09:54     PCCW<00008> - Announcement (2)                                      

    additional amount of US$143 million (plus interest outstanding of         
    US$12 million) was due by the Reach Group to each of the PCCW Group       
    and Telstra under the Capacity Prepayment Agreement described             
    below.                                                                    
                                                                              
    As mentioned above, the consideration payable under the Capacity          
    Allocation Agreement (amounting to US$157 million from each of PCCW       
    Communications and Telstra) will be settled by way of set-off             
    against, in the case of the PCCW Group, the Shareholder Loan (of          
    US$600 million plus interest of US$8 million), and not by way of new      
    cash injections. Telstra will settle its share of the consideration       
    by set-off in essentially the same manner, although it will set-off       
    part of the consideration against the US$143 million outstanding          
    under the Capacity Prepayment Agreement as described below. Interest      
    of US$6 million due by Reach to the PCCW Group will be waived, and        
    US$445 million of the remaining balance of each Shareholder Loan will     
    be capitalized by way of the issue of an equal number of shares in        
    Reach to each of PCCHL (a wholly-owned subsidiary of the Company and      
    the entity that has held the Company's interest in Reach since its        
    formation) and Telstra. Following this issue of shares, PCCHL will        
    continue to hold fifty percent of the share capital of Reach.             
                                                                              
    Following the set-off and capitalisation referred to above, Reach's       
    aggregate indebtedness to each of the PCCW Group and the Telstra          
    Group will be reduced to US$155 million. Each of the PCCW Group and       
    the Telstra Group will have a charge over Reach's assets in relation      
    to these outstanding amounts. Default may only be called under the        
    charges by the Company and Telstra acting jointly but each                
    shareholder shall have priority as to the manner in which its charge      
    is enforceable over the international undersea cable capacity             
    allocated to it through the indefeasible rights to use granted under      
    Capacity Allocation Agreement.                                            
                                                                              
    The asset and debt restructuring described above does not involve         
    any cash injection and can be summarised as follows:                      
                                                                              
                         US$ (million)        US$ (million)                   
    PCCW's shareholder   600                                                  
    loan                                                                      
    Interest outstanding 8                                                    
    Capacity Prepayment  143                                                  
    Agreement                                                                 
    Interest outstanding 12                                                   
                                              763                             
    Set-off                                   (157)                           
    consideration under                                                       
    Capacity Allocation                                                       
    Agreement                                                                 
    Interest waived                           (6)                             
    Capitalisation of                         (445)                           
    debt into                                                                 
    equity                                                                    
    Reach's                                   155                             
    indebtedness to                                                           
    PCCW Group                                                                
    following the                                                             
    restructuring                                                             
                                                                              
                                                                              
                                                                              
    The Directors consider that the above asset and debt restructuring        
    will convert the book carrying value of these loan receivables from       
    Reach totaling US$157 million into an investment in indefeasible          
    rights of use and would not result in any impairment adjustment to        
    the income statement of the PCCW Group.                                   
                                                                              
    Capacity Allocation Agreement dated 16 April 2005                         
    Capacity Allocation                                                       
    Pursuant to the Capacity Allocation Agreement, RGNL will allocate         
    the international undersea cable capacity currently held by the Reach     
    Group by way of granting indefeasible rights to use in relation to        
    such capacity to each of PCCW Communications and Telstra. As stated       
    above, PCCW Communications and Telstra will each pay RGNL US$157          
    million for this allocation by way of set off against, in the case of     
    the PCCW Group, the existing Shareholder Loan, and not by way of new      
    cash injections. The amount of the consideration was determined           
    through arm's length negotiations between PCCW Communications,            
    Telstra and Reach. The Company has performed an internal valuation of     
    the allocated capacity to be acquired and the Directors consider the      
    consideration payable to represent no more than the fair market value     
    of the allocated capacity.                                                
                                                                              
    PCCW Communications and Telstra will also each assume one half of         
    Reach's committed future capital expenditure in order to support          
    growth in their own retail services. PCCW Communications's share of       
    this expenditure over the next 17 year period from March 2005 to 2022     
    is expected to be approximately US$106 million. PCCW Communications       
    and Telstra will only assume any additional future capital                
    expenditure if such expenditure is approved by both PCCW                  
    Communications and Telstra.                                               
                                                                              
    Operation and Maintenance charges associated with allocation              
    RGNL's operations and maintenance costs associated with the               
    international undersea cable capacity allocated by way of the grant