THE EASTERN WAY : HONG KONG-BASED ON-LINE FIRM PERCHED TO TAKE ADVANTAGE OF UNTAPPED PACIFIC RIM MARKET.

Byline: Julie Chao San Francisco Examiner 

While its competitors are battling it out for pieces of the Internet pie in the United States and Europe, Asia On-Line is poised to become the America Online of the largely untapped markets of the Pacific Rim.

Flush with funds and founded by key players of the high-tech industry in Asia, the Hong Kong-based firm is zooming ahead of other Internet and on-line companies in a race to get Asia's consumers wired.

Launched just 15 months ago with $3 million from the co-founders and $20 million in outside financing finalized last week, Asia On-Line's parent company, Asia Communications Global Ltd., is already talking about a possible public offering in the United States later this year.

``We felt that by starting early and going at high velocity we'd be able to leverage on this pre-emptiveness and gain a strong foothold, perhaps becoming a de facto leader in the Asia region,'' said ACGL Chairman and co-founder Thomas Yuen.

In addition to providing Internet service in the East, ACGL, which just set up its U.S. subsidiary in Santa Ana is also offering a vast array of Asia-centric information targeted to affluent, overseas Asians who are already on line in the West. It has more than 3,000 sources of information and is aggressively acquiring content from countries such as Vietnam and India.

Asia On-Line subscribers in the United States, for example, will be able to read Chinese newspapers, play the Asian stock markets and even listen to Hong Kong radio stations, all over the Internet. The company views the millions of Asians living overseas, hungry for news from home, as a huge opportunity. ``You charge people a dollar an hour (for listening to Internet radio) and have 20,000 doing it every night - it's not a small business,'' said Philip Wong, ACGL chief executive and president. In its 15 months, the company has grown to 70 employees, almost all in Hong Kong. Its share of the Internet market in Hong Kong - where more than 60 providers vie for customers - exceeds 20 percent with more than 15,000 subscribers. It expects to reach 75,000 subscribers in Hong Kong and Taiwan by the end of the year and 250,000 worldwide in two years.

While subscriptions to its Internet access will make up most of Asia On-Line's revenues initially, Wong expects that transaction fees - for services such as buying a plane ticket, reading a newspaper or listening to the radio - will eventually make up the bulk of revenue.

If Asia's interest in the Internet is anything like its insatiable appetite for pagers and cell phones, that revenue could be enormous. With the rise of an educated middle class throughout the Far East, the growth rate of computer use is expected to exceed that of the United States and Europe.

``I believe the demographics of the Asian market could make it more attractive for Internet providers than the U.S. market,'' said Mark Roberts, an analyst at Montgomery Securities in San Francisco.

To be sure, lack of infrastructure and restrictive government regulations are still hindrances in many Asian countries. Some markets, such as Indonesia and Vietnam, may be five to 10 years behind the United States in terms of PC penetration. But other markets, such as Singapore, Taiwan and Hong Kong, may lag by only 12 to 24 months.

With economic growth in the double digits year after year and consumer-spending power growing fast, ``if (companies) are not deploying in Asia now, I suspect they will find it too hard to catch up,'' said Roberts.

Plus, although the consumer market may be nascent, business users represent a big opportunity, said analyst Phoebe Simpson of Jupiter Communications in New York.

``People say, `Why would anyone go into China? No one has PCs,' '' said Simpson. ``But the business market alone there is enough reason to invest.''

It was reason enough for the four co-founders of ACGL, including Wong and Yuen, to put in $3 million to launch the company. Four outside investors, including Softbank Holdings - the investment arm of the Japanese media conglomerate Softbank Corp. that owns the Ziff-Davis Publishing Co. and has a stake in Yahoo! Inc. - as well as prominent U.S. and Asian venture capital firms, kicked in another $20 million last week.

Wong and his partners bring an impressive combination of high-tech and Asian market experience. Yuen was co-founder of PC manufacturer AST Research Inc. As head of AST's Far East operations, Wong raised AST's market share in China from zero to one-third.

The other two co-founders are Michael Ng, director of Legend Holdings Ltd., China's largest computer distributor, and Sam Lin, formerly with Unisys Asia.

That Asian experience will be key to navigating the subtleties of each of the Asian markets. Roberts said he has seen many U.S. companies make the mistake of treating Asia as one monolithic market.

``I've seen companies say, here's our Asian strategy, when in reality there should be a strategy for Singapore, a strategy for Korea, a strategy for China,'' he said.

So far, the likes of Microsoft Corp. and CompuServe haven't strategized their Asia efforts much beyond Japan, where PC shipments and demand for on-line services are growing rapidly. NiftyServe, which offers a Japanese version of the CompuServe interface, has been around since 1986 and commands about 40 percent of the market. America Online and Microsoft Network announced partnerships with Japanese firms earlier this year.

However, except for providing local access numbers in other Asian countries, all three companies say they have not pushed much into those markets.

``It's probably a little too early'' for China, said Geoff Saunders, international product manager for the Microsoft Network, which, with the exception of Japan and Australia, is focused on the European and North American markets.

Because content is U.S.-centric and entirely in English, CompuServe acknowledges that most of its users in Asia are American expatriates rather than locals.``Language is a big barrier,'' acknowledged John Dinkeloo, CompuServe support manager for Japan, Taiwan and South Korea.

Of course, the installed computer base in Japan is almost as high as the rest of Asia. According to Dataquest, PC shipments last year were 5.7 million to Japan and 6.8 million to the rest of Asia Pacific.

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Photo: (Color) Asia Communications Global Ltd. Chairman Tho mas Yuen, left, and Chief Executive Philip Wong launched Asia On-Line 15 months ago.

Associated Press