Singtel Blues: Singapore's top telco needs to win soon to become a regional power
By JEREMY HANSEN and ASSIF SHAMEEN
Lee Hsien Yang made some big mistakes last year, and he knows it. The Singapore Telecommunications CEO is facing intense scrutiny as he tries to transform the company from fusty monopoly to nimble multinational giant — a transition that requires a steady diet of investments and acquisitions if SingTel is to expand beyond the confines of its tiny island. The company already has telco stakes in Thailand, India, the Philippines and Taiwan. But shareholders have been getting edgy about ongoing execution after Lee failed to complete any major deals last year. And he is still smarting over SingTel's famous failure to acquire Cable & Wireless HKT, Hong Kong's largest phone company, which was purchased instead by Internet upstart Pacific Century CyberWorks (PCCW) of Hong Kong last March.
Lee, youngest son of Singapore's elder statesman Lee Kuan Yew, could be about to prove his critics wrong. This month, all eyes are on Australia, where former HKT parent Cable & Wireless has put its multi-billion- dollar stake in Optus, the country's second-largest telco, on the block. SingTel is considered a frontrunner in the bidding, as it was in Hong Kong. But the target, which has a 35% share of mobile services and also owns the country's second-largest pay-TV operator, is also being stalked by U.K.-based Vodafone, the world's largest mobile phone carrier. "SingTel is best positioned to become the leading pan-Asian telecom company," says Paul Zaman, telecoms analyst for ING Barings in Singapore. "But they need to do one big deal or a steady flow of small deals to convince the market that they are serious about their regional strategy."
The market will take some convincing. After losing the battle for HKT, an outcome SingTel officials blamed on meddling from mainland China, Lee, 43, also failed in a bid to buy Malaysian telecom Timedotcom. He walked away from several other potential acquisitions. SingTel branched into the high-growth Internet arena, but plans to take public ventures such as a 50-50 partnership with U.S. portal Lycos were scuttled by the dotcom crash. SingTel stock has suffered; although it has recovered somewhat in the last several months, it still trades at a discount to its regional peers. In fact, at its current price of about $1.64, shares are roughly the same price paid by institutional investors during SingTel's initial public stock offering nine years ago.
Underlying all SingTel's woes is Singapore's telecom-sector deregulation. Income from its traditional cash cows is waning, particularly revenue from international calls which fell 26% in the last six months of 2000. Growth in the company's data and wireless businesses helped offset the slide, but Lee wants offshore investments to provide the biggest balance-sheet boost. The company's foreign forays currently make up 27% of turnover, something Lee wants to increase to 50%. He is betting on future growth in mobile phones and in key Asian markets including India (SingTel did invest $400 million for a 20% stake in India's Bharti Telecom and a 15% stake in Bharti Televentures last year). "The company has managed to find other sources of revenue very well," says Bertrand Bidaud, director of Asia-Pacific telecom research for Gartner Group. "But this is just a window. [SingTel] really needs to become more international."
The corporate culture at SingTel, which is 78% government-owned, is being overhauled. Lee, an ex-brigadier general, is attempting to electroshock 12,000 employees out of their bureaucratic mindset. For one thing, he has asked workers to refer to him by his first name, a move considered so revolutionary in buttoned-up Singapore that it made the front page of its biggest daily newspaper. Other attempts to add pizzazz to SingTel's starchy image include a $100-million joint venture with Virgin Mobile, owned by flashy British marketing whiz Richard Branson. The partnership plans to create a pan-Asian mobile phone brand.
If there was ever a time for SingTel to learn to sell itself, this is it. It may be rich (SingTel has $3.7 billion in cash), but Singapore's reputation for overbearing mother-knows-best attitudes may be hurting its chances to attract partners. Malaysia's Prime Minister Mahathir Mohamad is thought to have personally scuppered SingTel's bid for Timedotcom. Lee's boldface political pedigree - brother Lee Hsien Loong is the nation-state's deputy prime minister - means he is a living embodiment of the Singapore its neighbors love to hate.
