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OCTOBER 20, 2000 VOL. 26 NO. 41 | SEARCH ASIAWEEK

Running With the Big Dogs
Did Taiwan's GigaMedia diss PCCW's play?

On the Internet, one is known by the company one keeps. GigaMedia, the emerging leader of Taiwan's nascent broadband Net access business, has joined a pretty racy posse. Through its parent, Taiwanese conglomerate Koos Group, Gigamedia has access to 3.6 million cable-TV households in Taiwan. Microsoft is an 8% owner, and within the past 30 days GigaMedia has forged key partnerships with Yahoo! and with News Corp.'s Asian satellite TV distributor Star. The alliances will help the Nasdaq-listed GigaMedia fend off rivals in what is expected to be a very competitive broadband market; besides broadband access, GigaMedia will be able to offer Taiwanese customers an attractive line-up of audio, video and Internet content.

You are also known by the company you don't keep. GigaMedia in May struck a deal with Pacific Century CyberWorks (PCCW), would-be Great Ape of Asian interactive networks, to work together on Chinese content development in a joint venture with ERA Communication of Taiwan. But during the flurry of dealmaking in late October, GigaMedia opted out after chairman Chester Koo could not agree with PCCW chairman Richard Li on which party would have the controlling stake — a move seen by some as a rebuke to PCCW. The companies could tie up later, but GigaMedia's 30-year-old founder and CEO Raymond Chang may have the partner he needs in Star. The News Corp. subsidiary has pledged to issue up to $200 million in convertible loans to GigaMedia cable-TV affiliates so they can upgrade their systems to two-way, interactive capabilities. Fewer than 50,000 Taiwanese currently have broadband access. GigaMedia hopes to wire 300,000 homes by the end of the year, and Chang isn't stopping at the island's beaches. Like PCCW, he wants to move into mainland China. Before the Star announcement, the Yale University grad spoke with Asiaweek contributor Tim Culpan:

How important is the Yahoo content deal to GigaMedia?

Having Yahoo on board helps to differentiate us from other broadband service providers. One of the reasons we went into this partnership is that we will be creating a co-branded site that will only be accessible to GigaMedia subscribers. We will also be offering corporate broadband services only for GigaMedia customers. In 12 months time, broadband access could become just a commodity. At that point having unique content will become very important in distinguishing us from our competitors [including Chung Hwa Telecom, Taiwan's dominant telephone company].

But Yahoo is still free to deal with other broadband players in Taiwan.

Yes, but we have a significant time lead. Our co-branded site requires contributions from both sides, so there will still be exclusive content from our side.

What additional steps are you looking to take in terms of expansion?

We are looking to form strategic partnerships with either infrastructure or content players in mainland China. What we can bring is our expertise and our technology. But we will still rely on finding the right strategic partner.

Would that include mergers and acquisitions, or merely partnerships?

Strategic partnerships. Nowadays, we understand that even if you gain control of a certain company, if people are not willing to work with you then you are just buying a lot of assets without being able to make the best of it. Yahoo and a lot of international companies have come to know that. Initially, international players came to this market thinking that they could do everything themselves. Now they're realizing that finding the right strategic partner is very important.

What will be the key to unlocking China, and when will it happen?

In around 12 months time we will see some really explosive growth in the mainland China market. China entering the WTO will be one of the major catalysts. If China can pass a lot of the WTO hurdles, then a lot of international investors and many Taiwanese companies will be more comfortable doing business there.

Around the same time as a deal was signed with Yahoo, the deal with PCCW was called off. Is there any linkage between the two?
No, they are unrelated. We decided to call off the PCCW deal mainly because we could not agree on the value of ERA. It was a financial decision. Secondly, we are also not sure how PCCW's NOW [Network of the World, the Hong Kong company's broadband portal] strategy is going to unfold.

What is your relationship with PCCW now that you aren't allies?

We continue to see them as a very strong regional player. Now that the [Cable & Wireless HKT] merger has gone through, they hold one of the biggest distribution pipes in Hong Kong. We like that market and we will continue to explore opportunities to get into that market. PCCW would be a great fit. Simply because we could not get the ERA deal completed does not mean that we will never be able to work together. We are hoping to explore something in the future.

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