Deal closer for Telstra's HK arm
By Richard Gluyas
30jul01
UNTIL last week, the main focus on expansion opportunities for Telstra's Asian wireless joint venture was a cross-border acquisition of Singapore's number two cellular player, MobileOne.
Now, after a maiden briefing on Thursday from new Regional Wireless Co chief executive Hubert Ng, it appears that a deal much closer to RWC's Hong Kong base is just as prospective.
There are a number of forces coming together in Hong Kong which are pushing the country's heavily populated mobile market towards a round of consolidation.
The first is a lack of profitability, with Ng arguing convincingly that RWC is the premier Hong Kong player. Not only is it the only one of six licensees earning a profit, it also has the highest revenue share of the market at more than 30 per cent.
This compares to its 21 per cent share of the mobile market, and reflects RWC's leadership in average revenue per user of $HK453 ($113) a month for the year to December.
The industry, on the other hand, earned $HK257 a month, down about 10 per cent.
While the search for elusive profits will drive consolidation, Ng put Hong Kong's looming 3G auction in the same basket.
The Government has decided to issue only four licences, which means two of the country's six operators will have a vital interest in a restructuring of the industry.
Ng also intimated RWC was weighing a bid for a 3G licence in Taiwan but played down the chances of success. Market penetration was high and a good business case was difficult to formulate, he noted.
The Hong Kong and Taiwanese expansion options were raised amid a flurry of recent reports concerning an unexpected bidding war for MobileOne. RWC and Malaysia's Maxis Communications were said to have increased their bids from $US1.2 billion ($2.3 billion) to $US1.6 billion. There was speculation in Singapore that the RWC bid included a convertible note exchangeable into RWC stock.
Suggestions Telstra might again pay an inflated price for Asian assets were anathema to the market. The next day, chief executive Ziggy Switkowski fronted analysts and the media for more than two hours and hosed down the MobileOne reports.
"You can argue . . . that you have to pay a premium for either control, or to buy a prized seat at a relevant table, which we did (with RWC)," he said. "Thereafter you cannot make that argument. So any investments we make will meet clear financial expectations, and I will not have to stand up here and be very creative in justifying them."
Telstra, even so, has a long way to go to retrieve the value surrendered in building its holding in RWC. Telstra paid $US1.68 billion for its 60 per cent stake, implying a $US2.8 billion valuation for the whole group.
Deutsche now values RWC at $US1.8 billion, which equates to a prospective writedown for Telstra's share of at least $US600 million.
gluyasr@theaustralian.com.au
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