INTERVIEW: Australia's Telstra May Rejig PCCW JV Stakes
May 3, 2001
Dow Jones Newswires
By GRAHAM MORGAN
Of DOW JONES NEWSWIRES
SYDNEY -- Telstra Corp. (TLS) and Pacific Century CyberWorks Ltd. (H.PCW) may rejig the ownership of their pan-Asian joint venture vehicles to ease future acquisitions, but their alliance doesn't preclude either making independent acquisitions, says Dick Simpson, head of Telstra's international division.
Telstra and PCCW are pursuing acquisitions for joint ventures Regional Wireless Company and Reach and will consider various scenarios that may include changing their respective ownership of the companies. But Telstra won't use its cash-rich position to force PCCW to relinquish any stakes, Simpson told Dow Jones Newswires in a telephone interview from Hong Kong.
Australia's largest telecommunications company, which is 50.1% controlled by the government, already has the upper hand in its alliance with Richard Li's Hong Kong-based Internet company.
Telstra has a 60% stake in Regional Wireless, which holds CSL, the mobile arm of Hong Kong Telecom. Telstra also owns 50% of Reach, an Internet infrastructure joint venture, and 50% of a data joint venture that has no assets but is designed to house data-switching centers. PCCW has the remaining stakes in the ventures.
The aggressive approach toward rapidly expanding the ventures has prompted analysts to question how cash-strapped PCCW will be able to participate in any purchase.
The obvious way would be to surrender part of its stakes in the ventures, which could ultimately give Telstra control of Reach as well.
Asked whether either stake could be changed, Simpson said the original agreement with PCCW was intended to be "fluid", allowing both companies to move within mutually agreed parameters.
"For example, let's take the Regional Wireless Company. Just because we're sitting at 60:40 at the moment doesn't mean to say that every deal we would ever do we'd be at 60% and they'd be at 40%," Simpson said.
Simpson noted that changing the shareholdings in the mobile telephone company would likely be easier than changing the equal stakes in the Internet venture, which would give either party control of Reach.
"It is possible, in some scenarios, that that (a change of ownership of Reach) could be an outcome, but it would be an agreed outcome rather than a forced outcome," Simpson said.
"With Reach it's a 50:50 (partnership) and it's probably harder to move away from that exact position...but it's not an outcome any of us have talked about and it's not an outcome we're looking for," he added.
Acquisitions On Horizon
Simpson said he won't be "deliberately financially engineering" for Telstra to gain control of Reach or to get a larger slice of the mobile joint venture, because PCCW is less likely to be able to inject cash into future acquisitions.
One thing is for sure, however, Simpson doesn't want to rejig the stake in the mobile joint venture to the extent that Telstra would lose control of the business.
"There's no question about it," he said.
Acquisitions are on the horizon for both joint ventures, and as Chief Executive Ziggy Switkowski said when he appointed promoted Simpson to his current position late March, Telstra may make acquisitions independently of PCCW.
Simpson confirmed Telstra could make acquisitions in Asia without PCCW, but would talk to Richard Li's management team before making any decisions. If Telstra is interested in an acquisition and PCCW isn't, or vice-versa, Simpson said, there could be a purchase by either company without the involvement of the other partner.
But for the time being this looks unlikely, perhaps with the exception of potential forays into China and South Korea by Telstra, telecommunications analysts say.
Outside of its joint ventures with PCCW, Telstra has a 60% stake in Mobitel joint venture with Sri Lanka Telecom Ltd., which holds the remaining stake, and a business cooperation contract with Vietnam Post & Telecommunications Corp. to develop the nation's telecommunications network.
Since Simpson's appointment, much of the market's focus has been on the two companies expanding the mobile joint venture and a potential bid for Singapore's second-ranked telecommunications company MobileOne Pte. Ltd., better known as M1.
MobileOne's shareholders are Keppel Transportation & Telecommunications Ltd. (P.KTT) and Singapore Press Holdings Ltd. (P.SPH) with 35% each. The remaining 30% is jointly held by the U.K.'s Cable & Wireless PLC (CWP) and PCCW.
Telstra already has a relationship with Keppel in Singapore through Harmony Telecommunications, a joint venture between Telstra Holdings Pty. and DataOne Corp., a unit of Keppel.
An executive at PCCW told Dow Jones Newswires in early April the Regional Wireless joint venture had "expressed an interest" in bidding for MobileOne, but Simpson was unwilling to state his position.
