THE INTERNATIONAL JOURNAL OF THE HUTCHISON WHAMPOA GROUP

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STREET SMART

Cover: Illustration by Miranda Yiu

N u m b e r 1 0 D e c e m b e r 2 0 0 3

CONTENTSS P H E R E

16C O V E R S T O R Y

STREET SMARTThe A.S. Watson Group has

embarked on a major expansion driveinto Europe.

9C O M M U N I T Y

ALL TOGETHERHWL volunteers show that great thingscan come from small beginnings.

12N E T W O R K I N G

TALK TANKHutchison helped set the agenda atITU Telecom World 2003.

2U P D A T E S

NEWSBITESDispatches from the HWL press box.

28T E L E C O M S

A WARMRECEPTIONSince its launch five years ago,Partner has dialled all the right numbers.

P U B L I S H E D B Y Hutchison Whampoa Limited, 22/F Hutchison House, 10 Harcourt Road, Central, Hong Kong.Website: hutchison-whampoa.com. In-house Editorial Team: Laura Cheung, Nora Yong, Jeremy Lau, Pamela Wan. Editor: Mark Caldwell– Great Pacific Marketing Services Ltd. Design and production: Fiona Wat, Alvin Fong,Tanny Shek, Kelly Cheung – , adivision of the Asia City Publishing Group.Tel: 2850 5500. Fax 2543 1220. Colour Separation and Printing by bigboXX.com Limited.No part of this magazine may be reproduced without the written permission of Hutchison Whampoa Limited. All rights reserved.Copyright © 2003 by Hutchison Whampoa Limited. Opinions expressed herein are those of the writers and do not necessarily reflectthe opinion of Hutchison Whampoa Limited.All currency conversions are approximations.

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H U T C H I S O N U P D A T E S

Reflecting the Group’s ranking as one of theworld’s leading companies, HutchisonWhampoa Limited (HWL) has againnotched up an impressive haul of regional andinternational titles and awards during the pastsix months.The company was rated for its size andperformance in a variety of categoriesthrough surveys conducted by leadingfinancial magazines.The annual “BusinessWeek Global 1000” (July14 issue) ranked HWL No.140 globally andNo.1 in Hong Kong.Forbes magazine (July 21) rated HWL No.127overall in the “The Global 500.”Euromoney (Sept. issue) named the Group No.1

for “Best Corporate Governance:Hong Kong & China” andNo.5 for “Best CorporateGovernance: Emerging Markets.”“The Asset Annual BenchmarkSurvey” (Sept. issue) namedHWL No.1 in the category “BestCredits in Asia — Weighted byAssets” and No.1 “Best Credits in

Hong Kong — Weighted by Assets.”IFR Asia (Sept. 20) rated HWL No.1 inthe “Top 50 Asian Issuers” category forthe period 31/8/02 – 31/8/03.Asian Legal Business (Sept. 25) selectedHWL as winner of the “In-HouseTeam of the Year” award, a tribute tothe Group’s dynamic team of legal

advisors, headed by Edith Shih. Based in HongKong but working globally, the Group’s legalteam undertakes a range of complex M&A,financing, IP/IT and regulatory work.Asia Risk magazine (Oct. issue) namedHutchison’s Group Treasurer K.S. Chan“Corporate Risk Manager of the Year,”an accolade widely seen as a positive vote of recognition of thecompany’s prudent riskmanagement strategy.HWL featured prominentlyin a long list of rankings inthe Chinese magazine YazhouZhoukan (Oct. 12). It rankedNo.1 in the category “Top500 Chinese Companies in the World”; No.1“Top 20 Companies in HK”; No.1 “Top 10Chinese Companies in HK” and; No.1 “Top20 EBIT Chinese Companies.”Global Finance (Nov. issue) ranked HWL “BestCompany in Asia — Conglomerates.”The Banker magazine, the monthly finance titleof the Financial Times, named Hutchison“Hong Kong Company of the Year, 2003” inits inaugural awards, citing the Group’s

investment quality, fiscal results,corporate governance andcreditworthiness.Finally, HWL was highlycommended for “Best CrisisManagement” at the IR MagazineAsia Awards 2003.

HWL Chairman Li Ka-shing has pledged todonate through HWL a total of £2 millionover three years to support Mainland and HongKong scholars in their doctoral studies in theUK.The sum will be matched by the UKGovernment under its Dorothy HodgkinPostgraduate Awards scheme.The Hutchison scholarships will support up to53 students and form a major part of a newscheme, announced by British PM Tony Blairon Nov. 17, to bring outstanding overseasPhD students to top UK universities.Mr Blair applauded HWL for recognising

the importance of scientific knowledge andhighly skilled people.Starting in 2004, students will study science,engineering, medicine, social sciences andtechnology.Mr Li’s donation is the latest move to supportMainland and Hong Kong scholars to studyin the UK.In October 2002, the Group donated £2.02million to expand the British CheveningScholarships scheme to include 63 extrapostgraduate scholarships each year over a four-year period.

Roll of Honour

HUTCHISON WHAMPOA LIMITED

Hutchison Whampoa Limited(HWL), one of the largestcompanies listed on the main

board of the Hong Kong Stock Exchange,is the holding company of the HutchisonWhampoa Group of companies.As one of theearliest big “hongs”, or trading companies,in Hong Kong, Hutchison’s history dates backto the 1800s.Today, HWL is a multi-nationalconglomerate with businesses spanning 39countries. With around 167,000 employeesworldwide, Hutchison operates and invests in five core businesses: ports and relatedservices; telecommunications; property andhotels; retail and manufacturing; and energyand infrastructure.Its flagship companies include Hutchison PortHoldings, Hutchison Telecom, HutchisonWhampoa Properties, A. S. Watson, andCheung Kong Infrastructure.In 2002, HWL’s consolidated revenue wasHK$111,129 million (US$14,247million).

In its sixth visit to the market in 2003, Hutchison completed the largest-ever corporatebond financing in Asia ex Japan on Nov. 20 with a US$5 billion three-tranche issue viaCitigroup, Goldman Sachs, HSBC and Merrill Lynch as main book runners.Deutsche Bank, JP Morgan and Morgan Stanley served as separate joint book runnersin the three different tranches.

HWL Sets Bond Financing Record

News

China Beijing Tongrentang (Group) Co. Ltd. (Tongrentang) and Hutchison ChineseMedicine Investment Ltd. (HCMIL), a wholly owned subsidiary of Hutchison Whampoa(China) Ltd., on Dec. 12 signed a contract to form a joint venture in Beijing to develop andinvest in traditional Chinese medicine (TCM) business.The JV company, to be named Beijing Tongrentang Hutchison PharmaceuticalInvestment Co. Ltd., will engage in TCM investment and health-related projects andenterprises.Total investment of the JV company will be approximately US$239 million, withTongrentang and HCMIL each taking a 49% shareholding.The remaining 2% will be taken upby a third-party enterprise to be named by Tongrentang.

The Right Medicine

£2m Donation Stokes UK Scholarships Scheme

C O R P O R A T E

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Just two weeks after his historic trip into orbiton Oct. 15, China’s space hero, astronautColonel Yang Liwei, and a delegation ofChinese space experts chose Harbour PlazaHong Kong as their base while on a flying

six-day visit to the territory. By allaccounts Colonel Yang was “over themoon” about the service andaccommodation.General Manager Jonathan Wilson presentedColonel Yang with a 2.5kg hand-madechocolate named “Shenzhou V” after thespacecraft.The delicacy was specially designedby the hotel’s award-winning pastry chefRoger Luk.Earlier, on Oct. 24-26, 20 contestants of thefirst Ms Shanghai Beauty Pageant visitedHong Kong – and where better for them to stay than at the elegant Harbour PlazaHong Kong?A welcome cocktail party was held at the4,000-sq.-ft. luxury Presidential Suite, with a

live pianoperformance and panoramic

views of Victoria Harbour adding to theevening’s ambience.Meanwhile, the 2003 Miss ChineseUniverse Pageant, organised by PhoenixSatellite Television, was held at The Patio atHarbour Plaza Metropolis with more than50 entrants participating.

Reaching for the Stars

JV Fuels China Growth applause�

Hong Kong Internet portal ESDlife haswon four awards for its achievements in e-government, e-commerce, and socialresponsibility.On the international scene, the websitecame out on top in Asia's “e-government”category of the United Nations’“WorldSummit Award (WSA) 2003” organised by the UN World Summit on theInformation Society.ESDlife also won the award for “Best e-Commerce Company” in the fourthannual “Outstanding InformationTechnology and Financial EnterpriseAwards” organised by Capital Magazine torecognise outstanding performance andachievement of Hong Kong enterprises.For the second year running, ESDlife wasnamed “Caring Company 2003/04” by theHong Kong Council of Social Servicein recognition of its efforts in caring forthe community and commitment tocorporate citizenship.Finally, ESDlife received a “DistinguishedEmployers” award from the Hong KongEmployment Development Service inrecognition of its support in providingemployment opportunities to the vulnerable.

The TOM Group has set up its first Sino-foreign JV with state-ownedpublisher Sanlian.TOM hasa 49% stake in the venture,called Beijing SanlianShiji Wenhua Chuanbo.It will be involved in the printmedia business, including advertising sales anddistribution of Sanlian’s four magazines, whichhave a combined circulation of 3.8 million.TOM will invest 24.5 million yuan(approximately US$3 million) with Saliancontributing 15.5 million yuan in cash and10 million yuan in assets.

TOM Reports Q3 Profit

TOM has formed a JV with popularnewspaper Beijing Youth Daily to market

and promote the China Open, to be heldin Beijing in September 2004.Through itssports marketing subsidiary Media Serv,TOM has secured the rights from theAssociation of Tennis Professionals(ATP) to organise the first-ever ATP tennistournament in Beijing.The JV, China OpenSports Marketing Co. Ltd., will combinethe strong local advertising and clientnetwork strength of Beijing Youth Daily withthe sports marketing expertise of TOM.

Anyone for Tennis?

bites

PRICELESS: Miss Hong Kong (above left) visited thePriceline booth during the opening ceremony at NewTown Plaza of the “E-Commerce Adoption CampaignRoadshows — e-Commerce in Real Life” led by theHong Kong General Chamber of Commerce andfunded by the government.

E - C O M M E R C E

P R O P E R T Y & H O T E L S

The TOM Group reported its secondconsecutive quarter of profit attributable toshareholders in the third quarter. Net profit rose81% to HK$18.5 million (approximatelyUS$2.3 million) quarter on quarter whileEBITDA rose 25% from Q2 to HK$82 million.Revenue for the nine months ended Sept. 30,2003 amounted to HK$1.3 billion, 17% up onthe corresponding period in 2002. Operatingprofit was HK$26 million compared to anoperating loss of HK$75 million for the sameperiod in 2002.

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H U T C H I S O N U P D A T E S

Newsbites

Husky Energy has acquired all of theissued and outstanding shares of MarathonCanada Ltd. and the Western Canadianassets of Marathon InternationalPetroleum Canada for a total purchaseprice of US$588 million. Production fromMarathon Canada is approximately 27,000gross barrels of oil equivalent per day(boe/d).The effective date of the transactionwas Oct. 1, 2003.In a separate transaction, Husky agreed to sell certain of the Marathon Canada oiland gas properties with gross production of approximately 7,500 boe/d to a thirdparty for US$320 million.The acquisitionwill add approximately 19,500 boe/d toHusky’s production.

