The worst outcome for Optus would be the status quo
By STEPHEN BARTHOLOMEUSZ
Wednesday 28 March 2001
One of the curious aspects of the reaction to Singapore Telecommunications' bid for Cable & Wireless Optus is the near-universal conclusion that it will be good for consumers.
It might be, but you wouldn't bet your telephone bill on it.
However, it would seem reasonable to conclude that the SingTel bid is better than the status quo. Under the control of Cable & Wireless plc, a group that changes strategy as frequently as it changes its leadership, Optus has known it would receive little support to develop any of its businesses other than business and data.
The absence of support from its major shareholder has limited Optus' ambitions in its wireless and consumer businesses, although wireless is its biggest success story.
SingTel, with its commitment to maintaining Optus as a full-service carrier is, therefore, a plus for Optus. SingTel has the capacity, and will have the need, to support all Optus' businesses, although it has flagged the possibility of introducing a partner to the consumer and multimedia division.
Given the success of Optus' bundling strategies, that might seem to be the most pro-competitive outcome.
It ain't necessarily so.
While Telstra might be concerned about the emergence of a regional player with a strong local beachhead to challenge its post-Pacific Century CyberWorks status as a regional heavyweight, within Australia it knows that it will be largely business as usual.
There are no synergies for SingTel in the Australian business, although there may be limited gains where the Optus business interacts with SingTel in international carriage.
SingTel will have paid, however, depending on where its share price settles something to the north of $15 billion for Optus.
SingTel has been probably the most highly valued telco in the globe. That is more a function of the tightness of the free float in the market for its shares than its performance. The Singapore Government has a 78 per cent stake.
SingTel is sacrificing a big slice of its premium rating to grab Optus' earnings and prospects, using its over-valued scrip as currency.
The collapse under way in the SingTel share price is not completely bad news for SingTel, because the ideal outcome for it is probably to acquire the C&W plc stake in Optus and not much more. If the SingTel and Optus share prices continue tumbling, that may well be the result.
However you dress it up, it is difficult to escape the conclusion that, from its perspective, SingTel is paying a big price for control of Optus.
That will discipline its behavior in the near to medium term and disappoint those who believe the takeover will lead to greater intensity of competition within the local telephony market. An Optus controlled by SingTel might be better equipped to compete with Telstra than an Optus controlled by C&W, but that doesn't mean that it will be a fiercer competitor than it has been.
The priority for the foreseeable future for Optus will be in generating shareholder returns, not consumer benefit. The last thing SingTel wants to do is attack Telstra head on; it will be a more comfortable industry for both if they co-exist.
Had Vodafone got up with its wireless-focused ambition of acquiring Optus and then selling off everything but wireless (where it would also have had to shed customers to satisfy the Australian Competition and Consumer Commission), Telstra might have faced a greater threat, given the significance of wireless to its profitability.
Vodafone wants to be the number-one or two player in wireless in all the big markets. Acquiring Optus would have made it number two and not far short of Telstra in terms of market share: about 40 per cent of the market versus Telstra's 46 per cent.
Vodafone would also have gained access to substantial synergies from integrating the Optus infrastructure and customer base with its own and its enhanced scale would have made it easier for it to pursue a more aggressive 3G strategy.
If Telstra wanted to turn the screws on SingTel and Vodafone in the wake of the Optus auction outcome, it could now accelerate its 3G roll-out and leverage off its scale advantages. Whether it does that or not, the rate of roll-out of 3G services in this market is now Telstra's call rather than something its competitors can impose on it.
Thus, while it may not be all that pleased at the emergence of a rival in its ambition of becoming a regional player, Telstra won't be displeased at the outcome of the protracted Optus auction.
The shock announcement last night that Publishing and Broadcasting's CEO Nick Falloon, a long-serving PBL employee, will be displaced by Melbourne investment banker Peter Yates is an indication that the Packer family is preparing for a major shift in strategy.
Yates, who heads the telecoms and media group at Macquarie Bank, is a career investment banker without a management track record. What he does have, however, is an ability to think strategically and a reputation as an aggressive negotiator. He is also close to James Packer.
Yates built Macquarie's gaming practice and, from his exposure to media and telecoms, has a good understanding of all the industry sectors within which PBL operates.
PBL has, through Crown, a strong but discrete interest in gaming. In Nine it has the leading TV network. It is the dominant magazine publisher. It owns 25 per cent of Foxtel and is a key shareholder in One.Tel. In ecorp, it has a major position online and a major asset in the nine.msn relationship.
It generates around $700 million in earnings before interest, tax, depreciation and amortisation, with rapidly declining capital expenditure requirements.
Despite its strength, however, its future isn't guaranteed.
The regulatory protection for its TV interests will fall away later in the decade. The regulatory environment for gaming is starting to look threatening. Negotiations to equalise the Foxtel partnership and transform the business into a digitised, interactive broadband business have stalled.
PBL has to find ways to build growth into and leverage off its TV, magazine and casino interests while finessing the regulatory regimes.
Eventually, the development of broadband and the era of 3G wireless will create opportunities for greater convergence between the PBL divisions and interests and greater threats to its leadership.
The Packers have chosen Yates not so much to manage the old businesses, which all have their own senior operational management, but to map out and execute a transition of those businesses into that convergent environment. He is to be a strategist rather than a hands-on manager.
It is a bold move and a risk for the Packers to swap a tried and tested executive like Falloon for the bright but unproven Yates; but, then, that is their trademark.
bartho@theage.fairfax.com.au
This story was found at: theage.com.au |
