Hong Kong -- The economic downswing here has had a marked
impact on monopoly pay television operator Cable TV, with subscription levels stagnating
and parent company Wharf Holdings expecting the unit to post a $39 million loss for 1998.
Although Cable TV began the year reporting positive cash
flow for the first time since it began transmissions in November 1993, the regional
economic slowdown is now keenly being felt in Hong Kong, with higher unemployment and less
growth.
Sources close to the company admitted that its net growth
was just two subscribers in June, despite a concentrated advertising and promotional
campaign by Wharf in the first half of 1998.
Cable TV chairman and managing director Stephen Ng Tin-hoi
said in June that the company had suspended the rollout of its fiber optic cable system
after it reached the government's target of passing 600,000 homes.
Insiders now claim that construction of the network has
been halted indefinitely, although the holdup is officially being described as "a
slowing down."
The expected loss for this year pales when compared with
losses of $78.8 million in 1997 and $75 million in 1996. However, the 1998 loss reflects
the suspension of the fiber optic build. Cable TV has said that the fiber network is
essential to boost channel capacity far beyond the 20 channels that its wireless cable
subscribers receive and to be used as a platform for interactive functions.
Wharf claims to have 400,000 subscribers among Hong
Kong's 1.6 million households, although a recent presentation by executives of
Wheelock & Co., Wharf's parent, claimed 430,000.
Whatever the figure, the company also admitted that its
churn rate has risen from less than 1 percent to as high as 1.5 percent in recent months.
While not crucial in isolation, the stagnation in new subscriber numbers means that Cable
TV is in danger of posting net losses of subscribers, since Hong Kong's recession is
expected by the government to continue into mid-1999.
Cable TV's attempt to tap into advertising to
diversify its revenue stream has also run into difficulties. Its license was altered in
June 1997 to permit it to transmit commercials.
But despite estimates by government-appointed consultants
that Cable TV could pull in 6 percent of Hong Kong's advertising spending, the
operator was never able to command more than 2 percent. Subscriptions still account for
more than 90 percent of Cable TV's income.
Wharf is still appealing last year's $125 million
award for breach of contract, issued by a Denver judge in a case brought by United
International Holdings Inc. However, earlier this year, Ng said Wharf had already made
financial provisions for the case, and it would not have an impact on Cable TV's
financial position.