Husky Reports 40% YOY Earnings Rise

Acquisition Lifts CapacityHusky Energy has signed a petroleumcontract with China National Offshore OilCorp. (CNOOC) for the 04/35 explorationblock in the East China Sea.The block is located 350km east of Shanghai.This is the first exploration contract signed byHusky with CNOOC in the region and isHusky’s sixth offshore contract withCNOOC. Husky currently holds fourexploration blocks comprising more than15,000 sq. km in the SouthChina Sea and has a40% interest, inpartnership withCNOOC, in theWenchang 13-1/2offshore oil fields.

The Sea Rose, Husky Energy’s FloatingProduction Storage and Offloading (FPSO)facility, was launched in Korea in July.Preparations continue for its deployment atthe White Rose oil field in St. John's,Newfoundland and Labrador, scheduled tobegin production in 2005/06.The vesselwill sail from Korea to Newfoundland inJanuary 2004 where the topside productionfacilities will be installed before deploymentto the field.

FPSO is Ready to Set Sail China Sea Exploration

Husky Energy Inc. reported third quarternet earnings of C$243 million (approximatelyUS$144 million) and C$1.1 billion for thefirst nine months of 2003.Net earnings rose 40% year on year or C$0.54per share (diluted) in Q3 compared withC$173 million or C$0.38 per share (diluted)in Q3 2002.Cash flow from operations in Q3 was C$604million or C$1.42 per share (diluted), up fromC$590 million or C$1.39 per share (diluted)in the comparable period the year before.

Production averaged 300,200 barrels of oilequivalent (boe) per day, compared with305,100 boe per day in Q3 2002, a decreaseof 2%, mainly due to divestitures, turnaroundsat producing facilities and natural reservoirdeclines.Husky’s net earnings for the first nine monthsof 2003 were C$1.1 billion or C$2.60 pershare (diluted) compared with C$562 millionor C$1.31 per share (diluted) in the first ninemonths of 2002, an increase of 91%. Husky’sdebt meanwhile decreased by C$834 million.

As at Sept. 30,2003, net debt stood atC$1.2 billion, down 40% fromC$2.1 billion on Dec. 31, 2002.

Hands FreeHutchison isintroducing an accessoryto the UK market thatallows mobile-phone

users to make and receive mobile calls withoutthe need to hold their handsets and withouttroublesome wire attachments.The BluetoothClip Headset, manufactured by i.TechDynamic, a division of Hutchison HarbourRing (HHR), deploys Bluetooth wirelesstechnology that enables electronic devices to communicate with each other.Thus, whenthe phone rings it can be conveniently left ina pocket or handbag while providing a perfectsignal to a light and compact “earphone”.The launch leverages on upcoming legislationon the use of mobile phones when driving.The product will also be introduced in other markets.

The “Watsons WaterTree” (right) turnedheads at the LifestyleAsia Design Fair 2003held in December.The exhibit, createdfrom 800 WatsonsWater bottles, markedthe completion of thecompany’s centennialcampaign – “Year ofHong Kong Creativity.”

applause�

Two ASW store managers have won theHong Kong Retail ManagementAssociation “2003 Service & CourtesyAward.” They are Clement Yip Ming-chi of Fanling PARKnSHOP andJennifer Tse of Hing Wai BuildingWatson’s Wine Cellar. Other winnersincluded Watsons Health and FitnessAdvisor Wing Tsui in the category“Supermarkets / Convenience StoresFrontline Level,” and Assistant StoreManager Susan Wan of Nuance-Watson in the “Department StoreSupervisory Level” category.

E N E R G Y & I N F R A S T R U C T U R E

Tree-mendous

R E T A I L & M A N U F A C T U R I N G

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Hongkong International Terminals(HIT) won a “Productivity Award” and a “Certificate of Merit forEnvironmental Performance” at the“2003 Hong Kong Awards for Industry,”coordinated by the Hong KongProductivity Council.

Hutchison GlobalCommunications

(HGC) has launched a useful new servicecalled Vfone. Utilising broadband based“V2oIP” technology the system allows users tomake unlimited video and voice calls betweenVfones for a flat rate of just HK$48 per month(approximately US$6.15). For HK$68,subscribers can make unlimited voice calls toall Hong Kong fixed-line and mobilenetworks as well as to overseas Vfone users.The Vfone plugs into a broadband Internetconnection and is compatible with TVand 3G devices. It can also beconnected to digital camcorders andother appliances so that calls can berecorded and archived.What’smore, with the Auto-Answerfeature, users can see what’sgoing on when they areaway from home.

Easy on the Eyes

The first batch of “smart and secure”containers entered YICT on Oct. 31,marking the successful completion oftesting at YICT of Smart and SecureTradelanes (SST), an industry-driven supplychain security initiative.Hutchison Port Holdings (HPH) hasbeen a proactive participant in developingsecurity measures for the marine transportof containers since the US Governmentimplemented the Container Security Initiative (CSI).

Smart Moves

Shanghai Container Terminals (SCT)celebrated its 10th anniversary on Aug. 12.Annual throughput has risen to over 3 millionTEU, three times the volume recorded in itsfirst year of operations.

SCT Marks Milestone

Location, LocationHutchison Essar haslaunched two new

location-based services. BuddyService letssubscribers know if their friends are in thevicinity while Vehicle Tracking Solution keepstabs on commercial vehicles.

Library ContractHGC has won a contractto deploy its MetroNET

Gigabit Ethernet Wide Area Network (WAN)solution to extend the Hong Kong PublicLibraries’ Multimedia Information Systems

(MMIS) from the Central Library to 26libraries across the territory.Meanwhile, HGC is collaborating withInternet Thailand Public Co. Ltd.(INET) and HiNet,Taiwan, to targetmarket opportunities in IP-relatedservices. HGC has established businesslinks in more than 10 overseas marketsin the past 12 months.

Port of Felixstowe has officially opened thefirst phase of its Trinity Terminalexpansion, incorporating 6ha of back-up landbehind the existing Trinity Terminal andincreasing the port's storage capacity by 6,500TEU.A further section of storage area isexpected to open early in 2004 and the quaywill be fully operational by July 2004.In another development, Freightliner haslaunched a new service providing oneinbound and one outbound train dailybetween Port of Felixstowe andDaventry, with a further destinationplanned.There are now 22 inboundand 21 outbound trains per day fromPort of Felixstowe’s North and SouthRail terminals.The port also handlestwo forestry-product trains per day at itsdedicated paper-handling rail terminal.

Felixstowe ExpandsOn Oct. 16, the Cosco container vesselLausanne became the first ship to berth at thePhase III Project at Yantian InternationalContainer Terminals (YICT) in China.The “Next-Generation System” (nGen)terminal operation control system, jointlydeveloped by YICT and HIT, has been puton pilot at the new berth and will graduallyreplace the existing system.

Phase III covers 90ha with total investment of HK$6.6billion(approximatelyUS$846million) andincludes four100,000-ton-plus containerberths.

The second berth and a container yard of200,000 sq.m is set for completion by the endof 2003, with the whole project due forcompletion by the end of 2005.YICT has meanwhile been recognised as oneof the “Hundred Outstanding OverseasChinese Enterprises in China.” The awardwas made in September at the People’s GreatHall in Beijing.

First Call

HONG KONG

HONG KONG

INDIA

applause�

HutchisonCAT

Wireless MultiMedia (Hutch)launched three new services atICT Expo 2003 in Bangkokin August.HutchReal provides instant online multimediaservice, HutchPlay offers a variety ofdownloadable games applications based onQualcomm’s BREW platform and HutchSaydelivers crystal-clear voice, SMS and dataservices.A key highlight of the new technologiesfeatured was a demonstration of LocationBased Services (LBS), the first for the Thai market. Hutch also showcased thepowerful data-handling capability of theCDMA2000 1X service along with severalnew CDMA terminals.In December, Hutch launched its M-sitesprogramme, designed to create a localcommunity of content developers supportedby Hutch’s multi-media contents portal.

Hot Services

P O R T S

T E L E C O M S

THAILAND

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H U T C H I S O N U P D A T E S

NewsbitesHutchison has markedthe start of the 3G era

in Hong Kong with the unveiling of its 3 services.At a media event on Dec. 15, HWL GroupManaging Director Canning Fok hailed themove as a breakthrough for thetelecommunications industry in Hong Kongwhich will enable people to easily gather andshare information while on the move.When 3 goes live, it will deliver to customersan integrated information, communicationand entertainment service via its newgeneration of mobile phones, which alsooffer video calling and video messaging.“What we are going to offer has not beenseen here before, but it will become a part of your everyday life,” Mr Fok said.“3 will put Hong Kong at the forefront of mobile communications globally.”He demonstrated person-to-person videocalling by linking up with Kevin Russell,CEO of 3 Australia, in Sydney.Mr Fok also showed off some of 3’s otherfeatures, including Home Watch, a remotesurveillance service, and 3 Daily Express, whichallows customers to receive a host ofinformation and entertainment services

delivered automatically throughout the day, justlike SMS.The services Mr Fok demonstratedincluded news, business information, weatherdetails and traffic updates.The launch of the Hong Kong service is a vital link in 3’s global network. Using theworld’s most sophisticated mobile telephony,

it links the people of Hong Kong withfriends, relatives and business colleaguesacross the world.Customers will be able to make video calls to Australia,Austria, Denmark, Italy, Japan,Sweden and the UK, and the network of such countries is expanding rapidly.Hutchison and NEC also launched the latestNEC 616 video mobile phone.“NEC is our supplier for both video mobilephones and the 3G infrastructure, and also a shareholder in our 3 Hong Kongoperations,” Mr Fok said.

“Together with our JV partner NTTDoCoMo, we are very pleased to announcethis important handset launch and, mostimportantly, to know that we share NEC’sfull support for the future.”NEC Corp. President Mr Akinobu Kanasugisaid one million NEC 616s would be delivered by year end and another 1.5million by the end of Q1 2004.Agnes Nardi, Managing Director of 3 HongKong, said:“We are fortunate we canleverage the resources of the globalHutchison 3G Group to bring these newservices to market faster than ourcompetitors.These services have only justbecome available in Europe and Australiathrough our sister companies.”The NEC 616 video mobile phones will be sold at HK$4,380 (approximatelyUS$561) each in Hong Kong, or HK$3,980for customers purchasing two or more units.Tariffs are simple and flexible with threebasic plans.The monthly charges vary fromHK$263 to HK$533.All tariff plans, which include video andvoice minutes plus MMS and content, aredesigned to enable users to enjoy the entirerange of 3 services.

