Chanticleer: This New Player Spells Trouble For Telstra
John Durie
03/26/2001
Australian Financial Review
Page 11
Copyright of John Fairfax Group Pty Ltd
Ziggy Switkowski's worst competitive nightmare may be about to unfold if Singapore Telecommunications can convert its early advantage into control of Cable & Wireless Optus.
The Singapore carrier represents trouble for Telstra, because both are cash-rich incumbents in their domestic markets at a time when cash is king, and Telstra claims a tactical advantage over rivals because its integrated structure allows it to bundle products to maintain customer loyalty.
SingTel is also a fierce competitor in Asia, which Ziggy regards as his international growth option.
While Telstra faces question marks about its Pacific Century CyberWorks links, SingTel is a well-established and connected Asian player.
But the game still has a long way to run and today's announcement that Optus parent Cable & Wireless plc has agreed to sell 20 per cent of its stake to SingTel simply gets the game going, albeit with a real advantage to the Singaporeans.
The chances of a bidding battle eased somewhat yesterday, when Vodafone said it would not push ahead with an offer for Optus.
Vodafone had been discussing a proposal with the Australian Competition and Consumer Commission, which has abandoned its policy of first testing whether an integrated carrier would pose the best competition for Telstra against a niche player, and instead will focus on competition in the mobile telephone market.
Vodafone was relying on future practices rather than existing market share, selling the benefits of a supposedly well-funded Hutchison Telecommunications and perhaps New Zealand Telecom as the new competitive threats.
The big danger was that the two mobile giants, Telstra and Vodafone, would settle into a cosy duopoly.
SingTel is presenting the best competitive threat, but Telstra's control of the local phone loop still gives it a clear advantage.
The Singapore carrier has offered a substantial cash offering of up to $4 a share in an offer worth $4.50 a share, to win acceptance from Cable & Wireless plc.
Just whether the cash alternative is worth more than one with more scrip will depend in part on how long this battle takes and whether telephone stocks win back lost sentiment.
Australian shareholders also have to consider that a scrip alternative means capital gains tax rollover relief.
In an age of dual-listed companies, the SingTel-Optus tie would boost the Australian Stock Exchange's dream of building an Asian stock exchange base.
But now all depends on how Vodafone fares with the ACCC in a meeting today, just as the SingTel offer will be released and as the regulators' decision is due later in the week.
SingTel was advised by Morgan Stanley and Blake Dawson Waldron, while Cable & Wireless plc was advised by Merrill Lynch and the Optus independent directors by JP Morgan.
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