Before joining SingTel as executive vice-president for local services in 1994, Lee spent most of his career in the Singaporean armed forces. He took a seat on the board and the role of president and CEO in 1995. Some speculated that Lee, a graduate of Cambridge University and Stanford University, would be shunted into another line of work after the HKT debacle (his name is dropped as the next CEO of Singapore Airlines). Mention of that episode still seems to sting. What does Lee think of PCCW's performance since the takeover of HKT? "I'm not a PCCW shareholder," he says icily. "Why don't you ask somebody who is?"
Ironically, Lee's bungles in the past year may ultimately work in his favor. Shares in PCCW have suffered a spectacular collapse since acquiring HKT, partly due to concerns over the debt amassed to finance the deal. Negative sentiment against telcos worldwide has buffeted SingTel shares, but it has also sent international competitors such as British Telecom (BT) scuttling out of Asia. Last year, SingTel would have paid top dollar to expand. This year, there are bargains because telco valuations have fallen by 40% to 60%. "For a while people would have had us believe that some of the basic rules of physics had been suspended, and the apple wouldn't fall to the ground," Lee says. "But the laws of finance and sound strategy still apply."
While Singapore's domestic market may be almost tapped out, there is still some action back home. SingTel will compete with foreign firms in open bidding for 3G licenses sometime in the next few months. Regulators are liberalizing the sector two years ahead of schedule, but SingTel was paid handsomely for this inconvenience through a $489-million government compensation package. Competitive pressure hasn't hit gale force. Recently announced quarterly results surprised analysts. SingTel's profits were up 27% to $855 million. Moreover, the company is losing market share at home, but slowly. It still claims 60% of the cellular market and 80% of international calls. "Domestic deregulation is a concern, but competition hasn't bitten yet," says Zaman, the ING Barings analyst. "SingTel has time to regroup."
Lee appears to have learned his lesson from the HKT media circus, and the company is keeping quiet about potential deals. But besides Cable & Wireless Optus — for which a bid of up to $10 billion is expected — Singtel is said to be eyeing the Asian assets of BT. They include stakes in mobile phone carriers in Malaysia (Maxis), South Korea (LG Telecom) and Hong Kong (SmarTone). If it does both deals, analysts say the company will emerge as the dominant regional telco. The Optus deal would be sweet revenge; SingTel would compete with Australia's Telstra in its home market. Telstra financed PCCW's takeover of Cable & Wireless HKT and the Aussie giant is PCCW's wireless partner.
The knives will be out if Lee can't acquire Optus. A competing suitor, Telecom New Zealand, is cash-poor. Vodafone has the wherewithal, but Australian regulators say they will block a Vodafone deal on anti-competitive grounds. SingTel appears to be a shoo-in. Lee seems prepared to take criticism in stride should it all unravel. "It's easy to view the world in black-and-white terms," he says. "In reality it's much more complex than that." He can only hope that SingTel shareholders and directors understand complexity.
SINGTEL GOES SHOPPING - AND THE STOCK GETS A BUMPY RIDE
January 2000: PCCW's once-laughable rival bid for HKT gains credibility
March 2000: SingTel shares sink as the Singapore government deregulates its telecom market. SingTel faces competition for the first time
May 2000: Proposed alliance with Time Engineering falls apart after Malaysian government gets leery at Singaporean ownership. Lee Hsien Yang gets flailed in the press; SingTel shares drop further
June 2000: Enters $1.5 billion Asia-Pacific submarine-cable project. Shares rise on the news that SingTel is actually doing something with its money
Aug 2000: Invests $400m in India's Bharti Group. Investors like the big-market potential
Sept 2000: Shares peak when the government compensates SingTel for speeding up deregulation
Oct 2000: A mysterious - and massive - late buy order sends SingTel shares into a late-in-the-day blip
November 2000: Shares creep up on news SingTel is in talks to take over Australia's Optus
December 1999: Speculation about a possible bid by SingTel for HKT reaches fever pitch
asiaweek.com |