The second generationof 3G video mobilephones hansdsets hasarrived, spearheaded bythree new models thatoffer high-resolutionvideocalls andvideomessages ofstriking quality, along

with abasketof powerful applications.The Motorola A920 (212g),launched in early Autumn, isa tri-bandGSM/GPRS/UMTS“communicator” withintegrated GPS, camera,audio/video player, video

calling and full messagingsupport. It is a particularlypowerful business tool.The Motorola A835 (168g)

offers the latest in multi-media entertainmentwith advanced messaging,video phone, Bluetoothwireless technology, fullbrowsing and a largedisplay capable ofsupporting up to 64,000colours.The NEC 616 (131g),released in December,features a slim, cuttingedge style, and is loadedwith video and audiostreaming, GlobalPositioning Satellitetechnology forenhanced locationservices, Bluetoothconnectivity,memory cardsupport, dualdisplay and camera light.

Hutchison’s global 3 networkon Dec. 15 reported it had a total of 660,000 subscribers inAustralia,Austria, Denmark,Italy, Sweden and the UK, upfrom 520,000 announced onAug. 21, 2003.The subscriber numbers were:340,000 in Italy, 210,000 in theUK and a combined 110,000in Australia,Austria, Sweden and Denmark.

H3G Ireland andVodafone Ireland have

jointly secured the FA Premier Leaguemobile rights in a three-season deal startingwith the 2004/05 season. Customers of 3in Ireland will have access, via their mobiles,to all 380 FA Premier League matches andrelated information. H3G UK already hasmobile broadcasting rights for the League.

Kicking In

Numbers Gain

T E L E C O M S

New Videophones Enter the Market

3 Heralds Era of Video Mobile Communications in Hong Kong

IRELAND

HONG KONG

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H3G Austria launched a special package called

3Visuell in October that enables more than15,000 deaf people and their sign language-fluent relatives to communicate inexpensivelyvia a video mobile phone.The special price is 50% lower than for similar3 offerings and the price for SMS is alsolower. 3Visuell is not just offered to thedeaf, but to relatives and friends as well.3 also introduced aninteractive signlanguagedictionaryavailable freeon theAustrian3Zone.

Sign of the Times

Fashion on the Move

In a move that will seemusic fans dancing

in the streets in Europe, 3 has signed a dealwith MTV to distribute music videos on its networks.Customers can access music videos, liveperformance footage and music newsreports.Tailored clips from MTV’s ownprogramming, such as Jackass and Dirty

Sanchez, will also be available.MTV will provide localised content in four categories. Daily News features showbiz news and gossip; What’s Hotincludes reviews of live performances and videos; Best of MTV uses clips from MTV’s own programming and MTV Live Lounge provides archived liveperformance footage.

MTV on 3EUROPE

A new TV commerciallaunched by H3G

Australia in September taps into the visualnature of video calling in a very emotionalway, illustrating the benefit of being able to seerather than just hear.The commercial openson a father working in his office. He receives a video call from his daughter who is atschool.We quickly establish she is hearing-impaired. She uses sign language tocommunicate with her father about what timehe will pick her up from school.This simple communication is only possiblethrough video calling and it supports 3’sproposition of making an everyday momentbetter with 3.

The campaign was developed after generalpublic feedback on how useful 3 would be tothe deaf community. During the campaign,3 worked with the Royal Institute for Deafand Blind Children to develop scripts andensure sign language was easily understoodover a 3 mobile.The clip has researched as one of 3’s mostrecalled TV commercials with wide appealacross all ages.

See with 3AUSTRALIA

3’s “teaser”TVcampaign featuring

beautiful celebrities Malika El Hazzazi,Luana Spagnolo and Alexandra Merinowas aired in Italy from Sept. 21, followedby the release of three new commercialson Sept. 28.

Tantalising TVITALY

Italian weekly Venerdi diRepublica carried an article

in October that focused on seniors as a unexplored market for new technology,specifically 3G mobile video phones.Thepiece made reference to the TV campaign of 3’s Australian counterparts, in which a grandmother in Italy is able to see and speakto her family in Australia.Continuing on the theme of the seniorsmarket, H3G Italy is launching aneducational course for the elderly that teachesthem about the uses of the new technology.

To celebrate the Octoberlaunch of its Fashion

& Lifestyle channel, H3G Austria sponsored“A la Mode” — a fashion show in Viennafeaturing top international designers presentingthe looks of their spring and summercollections 2004.As the models strutted thecatwalks, subscribers of 3 couldenjoy the event via near-livecoverage to their handsets.Theywere also able to view backgroundinformation and exclusiveinterviews with the designers, whoincluded Anne Klein, Escada, Zegna,Exte, GF Ferré, Just Cavalli,Versusby Versace,Tommy Hilfiger andHugo Boss.3 also delivered pictures and videos of the after-show parties.

Seniors Synergy ITALY

AUSTRIA

AUSTRIA

H3G Italy launched Tuain September, the first

prepaid offer that includes free use of a video mobile phone. For a “one timeonly” sign-up fee of E99, customers are givena videophone, which 3 will replace

periodically with a newmodel, costfree.Monthlytariff plansstart at E30.

Customers were also offered a VideoChristmaspromotion in which the first minute of everyVideocall to any 3 number was free.The company meanwhile launched 3 forBusiness Open, a partnership programme in which 3 offers instruments and platforms tothe software houses who are invited to bringbusiness applications into mobility.

Tua Good for WordsITALY

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H U T C H I S O N U P D A T E S

NewsbitesCustomers of 3 in Swedenhave gained access to

several innovative services via their 3 videomobile phones.3 announced in October that it haddeveloped two solutions for companies thatenable their employees to read e-mail on theirmobile handsets. One solution resembles a web-mail service (users are able to access

a WAP page with e-mail, calendarand contacts) while the othersolution synchronises e-mail,calendar and contacts in thecompany network withinformation on mobile handsets.3 also teamed up with SEB tolaunch mobile banking servicesfor private subscribers, enablingusers to make transactions andpayments, trade shares, andaccess quotations and financial

news.The services are includedfree in 3’s basic service package.Customers can also receivestreamed video news presentedby TidningarnasTelegrambyrå (TT).On a lighter note, subscribers of3 can follow Channel 5’spopular TV “docusoap” calledMasterplan, allowing fans toenjoy the opportunity to constantly see whatthe participants are doing.3 has also joined hands with Lovesearch to co-operate on a simple video-dating servicewhereby users can download short video clipson to the Lovesearch members’ site.The goal,according to Beatrice Ståhle, creative director atLovesearch, is that users willbe able to see all potentialdates within a 100m radius of their mobile phone.

SWEDEN

Since Oct. 29,subscribers to 3 inDenmark and Sweden

have had access to streamed video newsvia their mobiles, allowing them to viewvideo directly instead of clips first beingdownloaded and then played.The news service is presented by TV2.

DENMARK /SWEDEN

Following a nationaladvertising campaign by

H3G Denmark, customers started pre-booking video mobile phones on Oct.13via 3’s homepage (www.3.dk) and throughthe new 3Stores in Copenhagen and Lyngby.Customers could also pre-book at selecteddistributors. Deliveries began in October.

Roaming Liaison

Pre-Booking

DENMARK

H3G has been luring customers to its 3 networks with a selection of tariff plans.Hi3G Access AB in Sweden launched twooptions, named 3Fri (3Free). For as little asSEK149 per month (approximatelyUS$19.50) 3Fri offers 60 or 300 free minutesof talk time and the same rates to all othernetworks in Sweden. 3 also launched a valuepackage called 3Fri Kväll & Helg (3FreeEvenings & Weekends).H3G Austria meanwhile has been offeringspecial deals to businesses that providewireless mobile Internet access.The 3Business800+ package includes 800 minutes of voiceand 30MB of data for E69 per month withsavings of up to E100 on the Motorola A920.3 also launched a student package that offersa E50 discount on the A920.H3G UK has unveiled two new monthly

tariff plans.VideoTalk 100 includes 100 voiceminutes for £15 and Football 500 is a £30plan that combines 500 voice minutes withunlimited football content. 3 also introduceda wide range of content add-ons for as littleas £5. Video for Voice is a promotion underwhich customers can make video calls for thesame price as voice calls for the first threemonths of a 12-month contract. 3 celebratedthe festive season with free videocalls for allbetween Dec. 22 and Jan. 2 inclusive.“Down under,” H3G Australia offered greatsavings on the Motorola A835 when customerspre-ordered and connected to 3 for All on a 24-month service plan.With 3 for All, whichreplaces the First on 3 introductory offer,connection fees and the price for Videotalkcalls have been cut in half while customers canpay as little as 10c per SMS to any mobile.

Tempting Tariffs

Hi3G Denmark inAugust signed an

agreement of collaboration with telecomcompany TDC which will ensure thatcustomers of the 3 service have roaming accessto the national network for mobile telephonyand SMS in areas outside the company’s ownmobile broadband network.

DENMARK

News on Stream

Stockholm-based Robert Bauer is one of a growing number of subscribers who isfinding that life can be a lot simpler andmore productive with 3.Robert runs a small business in theelectrical industry and was one of the firstcustomers in Sweden to sign up for the 3 services.Robert mainly uses his mobile at work.His staff all have a 3 video mobile phoneand this has been a major advantage as itlets them show each other varioustechnical connections from a distance.Before he got his 3 video mobile phone,Robert would sometimes have to travel allthe way across Stockholm — a journey of 50km — to solve a very simpleproblem. Now he can solve problemsfrom the office.“The mobile immediately paid for itself,”he says.When he is on the move, Robertparticularly appreciates the PositioningService which shows his location via anon-screen map.“As an electrician, you sometimes getquite dangerous jobs. If someone falls off a ladder, it’s a good thing for the others ofus to know where he is,” Robert explains.Although Robert chiefly uses his 3 videomobile phone in a work context, he alsoenjoys its benefits privately.“It’s great fun to sit in the pub and have a video conversation with your mates,” hesays. “I’ve shown the mobile to a lot ofpals, and they’re all interested.”He also uses his 3 video mobile phone towatch finance news and weather reports.“It’s like a microwave oven,” he adds.“Youdon’t know that you need one, but onceyou’ve gone out and got one it’s difficultto see how you managed without it.”

3 and Me

T E L E C O M S

E-mail, Banking and Dating on the Move�

A group of HWL volunteers shows that great things can come from small beginnings. By Sophia Wong

�

It all started almost by accident abouttwo years ago. Unbeknown to eachother, many Hutchison WhampoaGroup (HWL) staff members were qui-

etly giving up their spare time to join variousvolunteer organisations helping less privilegedmembers of the Hong Kong community.

On weekends and holidays the volunteerswould go out and assist an elderly person oroffer comfort and friendship to a lonelyhospital patient. Their only reward was theknowledge that they had played a small part

in brightening someone’s day.Then, in 2001, HWL’s Group Human

Resources Department took the initiative tointroduce these like-minded “GoodSamaritans” to each other.

It was an appropriate time as the UnitedNations, recognising the tremendous contri-bution that volunteer work makes to healthworldwide, had declared 2001 the “Interna-tional Year of Volunteers”.

Noting that many members of theGroup’s extended family were involved in

C O M M U N I T Y

ALL TOGETHER

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a variety of volunteer programmes, theGroup HR Department reasoned that it,too, could be of service. Since there isstrength in numbers and great value insharing knowledge, not only would thevolunteers be able to work more effective-ly as a cohesive team, but the Companymight be able to offer them meaningfulencouragement and support.