"I'm not confirming or denying anything," Simpson said, when asked whether a bid for MobileOne is looming.
But his view on Vodafone Group PLC's (VOD) recent purchase of British Telecommunications PLC's (BTY) holdings in Japan Telecom Co. (J.JTC) and J-Phone earlier this week gives a clear indication of Telstra's expansion strategy in the region.
"We tend not to think so kindly about having minority positions like that. It's really hard to add value and therefore improve the value of a property," Simpson said.
Asset Margins Grow
Acquisitions won't only be in the mobile sector as Telstra and PCCW also want to bolster the Reach Internet infrastructure joint venture.
"Reach hasn't got the full complement of assets yet," Simpson noted. "But with either of these (joint ventures), we've got good businesses the way they are, there's no desperate need to go into anything tomorrow."
The financial details of PCCW's assets that were tipped into the joint ventures when they were finalized in February, were released late March along with PCCW's earnings.
The assets showed strong revenue streams, especially Hong Kong Telecom, which grew its earnings before interest, tax, depreciation and amortization margin to 23% in 2000 from 18% the year before.
-By Graham Morgan, Dow Jones Newswires;
61-2-8235-2962; graham.morgan@dowjones.com
-0- 03/05/01 11-37G
Simpson said he won't be "deliberately financially engineering" for Telstra to gain control of Reach or to get a larger slice of the mobile joint venture, because PCCW is less likely to be able to inject cash into future acquisitions.
One thing is for sure, however, Simpson doesn't want to rejig the stake in the mobile joint venture to the extent that Telstra would lose control of the business.
"There's no question about it," he said.
Acquisitions are on the horizon for both joint ventures, and as Chief Executive Ziggy Switkowski said when he appointed promoted Simpson to his current position late March, Telstra may make acquisitions independently of PCCW.
Simpson confirmed Telstra could make acquisitions in Asia without PCCW, but would talk to Richard Li's management team before making any decisions. If Telstra is interested in an acquisition and PCCW isn't, or vice-versa, Simpson said, there could be a purchase by either company without the involvement of the other partner.
But for the time being this looks unlikely, perhaps with the exception of potential forays into China and South Korea by Telstra, telecommunications analysts say.
Outside of its joint ventures with PCCW, Telstra has a 60% stake in Mobitel joint venture with Sri Lanka Telecom Ltd., which holds the remaining stake, and a business cooperation contract with Vietnam Post & Telecommunications Corp. to develop the nation's telecommunications network.
Since Simpson's appointment, much of the market's focus has been on the two companies expanding the mobile joint venture and a potential bid for Singapore's second-ranked telecommunications company MobileOne Pte. Ltd., better known as M1.
MobileOne's shareholders are Keppel Transportation & Telecommunications Ltd. (P.KTT) and Singapore Press Holdings Ltd. (P.SPH) with 35% each. The remaining 30% is jointly held by the U.K.'s Cable & Wireless PLC (CWP) and PCCW.
Telstra already has a relationship with Keppel in Singapore through Harmony Telecommunications, a joint venture between Telstra Holdings Pty. and DataOne Corp., a unit of Keppel.
An executive at PCCW told Dow Jones Newswires in early April the Regional Wireless joint venture had "expressed an interest" in bidding for MobileOne, but Simpson was unwilling to state his position.
"I'm not confirming or denying anything," Simpson said, when asked whether a bid for MobileOne is looming.
But his view on Vodafone Group PLC's (VOD) recent purchase of British Telecommunications PLC's (BTY) holdings in Japan Telecom Co. (J.JTC) and J-Phone earlier this week gives a clear indication of Telstra's expansion strategy in the region.
"We tend not to think so kindly about having minority positions like that. It's really hard to add value and therefore improve the value of a property," Simpson said.
Acquisitions won't only be in the mobile sector as Telstra and PCCW also want to bolster the Reach Internet infrastructure joint venture.
"Reach hasn't got the full complement of assets yet," Simpson noted. "But with either of these (joint ventures), we've got good businesses the way they are, there's no desperate need to go into anything tomorrow."
The financial details of PCCW's assets that were tipped into the joint ventures when they were finalized in February, were released late March along with PCCW's earnings.
The assets showed strong revenue streams, especially Hong Kong Telecom, which grew its earnings before interest, tax, depreciation and amortization margin to 23% in 2000 from 18% the year before.
-By Graham Morgan, Dow Jones Newswires;
61-2-8235-2962; graham.morgan@dowjones.com
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