BusinessWeek. ASIA'S TELECOM PLAYERS: STRUGGLING TO STAY PLUGGED IN (int'l edition)
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As the crisis drags on, telecom
companies across Asia are in trouble
It was one of the great booming businesses in Asia. Millions of newly affluent
urban dwellers needed phones, and dozens of companies, from telecom
multinationals to local providers, rushed in to meet that need. Investors gladly
ponied up billions to get a piece of the action. But even the telecom industry is
encountering difficulties in this promising market as the crisis drags on. In many
areas, the supply of phone lines now far outstrips demand. Companies with huge
ambitions are either struggling to pay off huge debts, fighting off rivals, or waiting
desperately for concessions from local governments. Two stories highlight the
turmoil. One details the plight of Bangkok's TelecomAsia, a stock-market darling
that has fallen far. The second looks at the battle to determine the prevailing
cellular-phone standard for China.
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THAILAND: A GIANT FALLS
HARD (int'l edition)
TelecomAsia, once a market darling,
sends out an S.O.S.
For a man who spends his days selling off assets and laying off employees,
Vallobh Vimolvanich seems in surprisingly good spirits. The vice-chairman of Thai
telephone operator TelecomAsia (TA) bounds around the conference room at the
compaNy's Bangkok headquarters, energetically drawing charts on awhite board,
explaining TA's survival strategy. This is a no-brainer: You just close whole
divisions. Sell others. Cut the workforce by a third. TA has gone through ''a
drastic downsizing,'' he says cheerfully.
Admittedly, there is a touch of black comedy about Vallobh's predicament. A
few short years ago, foreign bankers and businesspeople were begging him to
take their millions. They leaped on the chance to get in on the Asian telecom
market and to team up with CP Group, the Thai conglomerate that controls TA.
Now, these would-be wooers either avoid TA like the plague--or dun Vallobh
for the payment of debts. Yet despite drastic restructuring, TA doesn't seem to
have a chance of serious recovery anytime soon. And if TA, a Thai blue chip,
cannot recover its health, it's unclear how any of Thailand's top companies will get
back in the black.
TA's problems have actually worsened in the past few weeks. In late August, it
reported second-quarter losses of $32 million, a result of collapsing demand in
the Thai market. It has become apparent that an expensive and risky
mobile-phone venture is turning sour. And despite a frantic search for new
investors, TA still has no new partner and no new resources to pay down almost
$1 billion in unhedged, dollar-denominated debt.
WRONG MOVE. The moral of the TA story: Don't believe your own hype. CP
Group Chairman Dhanin Chearavanont got into telecoms when he decided to turn
his poultry, shrimp, and feed empire into a diversified conglomerate. He easily
used his political connections in 1991 to get government approval to start
Bangkok's only private, fixed-line telecom service. Soon, Bell Atlantic Corp.'s
Nynex signed on as a minority partner to provide the technological knowhow.
An initial public offering in 1993 raised an impressive $500 million, which TA
used to invest in such ventures as a satellite company and cable-television
operator. And even after the start of the crisis in July, 1997, TA officials said they
would have no trouble handling their hard-currency debt.
They got that wrong. Thailand's depression is so severe that half of TA's 2.6
million phone lines now lie unused. Cash flow can just cover interest payments,
but some major payments of principal are due later this year. Now, it's imperative
to reschedule debt. ''If creditors are willing to give us some breathing room, we
should be able to fulfill our commitments,'' says Vallobh hopefully.
Executives have started meeting regularly with creditors like NEC, Siemens, and
Lucent to update them on TA's huge debt burden. Partner Bell Atlantic has sent
officials from New York to help local management get out of its mess. The
government may provide some relief, too, by letting TA back out of a deal to pay
big annual fees in return for its concession.
TA management is also seeking an outside savior, talking with local rivals like
Shinawatra as well as foreign telecom operators. ''We have to get new partners,''
says Vallobh. ''It's a matter of survival.'' Meanwhile, all Vallobh can do is keep
selling bits and pieces at depressed prices. A stake in a Chinese satellite company
is long gone, as are a construction company and joint venture in mobile phones.
Next to go may be an 18% stake in a Bell Atlantic fiber-optics venture and TA's
piece of the cable-TV company it merged with Shinawatra's operation.
More money is probably needed. With the Thai stock market in tatters, selling
new shares is not an option. Foreign operators might still come to the rescue, but
they are in no rush. ''It's very much a buyer's market,'' says Joan Kiernan,
regional telecom analyst for ABN-Amro in Hong Kong. TelecomAsia can only
hang on, waiting for a savior who may not come.
By Bruce Einhorn in Bangkok
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Updated Sept. 17, 1998 by bwwebmaster
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