Franco Ning, Project and AdministrationManager at YICT, was among the first tojoin the HWL Volunteer Team. The 36-year-old was already a seasoned participant,having started as a YMCA volunteer whenhe was still at school.

“Staff from different business units ofHWL who had been volunteers or wantedto become volunteers were all broughttogether,” he recalls. “We were all excitedand delighted to see we were not alone inour efforts.”

They came from the far corners of theCompany and were able to meet each otherand compare notes. Before long, the volun-teers got organised and went into action.

Instead of working alone and in a vacu-um, they have been able to work in unison,bringing a little bit of comfort to thosewho need and appreciate it the most.

Since its informal establishment twoyears ago the HWL Volunteer Team hasdedicated hundreds of hours to helpingthose in need.

The volunteers identify people – orgroups of people – in need of friendshipor assistance; then they do what they canto help.

Target groups have included children ofnew immigrants, the elderly, terminally illpatients and their families, children withcancer or other life-threatening illnesses,rehabilitating patients, long-stay elderlypatients, home-alone elderly and physicallyhandicapped children.

The volunteers have also organised vari-ous group activities, including sports events,birthday parties, carnivals and outings.

WIN WINAlthough Franco Ning has a young familyand is kept very busy in his job, he never-theless treasures the time he spends doingvolunteer work.

“I have learned so much,” he says. “Myperspective has become more positive and I value what I have. It helps you realise thathappiness is not a matter of course; thereare no guarantees.”

Angela Chiu, an Estate Manager atHutchison Whampoa Properties, is another“pioneer” volunteer.The mother of a five-

year-old daughter, she joined up in 2001.Like Franco, she believes that her work as a volunteer has had an extremely positiveeffect on her own life.

“What I gain is far more than I give,” shesays.“I feel my life is more meaningful andmy vision has been broadened. I cannotforget the time I visited a sick woman inhospital who was about 90 years old.I found her concern was only for her chil-dren instead of herself, even though she wasvery sick. She forgot her pain when shetalked about her family. I learned to valuemy happiness after that and I want to bringhappiness to others.”

Angela’s enthusiasm inspired some ofher colleagues to also join the HWLVolunteer Team, which has grown to over300 members.

“As a result, I found that we can coor-dinate and communicate better thanbefore as we have built up closer relation-ships beyond our routine jobs,” she says.“I understand my colleagues better and

our team spirit has improved.”As pioneers, Angela and Franco have

seen significant changes over the past twoyears. With strong support from the

C O M M U N I T Y

Company, the team has grown bigger andis better organised, thanks to the activeassistance of some of the best professionalbusiness managers in Hong Kong.

The HWL Volunteer Team has nowcome of age, enjoying full support andrecognition at the highest level.

Thanking the volunteers for their careand enthusiasm and expressing the appre-ciation of top management, HWLChairman Li Ka-shing endorsed the for-mal establishment of the Volunteer Teamon November 16 during the Group’sannual Sports and Family Day.

Mr Li himself has set a good examplefor his staff. He is the “biggest” volunteerand has given staunch support to variouscharitable causes.

Having experienced the turmoil of warin his youth, Mr Li migrated fromMainland China to Hong Kong andentered the workforce at an early age.

Those early struggles left him with anabiding conviction that the strength of a nation depends on the quality of its edu-cation and healthcare, and that nothing ismore meaningful than helping the needy.

As Li Ka-shing’s businesses have pros-pered, he has devoted more and moretime and resources to charitable projects,particularly those that benefit educationand healthcare in Hong Kong and theMainland. In 1980, he set up the Li KaShing Foundation in order to distributefunds more systematically. Since then, overHK$5 billion (more than US$641 million)has been donated to charitable causes.

To further develop and encourage theVolunteer Team, certificates of service areissued to recognise their effort and com-mitment. They have also been outfittedwith comfortable “uniforms” – furtherconsolidating team spirit.

FOOD FOR THOUGHTTo celebrate the formal establishment of theHWL Volunteer Team,an ambitious new ini-tiative called “Build a Healthier Generation”was launched in November. The project is a joint effort between A.S. Watson (ASW)and HWL “Health Ambassadors” and its pri-mary aim is to teach young children andeducate their parents about the importanceof healthy eating habits.

In the first stage, ASW pharmacists givetraining workshops to volunteers andhealth talks to kindergarten teachers andparents. While the main focus is on theimportance of a balanced diet for main-taining good mental and physical health,other topics include common children’s ail-

ments and handling of children’s medicine.“To teach children good and balanced

eating habits can help build a healthiergeneration, which is our target,” saysSindy Mok, a Watsons pharmacist who isclosely involved in the project.

“It is best to foster good eating habits inchildhood. A balanced diet is importantfor growth. It provides energy and nutri-tion that improves learning ability, main-tains good weight and prevents illness.”

Ms Mok conducted two training ses-sions for about 55 volunteer HealthAmbassadors in November. In turn, theseambassadors go to selected kindergartensto teach the children and their parentsabout food health.

“Healthy children must eat well, playwell, sleep well and exercise well,” MsMok adds. “We use a food pyramid toillustrate what kind of meals should beeaten and the Health Ambassadors useinteractive games based on the food pyra-mid to teach the children.”

The game teaches children to distinguishthe four categories of the food pyramid.

To their amusement and delight, thechildren act as different kinds of food in

the games. In the process, they learn whatis good and what is bad for their health.

Grains such as rice and wheat are placedat the bottom and can be eaten the most.Fruit and vegetables come next. Milk,meat and protein are vital, but in smallerquantities, and the smallest category,which includes oils, salts and sugars,should be eaten the least.

“When the game is over, the HealthAmbassadors help parents to assesswhether their children are getting a bal-anced diet,” Ms Mok explains. “Theheight and weight of the children is alsomeasured to make sure they are healthy.”

Thanks to the support of HWL, theTeam has been able to organise and man-age the kindergarten initiative with usefulaccess to resources and expertise – some-thing that could not have been achievedby only one or two individuals.

The initiative is expected to go a longway towards helping achieve the grandambition to build a healthier generation.

And there’s another very healthy sideeffect: “This programme really appeals tothe volunteers,” notes Franco Ning.“Theyreally love playing with the kids.”

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Ahot topic of debate at the ITUWorld Telecom 2003 conferencerevolved around the future direc-tion of the telecoms industry.

Appropriately,Vincenzo Novari, CEO ofH3G Italy, delivered the keynote speech forthe session entitled “Towards a NextGeneration of Mobile Services.”

While most telecoms CEOs are still con-templating the future, Novari, in a sense,has already arrived. The Italian operation,which Novari heads, has been setting a blis-tering pace in pioneering 3G technologyand services under the 3 brand.

No surprise then that he chose to talkabout the present to throw light on what isyet to come.

Sharing his vision of 3G as the newmobile communications frontier, Novariadmitted: “I have not travelled to thefuture, I can only tell you what I haveunder my own eyes.”

Summing up the current position of themobile telecoms arena, Novari said there

were three things on which everybodymore or less agreed.

“First, the mobile phone is the mostwidespread technology in recent years. Itspenetration goes beyond geographic andsocial limits; it is personal and personalisable,it is in the pocket of each one of us. Second,the phone is evolving. It has been enrichedwith new functions and services, which injust a short time will be considered a neces-sity. Third, incumbent operators are search-ing to keep pace with this evolution.”

THE BIG QUESTIONThe “mother of all questions” mobile com-panies now face is how to significantlyincrease their value, Novari said.

While operators are focusing on thesearch for a “killer application” they are infact “still on the crest of the wave of thekiller application called ‘mobility’”.

The “shocking success” of mobile phoneshad far outstripped the estimations of indus-try analysts in the late 1980s, he said.

N E T W O R K I N G

REGULATORS, GOVERNMENT MINISTERS AND CEOS GATHERED IN GENEVA INOctober for the ITU Telecom World 2003 conference. Held every three years, the event providesan important platform for strategic debate and business networking.This year, approximately 850 exhibitors and more than 115,000 people attended. As a major glob-al telecoms player and a leader in 3G deployment, Hutchison made a significant impact. Not onlywas the Group represented by several key delegates, but Hutchison 3G (H3G) sponsored the YouthForum, with Agnes Nardi, MD of Hutchison Telecom (HK) and H3G HK, addressing the youngdelegates. Further exemplifying H3G’s position as a pioneer,Vincenzo Novari, CEO of H3G Italy,delivered the keynote speech for the Main Forum session entitled “Towards a Next Generation ofMobile Services.”

Agnes Nardi, MD of Hutchison Telecom Hong Kongand H3G HK, delivers a speech at the start of the ITUYouth Forum, which was sponsored by Hutchison.

ROADMAP FOR THE NEW FRONTIER

Talk TankITU Telecom World is among the most important events on the telecommunications calendar and

this year Hutchison helped set the agenda.

By Mark Caldwell

�

Analysts had underestimated their deep-er meaning and appeal. “A telephone ismobile because we are mobile. It’s person-al, it’s mine, and it’s always with me. I can’tsay the same about a computer, even ifportable,” Novari said.

The trend among consumers has been toprogressively migrate towards richer formsof communication, such as colour in mag-azines and television and the increasinginteractivity brought by the Internet.

Adding to the mix, lack of time is one ofthe “new poverties” in today’s world. InItaly, for example, 52% of the populationconsider time to be a problem, yet only44% lament their income level.That meansan increasing demand for time-savingassets, services and solutions.

“The market of time is where mobilecommunication is competing against otherindustries, like transportation or media,”Novari said.

Turning to 3G, he stressed that UMTS isonly an enabler but has far greater poten-

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WHAT IS THE ITU?

The International TelecommunicationsUnion (ITU) is a United Nationsorganisation that enables govern-

ments and the private sector to coordi-nate global telecom networks and ser-vices to formulate international telecom-munications policy.

The ITU is dedicated to accelerating thedelivery of digital opportunities to theworld through promoting expansion of“infocommunications” networks, organisingstrategic planning workshops and sympo-siums, conducting country case studies,tracking policy trends and organisingforums. It does this by maintaining goodrelations with industry, research institu-tions, the media and the public.

Having successfully staged ITU TelecomAsia in 2000 and 2002, Hong Kong has

bid to host ITU Telecom World 2006,underlining its position as both an inter-national telecommunications andInternet hub and as an exhibition and conference centre. If the bid is successful, the 2006 event will attract100,000 visitors.

In support of Hong Kong’s bid, a gov-ernment spokesman said: “With Chinaopening its information and communica-tion technology (ICT) market to HongKong companies under the CloserEconomic Partnership Arrangement(CEPA) and to the world under theWorld Trade Organisation (WTO), HongKong will be the ideal venue for bringingtogether leading industry executives tofurther explore their market opportuni-ties in China.”

Approximately 300 student delegates from 189 member states took part in the ITU Youth Forum held on the sidelines of ITU Telecom World 2003 in Geneva.

tial than earlier technologies to enhancethe mobile experience.

