed too high.

Hutchison won 3G licenses in the U.K., Italy, Austria and Sweden but withdrew from the bidding war in Germany, probably a smart move in hindsight as successful bidders paid the government $46.77 billion for the German licenses. Hutchison in partnership with NTT DoCoMo and Royal KPN paid 4.385 billion British pounds ($6.46 billion) for its U.K. license.

"There is absolutely no way we can endlessly bid for every 3G license," Li told Fortune. "For example, the cost of the license in Germany was too high and exceeded our budget so we had no choice but to withdraw."

While Hutchison's decision to withdraw was criticized, now that telecom stocks have fizzled and bidding for 3G licenses has calmed down, it looks like Li made a wise move. Asian 3G licenses are expected to fetch much more reasonable prices.

Still, Li believes 3G will be an important force in the future of the mobile telecom industry and global economy.

"I believe that wireless data transmission will be one of the important drivers of the economy in the future," he said in the interview.

But Li will continue to be prudent.

"Our estimated total cost for 3G business...will not exceed $14.4 billion," he said. "Assuming the two businesses (2G and 3G) have the same number of customers, if I had to choose between the two, I would choose 3G because it has greater potential."

In the meantime, Li admitted Hutchison may not be able to match its record profits of 1999, fueled largely by the fortuitous timing of the sale of its stake in Orange PLC last year, which added HK$118.0 billion to its bottom line. In 1999, Hutchison recorded HK$117.34 billion in net profits, up from HK$8.71 billion the previous year.

"It will be difficult to repeat the profit figure we had in 1999 because we sold Orange last year for record profits," Li said. "But I believe our businesses will continue to do very well. First, our existing businesses, of which 99% are profitable. Second, our telecom businesses are also fast growing with a very bright future.

"We expect the next three years to be an investment period (for telecoms) but in some countries we may be able to turn a profit within 18 months," Li said.

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