SingTel shows it can win
Friday, January 25, 2002
FEATURE
BEN KWOK
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Success is the sweetest revenge. Singapore Telecommunications (SingTel) appeared to suffer a colossal defeat when two years ago it lost out in the takeover battle for Hong Kong's former telecoms monopoly, Cable & Wireless HKT, to a fledging Internet company.
As champagne corks popped over at Pacific Century CyberWorks and Richard Li Tzar-kai gushed of his dream "to create another Sony", SingTel beat a humble retreat. It may have been a blessing in disguise.
Consider the contrast in fortunes experienced by the two companies since. SingTel embarked upon an expansion binge, sinking millions into five Asian telecom operators, bringing it closer to its target to generate more than half of its revenue from outside Singapore.
In contrast, CyberWorks is struggling for growth. The company has paid more attention to its debts, making little progress in expanding beyond Hong Kong.
SingTel chief executive and president Lee Hsien Yang - son of statesman Lee Kuan Yew - now appears to have the upper hand.
The two companies were once very similar in terms of market capitalisation and turnover.
"It does not seem that they [CyberWorks] have created a lot of presence, particularly in the mobile area . . . they said they want to do things, they have not actually today made any investments," Mr Lee remarked when asked about his competitor's progress in Asia.
SingTel insists it is not a case of sour grapes. It points to its own expansion in Asia - but this still does not encompass Hong Kong and China.
This is not for lack of speculation that it will seek opportunities there - SingTel's name pops up regularly around Asia at the mention of a pending merger or acquisition. This is particularly true for Hong Kong and Malaysia, where it does not have a mobile foothold.
Mr Lee denied any desires for domination.
"It is not a monopoly board, you know, that we have to buy every square on the map. We think we have significant presence in major key markets, markets that have significant growth opportunity.
"If you look at the kind of growth Indonesia had last year, the year-on-year revenue and subscriber growth was 65 per cent to 70 per cent.
"You tell me which Hong Kong mobile company can generate this kind of revenue growth and profit," he said.
Although denying he was wary of investing in Hong Kong, Mr Lee said he had not made a foray into the SAR market because of the level of competition, not because he had had his fingers burned over HKT.
"Frankly, from our point of view, we have moved on. It is history. We will never be interested [in HKT again], and it serves no purpose to trawl over what is in the past.
"We thought, and we still feel, that there was a point in the deal at which it did not make sense, whether from pricing or from the terms associated with the deal. I think with the benefit of 20-20 hindsight, most people would agree that we did the right thing."
Mr Lee and Mr Li have not met in the past two years. The latter has not visited Singapore during that time, even though his flagship company Pacific Century Regional Development is listed there.
"Richard is welcome to come to Singapore. We have no issues," said Mr Lee.
SingTel has been too busy to dwell on the past. Fourteen months after its botched attempt to take over C&W HKT, it approached Cable & Wireless again, this time for its Australian asset Optus. It sealed a US$9 billion deal in October. SingTel also made a S$1.08 billion (about HK$4.5 billion) investment in Telkomsel, the largest mobile operator in Indonesia, acquiring a minority 22.3 per cent stake.
It thus racked up its fifth major overseas mobile investment last December, the others being in the Philippines, Thailand and India.
"If you look at the track record that we have had, versus some of the European or the US operators and what they have or have not done with their businesses and investments in the region, I would say that the returns and the results have been very, very good. We are No 1 or No 2 in all the markets that we are in," said Mr Lee.
He boasts 17 million to 18 million mobile subscribers to date, with only 1.6 million in Singapore.
SingTel, 65 per cent-owned by the Singapore Government, decided to seek growth outside the Lion City after it realised it could no longer solely rely on its international direct dial revenue. Listed in 1993, it carried the hopes of a million Singapore shareholders to find the right formula to invest in Asia.
It found comfort in the Asian wireless market. Mr Lee, who took the helm as chief executive in 1994, started shopping overseas in 1999 when he agreed to invest in Thailand's No 1 mobile operator, Advanced Info Service.
The company subsequently poured more than S$15 billion into three mobile operators, the largest of which was Optus. The Optus deal ranked as the largest overseas investment for a Singaporean company. Yet there were voices of dissent - as there had been with the HKT deal - primarily focused on national security issues.
"Economic interests [of our shareholders] are our only agenda. There are government entities that have all kinds of agendas, but were are not [one of them]," Mr Lee insisted.
Yet it was not easy for the pan-Asian mobile operator to justify its minority position in various countries, particularly with a significant amount of capital being invested.
Mr Lee believes foreign shareholding limits in Asia are less than ideal.
"We can take the view that we don't want to do this because it is a minority position and wait forever for an opportunity which may never arise. Or we will try to make the best of the opportunity there is today.
"There is still an opportunity to create value and we have done that. We worked the partnership very hard."
He pointed to SingTel's associate Global Telecom in the Philippines. It took a 23.9 per cent stake in the operator in 1993. It is now on a par with the dominant operator, Smart Communications.
The only similarities Mr Lee and Mr Li seem to have these days is in their academic past - both were Stanford students in the 1980s. Unlike Mr Li, Mr Lee completed his degree.
Their family background is not dissimilar, however. They are both second sons seeking to walk away from the shadow of their famous fathers and elder brothers.
Mr Lee's brother, Hsien Loong, is Singapore's Deputy Prime Minister, while Victor Li Tzar-kuoi is the managing director of Cheung Kong (Holdings) and deputy chairman of its associate, Hutchison Whampoa.
Hutchison has earned the respect of Mr Lee. It is a head-on competitor with SingTel in India, Australia and Thailand.
"Hutch has been astute in the way they managed assets in the past, and certainly they exited Orange at a extremely good time," he said.
Hutchison will emerge as a major third generation (3G) player in Europe this year. Mr Lee believes its decision to plough money into Europe - and whether it was a wise move - is a topic that remains open.
"We think that 3G makes sense for existing operators who have a strong subscriber base. For brand new operators that try to build the infrastructure from scratch, depending on the kind of rules that the regulator puts on infrastructure sharing and 2G roaming arrangement to other 3G networks, it can be a very difficult task.
"I think the fact that we didn't take part in the 3G auction in Hong Kong also reflects how we feel about the opportunities."
SingTel and CyberWorks also have diverging views when it comes to China.
While CyberWorks executives recently pinned their hopes on the mainland as a generator of up to 50 per cent of the company's revenue, Mr Lee is more cautious.
"We think China is an interesting market, but one has to find the right yield.
"A lot of people are very interested in China, and not many people have got success stories to come away with," Mr Lee explained.
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