“Just as the technology that allows me tofly (a pair of wings) is different to technol-ogy that allows me to run (a pair of tennisshoes), UMTS has the capacity to accom-modate customers in a network incompa-rably superior to those existing, at a costdecisively more contained.”

VESTED INTERESTSToday’s dominant telecom incumbentshave an interest in dictating the timing forinnovation and determining when and ifthe market is ready for something new,Novari told the delegates.

In his opinion, the market is ready rightnow but some operators are lagging behind.“People want mobile communication withthe capacity to include more interesting,more useful and more effective services.”And they want it today, not in the future.

Because they have the technologicalmeans, pure 3G operators have a distinctcompetitive edge:•They can respond to the desires of the mar-ket with the freedom that other operatorswho based their fortune on 2G don’t have.• They can keep the promise that the limitsof the previous technology wouldn’t allow,enabling companies to go mobile withcomparable performances of fixed line.• They can design new services, putting to

use the characteristics of a technology cre-ated for the transmission of data, with a greater magnitude than those before.

The current challenge is to find ways toincrease the proportion of revenue comingfrom value-added mobile services, Novarisaid. Operators now need to conquer space– “not in the cosmic sense, but that spacewhich makes up the few square centime-tres in the videophone. A space on whichour eyes rest naturally a growing number oftimes each day.”

THE NEXT GAMEFor operators, the ability to transform theactivity of looking at a handset screen intoa billing opportunity is “the next game”,which makes a “billing application” moreimportant than a “killer application”.

Apart from the obvious advantagesbrought about by the superior technology,it is essential to also ensure ease of use forthe customer, Novari believes.

“The quality of the user interface andthe accessibility to services are an obsessionwith us. One must be able to do newthings with the same ease as those that youdo already. The critical factor for compet-ing is not only content but how you makethe content available.”

With the 3 service, making a videomes-sage is already easier then typing an SMS,Novari noted. Being able to activate thevideo camera with only one key, the “takeand send approach,” is a crucial factor foraccelerating penetration of the service.

The entry of 3 (Tre) into the Italian mar-ket has been a remarkable success, he said.

“After only 150 days, 25% of the messagessent on our network were videomessages.”

Of the more than 300,000 customerswho signed up in the first six months, 75%make at least one video call per week andin September alone customers downloaded200,000 video goals.

Were it not for a handset shortage the fig-ures would have been even higher, accord-ing to Novari. He noted ruefully that theflagship 3Store retail outlets had been out ofstock for a while due to high demand butwere still full of people wanting to knowwhen the new handsets would arrive.

“A greater availability of handsets wouldallow us to exceed our objective of onemillion customers for Italy within the firstyear of operations,” he said.

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N E T W O R K I N G

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Pure 3G operators have

a distinct competitive edge

ITU Telecom World 2003 created a melting pot in which industry leaders, academics, students and government representatives debated the future of the industry.

Demonstrating its commitment tonurturing talent in the Telecomsindustry, H3G was the lead

sponsor of the Youth Forum at ITUTelecom World 2003, contributing500,000 Swiss francs (approximatelyUS$380,000) to enable more than 300university students from 189 memberstates to participate.

The Youth Forum focused on threemain themes: Information andCommunication Technologies (ICT) as anenabler of economic and social develop-ment; the policy and regulatory aspectsof ICTs, and; strategies for investmentand financing. The Youth Fellows alsotook part in a workshop on designing a business plan.

Speaking at the opening session, AgnesNardi, MD of Hutchison Telecom (HK)and H3G HK, told delegates 3 is commit-

ted to educating the public, particularlyyoung people, on the immense potentialof ICTs.

“The young generation represents a critically important pool of human cap-ital to the ICT sector,” she said. “Theywill shape the future of the industry.”

The massive adoption of ICTs intoevery aspect of daily life and the econo-my had connected people around theworld, linked businesses at all times withtheir customers, employees, partners andsuppliers, and supercharged the world’strading activities.

“In the public domain, ICTs also great-ly improve access to health care, educa-tion, and public administration, fosteringsocial and political progress,” she added.“We are fortunate to live in the era of anInformation Economy with the free flowof an unprecedented amount of newknowledge and information.”

Ms Nardi said it was essential to tapinto the energy, creativity and trend-set-ting vision of the younger generation.

“We are particularly enthusiastic aboutnurturing a pool of global talent who will advance the mobile frontier andcontribute to our efforts to build a bet-ter, united and harmonised worldthrough continuous innovation in theexciting world of information and com-munication technology.”

Following up on their experience, theYouth Fellows drafted a declaration oftheir vision of the information society forconsideration at the first phase of theWorld Summit on the InformationSociety (WSIS) held in Geneva on 10-12December 2003.The declaration calls fora Youth Action Plan to address key areassuch as education, access to infrastruc-ture, local action, regulation, and financeand investment.

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COLLECT CALL

Hutchison donated

US$380,000 towards the Youth Forum

In conclusion, Novari noted how, his-torically, “some things that at first haveseemed small and irrelevant have changedthe world by growing in an exponentialway. The tendency in interpreting thesephenomena has been to underestimate theimportant groundwork established in theinitial start-up phase and to over-empha-sise the phase of slow growth as the prod-uct reaches maturity,” he said.

To illustrate the point, Novari offered a quote from a leading newspaper:

A large part of the enthusiasm towards thisnew technology seems to be spent, and thelaunch of the service, originally planned for theautumn, is continually slipping … the econo-my has fallen into a deep recession, the plansfor the number of users has decreased and theneed for massive investment has frightenedmany initial investors.

Surprisingly, this excerpt is not about thecurrent 3G landscape but was published inthe Financial Times in 1992, referring to the launch of GSM, or 2G, which today

has 1.3 billion users.Novari believes that 3G is in the initial

phase with potential for exponential growthwhile GSM has entered the slow-growthmaturity phase.

“We can think of the future as somethingfor which you wait or as something whichyou move towards. Those who invest withdetermination in 3G believe that the futureis something that you move towards.I believe that in five years the winning com-panies will have doubled their value.”

STREET

C O V E R S T O R Y

SMART

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C O V E R S T O R Y

“When youhave onlytwo penniesleft in the

world, buy a loaf of bread with one,and a lily with the other.”

The Chinese proverb encapsulatesan age-old truth about the humancondition: The desire to be healthyand beautiful is as fundamental as ourneed for food and drink, somethingA.S.Watson has known since its pre-decessor, the Canton Dispensary, firstbegan distributing medicine to therural poor in Canton (Guangzhou),China, in 1828.

In those days, the primary motiva-tion was to improve and maintain people’s health. But, as everybodyknows, good health is the bedrock of physical beauty — eachembodies the other’s essence. Since the doors of the CantonDispensary opened 175 years ago, the twin pillars of health andbeauty have merged in the minds of consumers, and the retail worldhas responded accordingly. Many of today’s health & beauty chainshave grown out of traditional dispensaries and pharmacies.

It is still a relatively new mix, less evident as a concept aroundthe world than food retailing, for example, but it is catching on fast.

According to Euromonitor International, a market-intelligencecompany, health & beauty market revenues worldwide totalledUS$180 billion in 2002, having grown steadily at a rate of approx-imately 1.6% per annum over the past five years.

Today, the Health & Beauty Division of A.S. Watson (ASW),Hutchison Whampoa’s retail group, extends across 15 countriesand regions on two continents, operating more than 3,200 retailstores in 910 cities under eight distinct brand concepts. It is thelargest health & beauty retailer by store numbers outside theUnited States.

What’s more, the company is on an aggressive expansion trail,seeking to expand geographically and in existing markets both bynew acquisitions and internal growth.

“Wherever opportunity presents itself we aim to grow the busi-ness,” says ASW Group Managing Director Ian Wade. A 40-yearveteran of the business, the last 22 in his current position, Wadehas been a key architect of the Retail Division’s growth strategy,and he maintains a gimlet-eyed focus on the unfolding future.

“Our expansion is in keeping with the wide growth that hasbeen taking place within the Hutchison Group as a whole,” he

says. “From ports and property to energy and telecoms — theyhave all been expanding.”

EARLY BIRDASW’s expansion drive began in earnest back in 1963 whenHutchison acquired a controlling stake in the company, paving theway for sustained growth of Watsons The Chemist into SoutheastAsian markets. The chain moved into Taiwan, Macau andSingapore in 1988, Malaysia in 1994,Thailand in 1996, China in1998 and the Philippines last year, following a tie-up with theShoeMart Group.

With this background, ASW is among the most experiencedhealth & beauty retailers in the world.

The Group made its first foray into Europe in 2000, acquiringthe Savers health & beauty chain in the UK.

“We wanted to spread our portfolio out of Asia,” Ian Waderecalls.“The 1997 recession taught us that you don’t want all youreggs in the Asian basket.”

Savers’ retail style was a perfect fit, with a “mega-discount” for-mat accentuated by simple store design, focusing on fast-movingtoiletry products, and backed up by strong logistics and low oper-ating costs. Under ASW, Savers embarked on a rapid expansion ofits own, growing from 165 stores at acquisition to 300 by early 2003.

ASW was propelled into the global headlines last year with its bold

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Leveraging on its extensive experience in Asia, the A.S. Watson Group has embarked on a major expansion drive into Europe.

By Gwyneth Roberts

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D1.36 billion acquisition of the Kruidvat Group, the undisputedleader in health & beauty retail in Europe.

The deal, at a favourable 7.2 times EBIT,was just another step alongASW’s acquisition road — albeit a giant one that tripled the division’spoint-of-sale portfolio at the stroke of a pen.

The Kruidvat acquisition, ASW’s biggest to date, had all the hall-marks of the company’s inimitable acquisition style — very personal,

based on a strong relationship, and with minimal involvement of out-side interests.

After 74 years as a family-run retail chain, the owners of Kruidvathad decided the time had come to sell and were looking for a suitor.

Having identified ASW as the most appropriate buyer, discussionstook place with Ian Wade over the dinner table. The two businesses seemed a good fit. Wade took the details back to theHutchison Whampoa board, including Chairman Li Ka-shing, and ina relatively short time the deal was done.

Watsons Your Personal Store,Asia’s leading health & beauty chain, began as a dispensary in Canton, China in 1828. Expansion has been rapid sincethe 1980s and the chain now operates in Hong Kong, Mainland China,Taiwan, Macau, Singapore, Malaysia,Thailand and the Philippines. Over 25,000 productsare offered in more than 700 stores, from cosmetics and toiletries to confectionery and toys. It is also Asia’s leading pharmacy chain with around 400 stores.

more than 3,200 stores …

Health & beauty revenues worldwide

totalled US$180 billion in 2002

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The acquisition took place in an atmosphere of great friendshipand cooperation between shareholders and management on bothsides.The Kruidvat management remained in place and the businessoperations didn’t miss a beat.

“We do all deals ourselves with virtually no outside help frommerchant bankers and the like,” says Wade. “For us, it is a personalthing, which is unusual. In a deal of this size, ‘emotionally detachedmiddlemen’ are normally involved. Forming relationships is abouttwo things — money and the relationship you create with the otherparty. If you don’t have the right relationship, then the moneybecomes a bit of a bind.”

