CONTENTS 1 Corporate Profile 3 Statement from the Chairman 4 Statement from the Group Managing Director 8 PCCW in Numbers 10 Significant Events in 2018 12 Awards 18 Board of Directors 24 Corporate Governance Report 42 Management’s Discussion and Analysis 53 Financial Information 224 Investor Relations CORPORATE PROFILE PCCW Limited is a global company headquartered in Hong Kong which holds interests in telecommunications, media, IT solutions, property development and investment, and other businesses. The Company holds a majority interest in the HKT Trust and HKT Limited, Hong Kong’s premier telecommunications service provider and leading operator in fixed-line, broadband and mobile communication services. Beyond connectivity, HKT provides innovative smart living and business services to individuals and enterprises. PCCW also owns a fully integrated multimedia and entertainment group in Hong Kong, PCCW Media. PCCW Media operates the largest local pay-TV operation, Now TV, and is engaged in the provision of OTT (over-the-top) video service under the Viu brand in Hong Kong and other places in the region. Through HK Television Entertainment Company Limited, PCCW also operates a domestic free television service in Hong Kong. Also wholly-owned by the Group, PCCW Solutions is a leading information technology outsourcing and business process outsourcing provider in Hong Kong and mainland China. In addition, PCCW holds a majority interest in Pacific Century Premium Developments Limited, and other overseas investments. Employing over 23,600 staff, PCCW maintains a presence in Hong Kong, mainland China as well as other parts of the world. PCCW shares are listed on The Stock Exchange of Hong Kong Limited (SEHK: 0008) and traded in the form of American Depositary Receipts (ADRs) on the OTC Markets Group Inc. in the U.S. (Ticker: PCCWY). To learn more about our core businesses, please turn over the page. PCCW annual report 2018 1 CORPORATE PROFILE (CONTINUED) HKT is Hong Kong’s leading operator in fixed line, broadband and mobile communication services. It is Hong Kong’s largest broadband service provider with its fiber network covering 88.3% of homes and 7,400 non-residential buildings. CSL Mobile operates the csl and 1O1O mobile service brands. HKT also delivers end-to-end integrated Enterprise Solutions enabling companies to enhance operational efficiency and gain business insights. Its international operating division, PCCW Global, operates a Tier-1 global Internet backbone network. Its network connects more than 3,000 cities and 150 countries in the world. HKT also provides a range of non-telecom services including mobile payment, travel and insurance. The Club is HKT’s loyalty program and an integral part of a new digital ecosystem connecting consumers and merchants. The share stapled units of the HKT Trust and HKT Limited are listed on the Stock Exchange of Hong Kong. Now TV is Hong Kong’s largest pay-TV provider, offering a wide range of local and international content through linear TV channels, on-demand and via OTT (over-the-top) apps. Now E is an entertainment OTT platform offering premium, exclusive content to meet the needs of viewers with Millennial lifestyle. The Group also operates an international OTT media entertainment business in 28 markets globally, carrying the Viu and Vuclip video streaming services and the MOOV music streaming service. Viu is a leading video service in the region offering premium content and Viu Original productions. Vuclip provides web-based and short-form video content for emerging markets. MOOV is a hugely popular music digital streaming service in Hong Kong. Domestic free TV service ViuTV offers original format factual entertainment content, dramas, news, children and sports programs on its Cantonese channel 99 and English language channel ViuTVsix channel 96. PCCW Solutions is a leading IT services company in Hong Kong and mainland China which helps customers achieve their business goals and transform digitally with a wide range of digital services and solutions, IT and business process outsourcing, cloud computing, system development and solutions integration, data centers, hosting and managed services, e-commerce and IoT solutions. PCCW Solutions offers an Infinitum solutions suite to support companies in various industries to revolutionize business operations and enhance customer experience. PCCW Solutions has been playing a key role in supporting critical IT systems in the public sector of Hong Kong, for example, the Next Generation Smart Identity Card System (SMARTICS-2) and the Next Generation Electronic Passport System (e-Passport 2) for the Immigration Department. PCCW Solutions is actively expanding in the Pan Asian region. 