Hutchison Whampoa Limited - Financial Information

Telecommunications

The Group has built on its recognised telecommunications expertise to become a major player in Hong Kong and a participant in a growing number of countries in Asia-Pacific and Europe. The Group has recently expanded its activities to North America.

Profit from the Group's telecommunications division totalled HK$1,071million (1996 - HK$3,642 million). The amount recorded for 1996 includes the profit derived from the flotation that year of Orange plc.

Hong Kong Operations

Operating in an increasingly competitive telecommunications marketplace, Hutchison Telecommunications, which provides cellular, fixed-line and paging services, continued to operate profitably. The positive results reflect strong growth in its cellular subscriber base and the ongoing benefits of cost control measures.

During the year, the Group concentrated on expanding its market share, improving service quality and providing value for money to subscribers. As a result, the GSM subscriber base grew by 123,000 to 363,000 subscribers at present, while the number of CDMA subscribers rose to 220,000 from 46,000 at the end of 1996.

Significant progress was made in the development of the Personal Communications Services (PCS) network, which will provide the Group with additional capacity to meet future demand. Feedback from consumers, who are being offered special tariffs while the system is being tested, has been highly encouraging. The network currently has 33,000 subscribers. As the PCS network operates on the GSM platform, the Group has a strong marketing advantage in being able to offer an integrated range of services and a wider coverage area to subscribers.

With approximately 616,000 subscribers on three networks, the Group presently has approximately 29% share of the Hong Kong cellular market.

In addition to launching a range of innovative new cellular services, such as InfoStar, Hong Kong's first prepaid mobile SIM card with IDD facilities was successfully introduced by the Group. Subscribers are now being served by five service centres and 42 retail outlets, many of which were upgraded to provide a more comprehensive level of services. The number of authorised dealer outlets carrying Hutchison handsets was increased to over 150. To improve service quality, the number of cellsites was expanded substantially, with the GSM network now covering 96% of the populated area of Hong Kong.

The Everyday Card, which provides a variety of discounts at leading retail outlets, continues to be popular with subscribers, and the number of merchants participating in the programme continues to expand.

Satisfactory progress was made in the development and marketing of the fixed-line network. In addition to its facilities to provide service to a growing number of business districts in Hong Kong, several high density housing estates and private residential developments were connected to the network ahead of schedule. The company was also awarded a contract to provide high-speed trunks for fixed-line voice services for the new Hong Kong International Airport. Despite strong competition, the IDD 0080 service grew its subscriber base to more than 615,000 from 230,000 the year before and posted an encouraging increase in the number of call minutes. Among new services launched during the year was DataEight Services, which will provide subscribers with flexible and secure data services.

Although the Group maintained its dominant position in the paging business, the market is in decline as subscribers shift from pagers to cellular telephones. During the year, the Group focused on developing innovative new products and value added messaging services, such as information-on-demand services providing real-time financial data to subscribers. As part of its cost control initiative, the Group achieved significant savings by transferring its main paging operator centre to Macau. The Group's paging business in Macau also performed satisfactorily.

Mainland Operations

The Group's joint venture telecommunications equipment manufacturer Chung Kiu Telecommunications (China) progressed satisfactorily as did the paging operations which are located in five cities. Progress was also made in marketing trunk radio network equipment and handsets in the Mainland and in Taiwan. In addition, Chung Kiu is participating in a joint venture to provide consulting and engineering services to the Great Wall CDMA cellular network.

Asia Pacific Operations

The Group's Asia Pacific operations performed satisfactorily against the background of difficult economic conditions and heightened competition.

The Group's joint venture GSM network in Mumbai (formerly known as Bombay), India, performed well and currently has 131,000 subscribers, up from 50,000 in 1996. The joint venture has concentrated on consolidating its position as the market leader based on the quality and reliability of its network, and currently has a market share of approximately 60%. The network is expected to generate a small profit this year. The Group's paging activities in India, located in seven cities and the state of Punjab, faced increasing competition but performed satisfactorily, with approximately 76,000 subscribers at present. The Group has an effective 29.4% interest in the company which controls both these businesses.

The Group's cellular service provider business in Australia performed well, with its subscriber base up by 120% to 143,000 subscribers at present. The Group's interest in its joint venture in Australia was increased from 56% to 70%. In Sri Lanka, the Group acquired a 100% interest in an established cellular operator and will transfer its retired analogue TACS equipment from Hong Kong to that venture. The resultant improved quality of service and coverage area of the network should be achieved at minimal cost.

Although significant efforts have gone into building up the subscriber levels of the Group's paging activities across the region, their performance has been affected by the recent turmoil in Asia's financial markets.

The client base and revenue earned by Hutchison Corporate Access increased from the year before as a result of progress made in developing a marketing partnership network throughout the region. Hutchison Corporate Access provides communications services and equipment utilising very small aperture terminals (VSAT).

Asia Satellite Telecommunications Holdings

Exceptional profits totalling HK$1,515 million were realised in 1997 from the sale of a portion of the Group's interest in Asia Satellite Telecommunications Holdings. As a result, the Group's shareholding in this company has been reduced to 11.49%. The company continues to generate steady income from transponder leases taken up by broadcasting and telecommunications providers. While the launch of AsiaSat III in December was not successful, the loss of the satellite was fully covered by insurance which will provide for the cost and launch of a replacement satellite.

Metro Broadcast

Metro Broadcast Corporation, in which the Group has a 50% interest, recorded its best result to date achieving break-even for the year. This was attributable both to increased sales and improved cost control measures.

North America Operations

Early this year, the Group completed the acquisition of a 5% interest in Western Wireless, Inc and a 19.9% interest in Western PCS Corporation. The Western Wireless Group is a US-based PCS business providing service to a number of Mid-western states with a total population of 66 million. This investment represents the Group's first entry into the mobile telephone market in the United States. Every effort will be made to work closely with the management of Western Wireless with the view to further develop the Group's mobile telephone business in that market.

Europe Operations

Orange continued to expand during 1997, passing the one million subscribers milestone in July to account for 25% of the UK's net market growth. Currently, Orange has approximately 1,300,000 subscribers, and a 14.2% share of the national market, providing coverage to 96% of the population. Roaming services were established during the year, allowing customers with the dual band handsets launched in May to use more than 86 networks in 63 countries. Orange continues to explore expansion opportunities in Europe, and currently holds a 17% interest in the consortium which won the third mobile phone licence in Austria in 1997.

Under an accelerated network rollout and capital investment programme announced in 1997, which aims at ensuring Orange delivers optimal signal quality for in-building and on the move calls, its network's service area will be expanded to cover over 98% of the UK population.

The paging and cellular service provider businesses performed satisfactorily, focusing on higher value subscribers. In particular, PULSE, the dedicated high value financial information services offered by Hutchison Paging (UK), generated a positive contribution to the business.

The service provider businesses in France and Germany also contributed to Orange's growth, with 39% and 32% growth in their respective subscriber bases during the year.