BIG AND BEAUTIFULWith more than 1,900 outlets and a strong reputation in its homemarkets, Kruidvat represented a giant leap forward for an Asian health& beauty retailer looking to expand.

The Dutch company had built an impressive family of five brandsunder its management. Besides Kruidvat, these included leadingUK retailer Superdrug with 700 stores, former competitorTrekpleister, the Rossmann chain in Poland, Hungary and theCzech Republic and the ICI PARIS XL chain of perfumeries inBelgium and the Netherlands.

With one prudent acquisition, ASW had expanded into triedand tested markets via strong existing brands, positioning theGroup as the biggest health & beauty retailer outside the US.

Mr Wade concedes that when the managers from the variouscountries get together these days it’s a bit like a meeting of theUnited Nations.

Kruidvat was founded as a grocery company in 1928 and today is the undisputed market leader in the health & beauty sector in The Netherlands anda leading player in Belgium. It was acquired by A.S.Watson in 2002. Kruidvat employs around 8,000 people in more than 700 outlets catering to over twomillion customers per week. It also retails fast-moving non-cosmetic items such as low-priced CDs, toys, household items and photo services.

8 high-street chains …

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Imagine having to fill the shelves of more than 3,200 retailstores in 15 different countries from a selection of more than170,000 products.

Before the goods can be delivered they must first be sourcedfrom all over the world.And shelves must constantly be restockedafter products have been sold.What’s more, the tastes and buyinghabits of customers differ from store to store and vary widelyaccording to the season. Finally, records of each transaction mustbe fed back into the system to keep stock flowing smoothly.

It’s enough to boggle the sharpest of minds, yet it is a feat thatis pulled off on a daily basis by A.S.Watson (ASW).

Sourcing, distribution, logistics, computer systems — these arethe back-office operations that can make or break any retail busi-ness. ASW has been able to improve on all these functions as itgrows in size and scope, resulting in better service and productvariety at lower prices.

A worldwide sourcing operation based in Hong Kong directs thebuying activities of the different divisions around the world, withproducts from the Americas, Europe, China and Australasia.

“Sourcing is the lifeblood of the business,” says Group ManagingDirector Ian Wade. “Without effective buying you don’t exist.Youneed value, variety and point of difference with your competitors.”

Goods are shipped to distribution centres throughout Asia andEurope, with sophisticated computer systems keeping track ofproduct flow. Logistics and IT are integrated so that crucial com-mercial information is easily accessible at the click of a mouse.

“Logistics is vital within a health & beauty chain,” says GertVos, Director of International Systems. “Just imagine that theproducts do not reach the stores, or arrive late. Just imaginethat the costs of bringing the products to the stores are not thelowest possible.

“It is impossible to keep good track of the product flow withoutsophisticated computer systems,” Mr Vos adds. “The commercialpeople want information on the sales per product, the margin perproduct and the effects of price promotions, etc. In a modern retailorganisation this type of information is crucial. It is our task to deliv-er that information in a way that people want. Most information isgenerated by the products coming in and out of the distributioncentre, flow to the stores and from the stores to the consumer. Sologistics and IT cannot be separated, but are fully integrated.”

Since the Kruidvat acquisition, more containers from Asia arereaching European shores, with pressure on centres increasing dueto rising sales across all business units.

ASW is able to use experience gained in more matureeconomies and apply it to the quickly adapting Central Europeanmarkets where it has opened three ultra-modern distribution cen-tres in the past two years, most recently in the Polish city of Lodz.

Impressive expansion targets in the coming years mean thelogistics and IT departments will have to anticipate change at everyturn, and extensions and improvements are a way of life.

ASW is rolling out a sophisticated computingsystem across its European operations, starting inthe UK.The new Windows XP-based point-of-saleplatform, called StoreLine, is Web-enabled, allowingfor inventory tracking across all stores as well ascorporate training and operation, further enhanc-ing operating efficiency and customer service.

Despite ASW’s global reach, it retains a local, pesonalised approach. Products andpackaging change from country to countryto suit local needs and tastes. In thePhilippines, for example, goods are mar-keted in smaller packages than in othercountries, reflecting local shoppinghabits. Similarly, sun protection prod-ucts may be relevant in certain storesin the summer season,while VitaminC might be a big mover during the“influenza season”.

Then, of course, there isChristmas, Easter, ChineseNew Year, “back to school”and even “Sinterklaas” in theNetherlands — all requiring sea-son-specific inventories — not tomention innovative and sustainedpromotional campaigns for a vari-ety of products, ranging from toysto TVs.

With 170,000 product lines,the range and volumes indeedseem endless, but the over-riding impression for cus-tomers is that the prod-uct they choose is onein a million.

SHOPPING FOR THE SHOPPERS

C O V E R S T O R Y

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“Fortunately, almost everybody speaks English,” he says.“With management, you need an effective team, and effec-

tive delegation. Hutchison is a financial holding company buthas had the ability to put together a team of international tal-ent. That is why this company has done so well. Hutchison isthe only Hong Kong company ever to target the rest of theworld effectively.”

With its expanded multinational family of businesses, ASW

has chosen to operate eight existing health & beauty brand iden-tities under its corporate umbrella, setting it apart from otherglobal chains, which typically homogenise after an acquisition.

“If there is value in the local brand, you have to get behind thelocal brand,” says Wade.“It is a point of difference in our opera-tions. I can’t think of another retail business that operates differ-ent chains.”

The result is that the company operates on many levels, oftenwithin one market.

In the Netherlands, for example, Kruidvat trades side by side

Founded in 1966, Superdrug is a leading health & beauty retailer in the UK with more than 700 stores nationwide. Known for offering good value, thechain carries over 6,000 products. It also launches hundreds of new own-brand products each year, working with suppliers to identify new trends and turnthem into affordable high-street reality.All stores offer photographic services and around 25% have in-store pharmacies and/or in-store perfumeries.

910 cities …

There is still enormousopportunity for expansion,

particularly in former communist-bloc countries

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with its former competitor Trekpleister, which was acquired in1998.

Kruidvat is the market leader with branches not only in thebustling cities but also in the smallest villages while Trekpleister israpidly emerging as the No.2 thanks to its compelling brew of a wideproduct range sold at low prices in a customer-friendly atmosphere.

Similarly, Savers and Superdrug in the UK run as parallelchains occupying different niches. Superdrug is postioned as a variety retail chain with spacious stores situated in primespaces on the high street, whereas Savers is discount-oriented andoperates out of smaller outlets.

A mature market in the UK, with strong competition in thehealth & beauty sector and the internal challenge of operating twobrands side by side, creates a unique set of circumstances for doingbusiness there.

“Our competition comes from some of the best and most sophis-ticated retailers in the world,” says Philip Ingham, CEO of Health& Beauty UK. “There are several other major players but at theother end of the spectrum there is also a growing band of smallaggressive discount competition.”

Mindful of its particular market characteristics, the UK divisionaims to grow the profitability and size of both Superdrug and Saversby continuing to offer a wide range of products at good value whileat the same time dazzling customers with innovative stores andexciting promotional themes.

LOCAL CHARMThe characteristics of each country’s market environment natural-

ly shape the nature of the stores that operate within it. Regulationsin Continental Europe have meant that brands now owned byASW have developed as cut-price health & beauty retailers ratherthan as chemists, whereas health & beauty operations in Asia andthe UK typically evolved out of businesses geared towards dis-pensing pharmaceuticals.

Kruidvat started life as a grocery company in 1928, opening itsfirst health & beauty outlet in 1978. These stores have a broaderfocus than pure health & beauty, targeting young families with

Savers began in the UK in 1988 and was acquired by A.S.Watson in 2000.The chain operates more than 300 stores in England, Scotland and Wales. Savers’mega-discount format, accentuated by simple store design, strong logistics and low operating costs, matched the values of A.S.Watson from the outset, andthe company is rapidly expanding. It offers fast-moving health & beauty products, high-quality brand names, fragrances and photo services.

15 countries …

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The A.S.Watson Group has a highly successful manufacturingdivision specialising in bottled water and beverages, but thecompany has no plans to manufacture products for the

health & beauty market.“My experience is that any businesses that are captive to each

other tend to develop inefficiencies,” says Group ManagingDirector Ian Wade.

Instead, A.S. Watson (ASW) sources its products from far andwide, choosing to buy the highest quality at the best prices from ahuge range of manufacturers.

When a new product is developed, the company will make itsselection based on quality, price and what the customer wants. Ifsuch a product does not exist,ASW will initiate production, usingestablished manufacturers.

The packaging and marketing strategy is also crucial. For exam-ple, “Own Label” products have become a market leader, with theWatsons China operation serving as a telling example.

In the past two years, high-quality Own Label products havestruck a chord with Chinese consumers, particularly young womenaged 18 to 35, accounting for more than 21% of sales in the per-sonal care category.

The benefits of high quality and low price (20-40% cheaper thancomparative branded products) are further reinforced by moderndesign and packaging.

“One of the essential factors behind the great success of OwnLabel brands in China is the total confidence staff have in the prod-ucts,” notes Jurgen Schreiber, Director of International Buying.

“All Own Label products are first tested by our employees. Inthis way, we know that we have quality products and guaranteedstaff endorsement, which helps create effective selling and word-of-

mouth awareness.” Schreiber points out that the Watsons Own Label range is

ranked close to the market leaders for comparative products.“Own Label products provide a unique proposition in stores,”

says Schreiber.“Customers now visit Watsons to buy both brandedproducts and Own Label brands. In the long term, the growth ofOwn Label products will help balance and grow the company’s mar-gins and counter the present retail trend of suppliers pressurisingretailers more and more on price.”

A key to achieving success is through constantly updating theproduct portfolio.

The first step in new product development is market research.Watsons analyses sales trends in stores and consumer preferences.

“We have a ‘model shop’ set up in the warehouse, where sales inevery product sub-category and stock keeping unit are analysed,”says Schreiber. “Based on the data on how well a product is selling, customer appeal and market research, a road map is set up which covers the brand plan for the next 1-2 years, including identifying which categories and productsto pursue.”

Once product areas have been identified, the profit margins forOwn Label production are examined. Should these margins provepositive, Watsons competitively selects manufacturers to createthe product, based on stringent internal quality guidelines.Development usually takes anywhere from two to six months to complete.

The finished merchandise is delivered to stores where it isprominently displayed in Watsons Own Label corner. When con-sumers find that Own Label products represent great quality andoutstanding value, they come back for more.

C O V E R S T O R Y

Trekpleister was acquired by its former competitor Kruidvat Group (now part of A.S.Watson) in 1998.The chain operates more than 200 storesand is on its way to becoming the No.2 health & beauty retailer in the Dutch market.Trekpleister’s private label was re-introduced in 1999-2000 andis a popular choice among its low-priced health & beauty offerings and growing range of general merchandise. It has ambitious growth plans.

170,000 products lines …

LABELS OF LOVE

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The ICI PARIS XL chain of perfumeries is the market leader in its sector in Belgium and enjoys a high profile in the Dutch market. It beganoperations in Belgium in the 1970s, expanding into The Netherlands in 1997.The Kruidvat Group acquired the chain in 1996, joining A.S.Watson in2002. ICI PARIS XL operates more than 150 outlets offering a wide range of branded fragrances.

more than 55,000 staff …

a wide assortment of baby products as well as electronics and gifts.Kruidvat is also the market leader in digital photo services.

