less extensive use of fibre cables, extending fibre to 19 nodes, which then serve a further 289 local nodes and subscriber premises with coaxial cable. HKCC has discussed the use of more fibre, but has made no commitments. However, because of network adjustments needed to deliver the Economy Service, HCV is unable to take full advantage of the performance benefits of more extended use of fibre.
Both HKCC and HCV plan to complete their construction within five years. They propose reasonable measures to reduce disruption. HKCC's cost estimates appear adequate except for in-building costs, which may be understated.
By contrast, HCV contains major contingencies in its investment projections.
The WTS network is not described in sufficient detail for technical analysis. From the information provided, we understand that they intend to complete the network within five years, and there may well be some savings in the level of disruption in residential areas as a result of their proposal to use HKTel's network in those areas. However, in our experience, it is unlikely that HKTel's network will be optimally configured for WTS's cable TV network and considerable expense and additional ducting may well
well be required compensate for this. WTS plans to put all in-building network into place, including in the residential areas. WTS's capital expenditure appears low from the limited information provided. In addition, because of their proposal to use HKTel's network for horizontal distribution in residential areas, the WTS proposal does not meet the Government's criterion of being independent of HK Tel.
to
E.
CABLE TV FINANCIAL ANALYSIS
In Figure I-7, we illustrate the net present value (NPV) of the projected profit stream of the HKCC and HCV proposals and how that NPV changes with deviations from plan in revenues expected and in programming costs. The starting point, i.e. the NPV of the profit stream if the project is on plan, has been adjusted by us to allow for areas where we feel HKCC and HCV have over-estimated their financial performance and areas where adjustments were needed to make the financials comparable.
Revenues can almost fall off by 20% from plan before the NPV of the profit stream becomes zero. Programming costs (the largest element of cost) can be substantially worse than plan before the profit stream has a NPV of zero. On the other hand, if both these factors are combined, i.e. a fall off in revenue and an increase in programming costs, then they can be worse than plan by 12.5% before the NPV of the profit stream becomes zero. These estimates of financial robustness apply equally to HKCC and HCV. WTS did not provide sufficient information for us to attempt a similar evaluation.
Arthur D Little
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