SingTel profits by casting a wide net
International Herald Tribune
July 5, 2005
Wayne Arnold

SINGAPORE Early in June, Singapore Telecommunications reached out to Bangladesh, taking a 45 percent stake in the country's third-biggest cellular operator, Pacific Bangladesh Telecom.
 
Such long-distance shopping trips have become standard operating procedure at Singapore Telecommunications, already the largest phone company in Southeast Asia. With a tiny home market already stuffed with phones of all shapes and sizes, SingTel long ago realized that its future would depend on undeveloped markets like Bangladesh.
 
"They're in a saturated market, so they've looked to emerging markets," said Eleana Liew, Asia-Pacific cellular market analyst at Gartner. In the first quarter, SingTel posted a 22 percent increase in profit before exceptional items, thanks largely to a 29 percent increase in pretax earnings from its overseas investments.
 
"They've picked the right companies," said Yasmin Wirjawan, regional telecommunications analyst at Standard & Poor's.
 
SingTel has investments in 20 countries, with stakes in cellular operators in six, including full ownership of the big Australian mobile phone company, Optus. Operations outside Singapore now account for 70 percent of SingTel's revenue and two-thirds of its pretax earnings.
 
It is not difficult to understand why. Singapore has only 4.3 million residents, four out of every five with a cellphone. SingTel's revenue at home rose just 3.7 percent in the first quarter, with its international call revenue falling 12 percent. SingTel declined to let its executives be interviewed.
 
Flush with cash from its days as a monopoly, a position it held until 2000, SingTel's forays overseas began in 1993, when it bought a 37 percent stake in a Philippine cellular operator, Globe Telecom. SingTel has since raised its stake in Globe to 44.6 percent.
 
In 1999, it paid 716 million Singapore dollars, or $424 million, for a 21.5 percent stake in Advanced Info Service, Thailand's largest cellular operator and a company controlled by the family of the Thai prime minister, Thaksin Shinawatra.
 
In 2001, SingTel established a beachhead in India, buying a 31 percent stake in Bharti Tele-Ventures, a stake it has since increased to 33 percent.
 
The same year, SingTel made what has arguably been its most profitable investment so far, paying $602 million for 22.3 percent of the leading Indonesian cellular operator, Telekomunikasi Selular Indonesia, or Telkomsel, a stake it raised to 35 percent in 2002.
 
Growth in customers at these overseas affiliates eclipses that at home. In the first quarter, Globe increased its subscriber rolls by 42 percent, Advanced Info and Bharti by 12 percent and Telkomsel by 66 percent. And each of the four operators has more subscribers than Singapore has people.
 
SingTel's expansion efforts have suffered some setbacks. In early 2000, it was outbid by Pacific Century CyberWorks, an Internet start-up company run by the brash Hong Kong tycoon Richard Li, for the Hong Kong unit of Cable & Wireless. Later that year, the Malaysian prime minister at the time, Mahathir bin Mohamad, quashed a deal for SingTel to buy the telecommunications interests of his country's most heavily indebted conglomerates.
 
Part of Mahathir's reservations stemmed from the fact that SingTel is still controlled by the Singapore government; the government investment arm, Temasek, owns 67 percent of the company. SingTel's president is the brother of Singapore's prime minister.
 
Those connections became an issue again in 2001 when SingTel made its biggest bid, the $7 billion purchase of Optus from Cable & Wireless. SingTel needed not only to overcome Australian regulators and opposition to foreign influence but to win the approval of the U.S. Defense Department, some of whose communications were carried by Optus satellites.
 
The Optus purchase left many investors and analysts complaining that SingTel had overpaid for an asset in a mature market. It is difficult to find analysts who say that now. Optus has continued to grab market share from the former monopoly Telstra, and it contributes 38 percent of SingTel's pretax earnings.
 
"They're very disciplined and opportunistic," said Craig Irvine, a telecommunications analyst at Macquarie Securities. "They bought Optus when Optus was a successful new entrant with a lot of value to be created."
 
Still, the company said its profit for the 12 months through March 30 fell to 3.27 billion dollars from 4.49 billion dollars a year earlier. Sales rose 5.2 percent, to a record 12.62 billion dollars.
 
SingTel's investments not only provide new sources of growth but enable it to cut costs by allowing its various units to negotiate as a group with equipment providers, analysts say. And unlike many telecommunications companies that invest abroad, they say, SingTel is a hands-on shareholder that meets regularly with its affiliated operators.
 
The result? In November, SingTel announced that it had established a regional mobile group called Bridge Mobile Alliance with six other Asian cellular operators, including Bharti, Globe, Telkomsel and Optus, to build a regional infrastructure and develop regionwide services.
 
SingTel's Asia focus has prompted it to sell off noncore assets like stakes in local postal operations and Yellow Pages publishers.
 
Last year, it also sold its 12 percent stake in Belgacom, the dominant Belgian phone company.
 
The biggest worry for SingTel now, analysts say, is that it is running out of markets it can easily buy into. China and Taiwan remain potential targets, but getting into unplowed markets in Vietnam means dealing with regulators.
 
Analysts said that new markets may have to come at a premium. "There's not so much room to expand anymore," Wirjawan of S&P said.

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