“Our most important strength is the consistent concept of all ourstores,” says Dick Siebrand, CEO of Health & Beauty ContinentalEurope.“Because they are as much alike as they possibly can be, weare able to control the operations (and the costs) in a most efficientway, giving our organisation the strength to beat the competition.”

There is still enormous opportunity for expansion, particularly informer communist-bloc countries such as Poland, Hungary and theCzech Republic, where ASW operates under the Rossmann brand.The Continental Europe division is aiming to keep up its growthof 15-20% per year.

The Asia region also offers significant growth potential for ASW,with China and India — potentially the two biggest markets in theworld — on its doorstep. It operates in-store pharmacies in Hong

Kong,Taiwan and the Philippines, in line with its historical devel-opment in the region, as well as pure health & beauty outlets.

Andrew Miles, CEO of Health & Beauty Asia, believes the “fun”aspect of the Watsons shopping experience sets it apart from otherretailers.Watsons Your Personal Store offers an unprecedented mixof products and promotional activities — with the added angle of“fun” built around its core health & beauty products and encapsu-lated in the slogan:“Look Good, Feel Great and Have Fun.”

“The region is a mix of mature and immature markets, from HongKong and Singapore to Indonesia and Vietnam, with every countryhaving its own culture and customer preferences,” says Mr Miles.

“Every time you visit a store you see a hundred opportunities,”

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he adds.“Things move at speed here and its amazing how quick-ly you can make things happen — from sourcing a product tobuilding a store.”

Without question, ASW’s growth into a global health & beau-ty powerhouse brings economies of scale, the benefits of a glob-al sourcing operation, a bigger, more experienced managementteam and pooled industry knowledge from around the world.With each division in tune with its unique set of challenges, thecompany’s ambitious growth targets are inching into view.

“There is no reason why our organisation in all three parts of the world (Asia, the UK, Continental Europe) should notgrow spectacularly in the coming years,” says ContinentalEurope’s Mr Siebrand.

He stresses the need for a flexible management style to copewith the growth consequences as well as extra effort all round totrain good people.

ASW plans to open about 160 new stores in 2004. It is alsoscanning the horizon for suitable acquisitions and looking atmarkets ranging from Australia and Indonesia to Vietnam andIndia, and eventually as far afield as Africa.

“The health & beauty category still has considerable mileage,”Mr Wade believes.“There is lots of room for growth in the cate-gories that fill our stores. People want to look good. The onlydanger in getting too big is if you can’t manage it.”

For now, the health & beauty business is no beast for ASW.As it moves towards becoming the world’s biggest retailer in thecategory, the company is enjoying healthy growth — and man-aging beautifully.

C O V E R S T O R Y

Rossmann Central Europe operates more than 240 stores in Poland, Hungary and the Czech Republic. It is a 50:50 joint venture between A.S.Watson and the German health & beauty chain Rossmann.The chain has seen impressive growth since beginning operations after the borders betweenEast and West Europe were opened a decade ago.The blend of Rossmann entrepreneurship and Kruidvat store concept has proved a winning formula.

10 million customers per week ...

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“Retail business is a people business.” This is themantra upon which the A.S.Watson shopping expe-rience is built.

And one of the primary challenges for a multinational companywith ambitious growth plans is to have key management and staffin position with the flexibility to handle every new twist and turn.

“Of course, our retail concept is extremely important, but wewould be lost without qualified,motivated peo-ple in the stores, in the distribution centres andin the offices,” says Dick Siebrand, CEO ofHealth & Beauty Continental Europe.

The company employs more than 55,000people around the world, from shop-frontstaff to logistics and IT experts, pharmacistsand druggists as well as top-class managers(many of whom have worked their way upfrom the shop floor).

Staff training is an important investment,whether it be at store level — from ordering and shelf filling toproduct knowledge and customer advice — or in the area of headoffice support in roles such as accounting, tax, marketing andadvertising.

ASW plays an important education role within communitieswhere it operates, keeping its customers informed about publichealth, beauty and related matters.

When customers walk into an ASW store, they get much morethan a great range of products at competitive prices; they also

receive exceptional service from staff who know what they aretalking about.

The recently launched A.S. Watson School in ContinentalEurope gives specialised training at three locations in theNetherlands and one in Belgium. Candidate sales employees andstore managers are instructed on day-to-day store practiceswith the aim that many of them will become the store managers

of the future.Within stores, customers can not only pur-

chase products but also receive advice andinformation on health & beauty.

At ICI PARIS XL perfume stores inBelgium, staff undergo extensive training onskin care, fragrances and colours.

In countries where legislation permits theoperation of in-store pharmacies — chiefly inAsia, the UK and the Netherlands — certifieddruggists are on hand to advise consumers

on over-the-counter medicines.In Hong Kong,Watsons Your Personal Store has always active-

ly promoted public health education. It participates in many in-store initiatives, distributing information designed to teach thecommunity about nutrition, exercise and the benefits of healthyliving. In that sense, ASW positions itself not only as a retail specialist but as a partner in improving the health of society atlarge, offering personalised advice on everything from beautycounselling to baby care.

Airport retail specialist Nuance-Watson is a joint venture between A.S.Watson and Swiss company The Nuance Group. Its branded stores offer cos-metics, label products, electronics and general merchandise to travellers passing through Hong Kong and Singapore international airports. Beginning in HongKong in 1998 and expanding to Singapore in 2001, the chain opened its 45th store at Singapore’s Terminal 2 in October 2003.

MORE THAN SKIN DEEP

US$8 billion turnover in 2002 …

T E L E C O M S

When Partner Commu-nications paid US$400million in 1998 for a licence to establish the

first GSM mobile telephone network inIsrael, many observers saw it as folly.Marking the commercial launch in January1999, local newspapers said the Israeli cel-lular market was already saturated, domi-nated by two of the nation’s strongest cor-porations. The money had been wasted,they said.

But Hutchison saw something different.

In Partner’s 1999 annual report, CanningFok, HWL Group Managing Director andChairman of Partner, noted: “The conver-gence of wirefree services and the Internetis opening up a new and exciting era forcellular, in which operators will increasing-ly differentiate themselves based on therange of services and applications they offer.As the sole GSM operator in a world-lead-ing high-tech centre such as Israel, Partneris well positioned to leverage theseresources.”

Five years since its inception, the strate-

gy has paid off and the Hutchison-backedmobile telecommunications company hasbecome an unmitigated success.

Not only has Partner defied the criticsbut it has done so at the speed of sound,exceeding almost every expectation. Froma standing start, Partner has become a lead-ing operator with more than two millioncustomers and revenues that continue tobe upwardly mobile.

At ground level, Israel is an exciting cellular market and its people are enthusi-astic users.

Analysts were cautious when the Israeli government auctioned a new mobile licence five yearsago, but Hutchison sprang into action to take advantage of the opportunity.

By Frank Lee

A WarmReception

�

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It is rare to find an Israeli who does notown a mobile phone and carry it every-where. For many Partner customers thecellular handset has become an essentialpersonal communication device, providingvoice and data services at the office,at home, while on the move in Israel,or abroad.

Previously a traditional economy basedmainly on agriculture, light industry andlabour-intensive production, Israel hasbecome a knowledge-based economy withinternationally competitive telecommuni-cations, IT, electronics and life sciencesindustries. The country’s GDP in 2002 was approximately US$100 billion,or US$15,782 per capita.

There are now four cellular playersoffering services to some six million cus-tomers. Partner was the first cellular oper-ator in this developed market to offerGSM technology and to launch a GPRSnetwork. From a technological point ofview the Israeli market is unique, offeringthe widest range of technologies availablein any one country, including NAMPS(analogue technology) CDMA, CDMA-1XRTT, TDMA, iDEN, and theGSM/GPRS technology, now offered bytwo operators.

Partner’s cellular offering is distin-guished by excellent voice quality, superbcustomer service, nationwide coverage,and a range of services specificallydesigned to provide communication andcontent solutions for residential and busi-ness customers alike.

PARTNER FOR THE PEOPLEPartner’s strategy has always been to satisfythe needs of society by understanding theparticular needs of every segment.

Israeli society has been built by immi-grants who have poured in from 70 coun-tries around the globe, creating an unusualand exciting cultural diversity.

Partner provides coverage to 97% of thepopulation using more than 2,100 cellsites, and leads the market with ground-breaking and user-friendly applications.Attractive demographics (more than 40%of the population is under 25), high technology literacy, and a keenness to use advanced services and applicationscreate an Israeli cellular market that isready and willing to absorb a range ofinnovative services.

Since many Israelis have strong tieswith family members and colleaguesworldwide, international services are par-ticularly important to Partner’s sub-

scribers. The company’s advanced roam-ing capabilities – helped by the fact thatvirtually the whole of Europe uses theGSM standard – enable its customers touse more than 280 network partnersworldwide in 125 destinations. Innovative

roaming agreements with satelliteproviders enable seamless roaming inmore than 40 additional countries andterritories. Visitors to the country canalso enjoy extensive roaming cellular ser-vices provided by Partner.

Close to home, Partner provides a vitalmobile lifeline for Palestinians when theyare in Israel, even during periods ofheightened political tension.The companyhas a good working relationship withmobile operator Al-Jawwal, owned byPalestine Telecommunications Co (PAL-TEL) and is the only Israeli network toprovide such a service.

Partner has been adept at responding to market needs, introducing a wide selection of useful and entertaining applications, along with customer-friendlytariff plans.

Using the obox services, customers canenjoy a rich selection of content, includingtimely updates on the latest news, stockmarkets, sports, weather reports and dailyhoroscopes – wherever they are.

One recently introduced capability, theinnovative omail service, provides liveupdates of mail messages and attachments.Another, the oklik service, enables cus-tomers to take and send pictures fromwherever they are.

T E L E C O M S

Partner’s customerservice is

rated No.1 in the country

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TALKING POINT

Partner has brought new terminologyand new thinking to the cellular mar-ket through its unique marketing and

packaging strategies.In recognition of its extraordinary flair in

creating brand awareness and customerloyalty, the company has received numerous awards, medals, certificates and trophies.

When Partner launched its “one call onerate” offer, the rate plan revolutionised theIsraeli market because the price of the callincluded all interconnect charges – a first inIsrael. Another innovative concept intro-duced upon launch was the “talk more payless” programme in which the customerreceived a lower per minute rate if he orshe used the network more.

With orange 2 go, Partner was the firstcompany in Israel to offer a “no commit-

ment” plan to its monthly paying sub-scribers. Partner knew that the best guarantee for a satisfied customer is toensure that the customer chooses his cellular provider every day anew. Its “noobligation” rate plan emphasises the sub-scriber’s freedom of choice while retainingloyalty through superb customer serviceand network quality. Today, most ofPartner’s private customers are orange 2 go subscribers.