2 PCCW annual report 2018 STATEMENT FROM THE CHAIRMAN I am pleased to report that the core businesses of PCCW The overseas projects of Pacific Century Premium achieved reasonable operational results for the year Developments continued to make good progress. ended December 31, 2018. Our premium office building in Indonesia, Pacific Century Place, Jakarta became fully operational The Group’s media business last year continued to in 2018. In Japan, construction of a new ski center strengthen its leadership position by offering premium at Niseko, Hokkaido is continuing according to plan. local, regional and international entertainment and sports content across multiple platforms. PCCW Media In 2019, the global economic outlook is less than has secured the exclusive pay-TV, free TV and certain, not least due to the overhanging trade tensions OTT (over-the-top) broadcast rights in Hong Kong of between China and the US. Nevertheless, we are the Premier League up to 2021/22. Our pan-regional confident that PCCW will be able to chart a course of OTT video streaming service Viu, which offers popular continued growth on the foundation of our resilient and Asian content and Viu Original programs, nearly diversified business operations. doubled its MAU (monthly active users) to 30 million from a year ago in 16 markets in Southeast Asia, the Middle East and India. Last year, the Group’s enterprise IT solutions business and Hong Kong’s number one IT service provider, PCCW Solutions, further expanded its Pan Asian presence with the aim of become a leading enabler of enterprises’ digital transformation in the region. To meet growing customer demand, we are expanding our data center capability in Hong Kong with a new world-class facility which will come into service Richard Li later this year. Chairman February 25, 2019 HKT recorded another year of satisfactory performance across its core business lines. Both the fixed broadband and mobile businesses held steady amid intense competition. Offering a range of smart living and smart business services and products, HKT has been playing an active role in facilitating the development of Hong Kong into a smart city. PCCW annual report 2018 3 STATEMENT FROM THE GROUP MANAGING DIRECTOR It is my pleasure to present an overview of the PCCW As viewing habits evolve, especially among the younger Group’s key business activities in media entertainment, audience with the millennial lifestyle, the one-stop enterprise IT solutions, telecommunications, and Now E OTT platform was launched in Hong Kong last May, property in the following sections. offering international and Asian dramas, movies, and sporting events such as the World Cup. Now E’s content UNPARALLELED MEDIA CONTENT portfolio is continuously expanding and users can OFFERING access via their smartphone, tablet, or Android TV box The Group’s local media business mainly comprises on a pay-per-view or subscription basis. Hong Kong’s largest pay-TV, Now TV, its OTT extension Now E, and free TV under the brand ViuTV. Regionally, LEADING PAN-REGIONAL OTT SERVICE Viu is a leading OTT entertainment platform with Viu OTT has reached 28 markets following its launch a growing mass of audience. Each of these services offers in Myanmar last September. In the 16 markets where unique content and programming that captivate the we offer a premium service, our active engagement respective target viewers, while together they create with viewers resulted in the continuous growth of MAU synergies and additional value for the Group. (monthly active users) to more than 30 million at the end of 2018, an 89% jump from a year ago. Last year, our Last summer, PCCW Media was the exclusive viewers consumed 37.5 billion video minutes, a 117% broadcaster in Hong Kong of the 2018 FIFA World Cup™. increase from 2017. Live broadcast of the exciting matches on Now TV, ViuTV and Now E provided our viewers with an engaging In 2018, Viu produced more than 900 episodes of experience. Viu Original programming in local languages, which was three times the volume of a year ago. Viu Originals out In our continuing effort to reinforce our position as of Indonesia and Malaysia won several Asian creative Hong Kong’s home of sports, PCCW Media has awards last October. secured the Hong Kong pay-TV, OTT and free TV broadcast rights of the Premier League from 2019/20 to In addition to Viu Original programming, Viu signed up 2021/22. This complements our rights to broadcast the more content agreements with providers in different UEFA Champions League and the UEFA Europa League markets, such as Thailand and Korea, to boost its until 2020/21 and the Spanish LaLiga until 2022/23. appeal to local online audiences. Content genres include Together with other lineup, Now TV customers can enjoy dramas, variety shows, quiz, and reality shows. more than 1,600 of the world’s top football matches in a season, complete with expert analysis and Cantonese commentary. For the next season of Premier League, select matches will be shown live in 4K resolution for the first time for users of the Now One set-top box. 4 PCCW annual report 2018 CREATIVE FREE TV SERVICE LEADING DIGITAL TRANSFORMATION The Group’s free television service, ViuTV, expanded its ENABLER viewership last year with the broadcast of key matches PCCW Solutions aims to drive sustainable growth of the World Cup including the final.