Partner is always thinking of new offer-ings.One new idea for the youth segment isMix & Match.Customers of youth brand BUcan choose three out of six benefits avail-able, adjusting their rate plan according totheir individual usage patterns. Benefitsinclude calling five family members at a dis-counted rate, reduced SMS rates, lowerdata and content rates, discounts on calling

selected friends and family, or reducednight-time and weekend rates. Each cus-tomer is free to choose the best mix.

Partner also offers unique solutions to a wide range of business customers,helping them improve service delivery totheir clients.

One example is Tambur, a leading Israelipaint manufacturer and distributor.Partner’s location-based vehicle fleet man-agement system enables Tambur’s mainoffice to know exactly where each of itsdozens of vehicles is and what merchandiseis on board, allowing the company torespond to its customers needs quickly andefficiently.

“Tambur examined a few systems andchose Partner’s solution as it is the best,most efficient and quickest to implement,”said Omer Shoshani,VP Sales at Tambur.

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CELEBRATING DIVERSITY

Right from the start, PartnerCommunications has played animportant role in all aspects of

Israeli society. In a country familiar withconflict and separation yet defined by ahard-working and fun-loving approach tolife, Partner’s multi-faceted services helpbring people together – no matter whattheir language, religion or location.

The company’s Customer ServiceCentre is designed to assist more thantwo million subscribers in four languages:Hebrew,Arabic, Russian and English.

Partner has also developed unique priceplans to answer a variety of needs. Forexample, foreign workers are offeredsophisticated rate plans for pre-paid over-seas calls.

Another innovative programme calledorange Shabat is aimed at the orthodoxJewish community and recognises particu-lar usage patterns and needs. Subscriberswho do not use their phones on theJewish Sabbath can enjoy 60 free minuteson weeknights. But orange Shabat is muchmore than a rate plan. Partner has createda unique world of content for this segmentin which observant subscribers are offeredcontent specific to them, such as icons,ring tones, prayers, Chassidic songs andseasonal features such as holiday themes,trivia and games.

Unique services have also been devel-oped for other individual communities,including Russian speakers and the busi-ness sector.

As an unbiased employer, the companyoffers job empowerment to all.

“Partner offers a unique opportunity foremployment in the Arab sector, with manyfamilies relying on the company for theirsole income,” says Ebtihal Sheety, TeamLeader in Partner’s Customer ServiceCentre in Haifa. “Around 50% of all Arab

employees in Partner are female, with veryfew employment options otherwise.”

Within society, Partner actively partici-pates in many community-related activi-ties, believing that the business sector’sinvolvement can help improve the qualityof life for many Israelis.

The company has chosen to focus itsefforts on the advancement of educationthrough the use of technology. In the pastfive years, Partner has built 22 computerrooms all over Israel.

“These computer rooms serve a vastpopulation that otherwise would not havebeen exposed to computers and theInternet,” says Amnon Gideon,Vice-presi-dent Human Resources at Partner.

“Our commitment to improving thecommunity is such that when we recruit-ed our two-millionth customer, we decid-ed to forego the special activities and par-ties planned for our employees, and usethe funds to build ten more computerrooms nationwide.”

These activities are very much appreci-ated in Israel.

“We thank Partner for building comput-er rooms in our neighbourhoods,” saysMeir Nizan, mayor of Rishon Le’Ziyon, justoutside Tel Aviv.“The computers will serveunderprivileged children and adults alikewho can not afford a computer.”

Innovation has always been the rule atPartner. As part of its appeal to the youth,the company has operated a radio stationsince 1999, under the “BU” youth brand. Ina few short months, BU99 FM has becomethe most popular radio station amongstthe youth segment. Listeners can choosemusic by sending an SMS to the station,pick favourite artists and win prizes inhourly contests. Regular parties are organ-ised for young listeners, who also receivediscount coupons via their mobile phones.

As part of Partner’s emphasis on com-munity education, BU99 FM organisesforums and seminars in schools, teachingchildren about the progress in communi-cation from the Stone Age right through to3G technology today. These activities areaimed at bringing the young populationcloser to the unique communicationsexperience that Partner offers.

T E L E C O M S

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GOOD COMMUNICATORFrom Day One, Partner’s marketing strate-gy has been characterised by innovationand creativity. The orange™ brand, origi-nally developed by Hutchison in the UK,has gained major prominence in the Israelimarket, and was recently recognised byGlobes, the leading Israeli business daily, asthe country’s most valuable telecomsbrand and second only to Coca-Cola inthe general consumer market.

Underscored by a constant buzz aroundits award-winning advertising campaigns,Partner’s rate plans, attractive family pro-grammes and innovative marketing tools(including a radio station) have all helpedestablish its leading market position.

Partner’s state-of-the-art call centre,located in the heart of Israel at RoshHa’ayin, employs enthusiastic, highly edu-cated and well-trained personnel who are

available to answer queries seven days a week, 24 hours a day. Equipped with thelatest technology, the centre can handle

hundreds of calls simultaneously. Aided byfriendly instruction manuals developedspecifically for Partner’s customers, an

advanced interactive response system andan appealing, interactive Internet site, userscan always find answers to their questions.It is no wonder that the most prestigiousIsraeli management centre, the MIL, hasawarded Partner’s customer service theNo.1 position in the country.

Partner’s distribution channels areextensive, with close to 300 points of salethroughout the country, many of whichare open seven days a week. The networkoffers diverse communications productsexclusive to Partner and reaches all seg-ments of society.

WIDENING THE GENERATION GAPHaving already established itself as a technology leader, Partner is committedto seizing the opportunity to lead themarket in third generation (3G) mobilecommunications.

Partner brings people together –

no matter what their

language, religion or location

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T E L E C O M S

Back in April 1998 it was clear thatnewly formed Partner Commu-nications had a mountain to climb.

Not only was the upstart entrant squar-ing off against two established mobile tele-coms incumbents in an already developedmarket but the company had precisely sixmonths to build the management team, hireall employees, arrange the financing andcomplete a nationwide network rollout intime for the soft launch of services inOctober that same year.

The challenge was indeed enormous, butPartner had several aces up its sleeve.Theconsortium combined the heft of a multina-tional big hitter, the savvy of key localinvestors and the dexterity of skilful man-agement, led by CEO Amikam Cohen.

As Partner’s majority shareholder(43.27%), Hutchison has been a defining andcritical influence in the company’s develop-ment, bringing it advantages unavailable toits competitors.

“We were fortunate to have strongshareholder backing,” Mr Cohen recalls,“which enabled us to benefit from globaltelecom and local commercial expertise.”

Hutchison was a proven player in theglobal telecoms arena and had been active-

ly seeking opportunities to expand. Thecompany owned a highly successful tele-coms operation in its home base of HongKong and, most notably, was in the process

of building Orange, the fastest-growingbrand in Europe, which ultimately netted a jaw-dropping US$14.6 billion profit forHutchison when it was sold in 2000.

Fuelled by the enthusiasm of its local management while leveraging on

Hutchison’s international marketing andtechnology expertise, the young companyhit the ground running.

In August 1998, only three months afterreceiving the licence, Partner finalised a long-term credit facility to support its net-work and business rollout.

By October the initial rollout was com-pleted, with approximately 77% coverage ofthe Israeli population.Full commercial oper-ations were launched in January 1999, with88% population coverage and supported bya nationwide distribution network.

Within 12 months of the launch, thecompany had cornered a remarkable 13%share of the market.The start-up was wellon its way to becoming not only a leadingtelecoms business in Israel but one of thecountry’s top-ten companies overall.

Listed on three stock exchanges, Partnerenjoys support from investors across the globe.

Partner completed the largest ever IPOby an Israeli company when it listed on theNASDAQ and the London Stock Exchangein October 1999. A Tel Aviv Stock Marketlisting followed in 2000.

The excellent reception was seen as a vote of confidence in Partner’s potential to

LOCAL DYNAMISM, GLOBAL BACKING

Traded on NASDAQ (PTNR);LSE (PCCD); TASE (PTNR)

FreeFloat

31.77%

PolarComm.

Ltd.2.44%

MATAVInvestments

Ltd.7.42%

Eurocom Communications6.39%

Elbit Ltd.8.71%

Hutchison Whampoa Ltd.43.27%

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increase shareholder value.When the dusthad settled, the company had raised US$525million and was valued at US$2.4 billion.

Today, Partner has indeed emerged as a leader in Israel’s cellular market. Withapproximately 31% of market share to date,it has had the highest growth rate in theindustry in Israel, taking the lion’s share ofnew revenues and subscribers while meet-ing all its ambitious financial and operatingtargets. Partner reported operating profitof US$60.1 million in Q3 2003 – a 64% leapcompared to the same period the yearbefore and up from US$50.6 million in theprevious quarter.

“We successfully demonstrated our ability to sustain healthy margins and grow our revenues while reducing ouroverall debt levels,” said Chief FinancialOfficer Alan Gelman.

Marking Partner’s fifth anniversary,Hutchison Group MD Canning Fok wasebullient:“With involvement in a large num-ber of companies on five continents, we atHutchison have found Partner’s manage-ment truly outstanding,” he said. “With itsclear strategic focus, great dedication andstrong leadership, Partner has replaced theword ‘impossible’ with ‘it can be done’.”

2,2002,0001,8001,6001,4001,2001,0008006004002000

1999 2003200220012000

SUBSCRIBER BASE AT YEAR END (IN THOUSANDS)

2,000+

4,5004,0003,5003,0002,5002,0001,5001,0005000

1999 H1 2003200220012000

CAPEX / REVENUES

100%90%80%70%60%50%40%30%20%10%0%

899

3,249

4,055

556

2,109

129

NIS

mill

ion

s

% C

AP

EX

/ R

even

ues

92%

25%

18% 14%

6%

CAPEXRevenues CAPEX /Revenues

834

355

1,458

1,837

829

2,104

531 599

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T E L E C O M S

Leveraging on the 3G licence it wasawarded in a tender in 2001, Partner willstart rolling out the network early in 2004,with commercial service expected later inthe year.

Relatively low capital expenditurerequirements for both network rollout and licence payments and the ability to save significantly on 2G maintenanceexpenditure by using a 3G network make the business case for Partner’s 3Goperations – already fully financed – evenmore attractive.

Partner’s relationship with Hutchisonputs it in a particularly enviable position inthe development of products and servicesfor its 3G businesses.

As a global leader in the deploymentand development of 3G mobile networks,

products and services, Hutchison canshare with Partner the combined expertiseand synergies gained within the Group tothe benefit of Israeli consumers.Customers of the company’s future 3 ser-vices will enjoy powerful mobile multi-media communications, commerceopportunities, and data-rich content, withan infinite capacity to entertain, educate,and inform.

“These are going to be very excitingyears for Partner,” says Dr Dan Eldar,Partner’s Vice President. “We now see a more mature company, operating in a more mature market with penetrationlevels that are higher. We have seenPartner leading this market with thestrongest cumulative growth rate, both interms of subscribers and in terms of rev-enues, and we intend to continue thistrend. In the coming years Partner has a very significant growth opportunity inIsrael and the primary source for thisgrowth is 3G.”

Partner’s relationship

with Hutchison

puts it in a

particularly enviable

position for

its 3G business