Telecom Asia: Singapore Telecom has done well buying assets around the region. Is that going to continue?Chua: Our focus has moved to execution and improving the return from existing business. You would have seen from the results we have announced for the last year that we have a sustained turnaround in Optus, our wholly-owned investment in Australia, and a number of other associates in the region have also done extremely well.
We will be focusing on how we can improve the return from these investments we have made. I think where the opportunity presents itself what we would like to do is to increase our stakes in the associates we have now invested in. But we recognize that that's not something that we could achieve overnight.
Is that simply because in a number of your associates you are a minority shareholder?
When we first made investments in a number of those countries, including Thailand, the Philippines, their foreign shareholding limits prevented us from acquiring a controlling stake in any of those companies ... We have in all cases negotiated significant governance rights, so although we are a significant minority shareholder, we do have governance rights which will ensure that our interests are protected.
We think that increasing our stakes makes sense because these are businesses we know well and have been involved in. From a financial perspective, it means the risk is a lot lower and the outcome is a lot clearer to us.
Was it primarily because of Optus that your results improved this year?
In the last 18 months we have been focusing not just on revenue growth but on cost control; a whole series of improvements they have made in marketing, financial control and other arrangements. I think the last year alone Optus had a five percentage point improvement in its operating margin.
Is the uncertainty over the planned sell-off of the government's stake a destabilizing factor for SingTel?
Actually, nothing has really changed. I think the government has always said that they are prepared to sell down SingTel. What [Trade and Industry] Minister George Yeo had said in his fetter to the US Ambassador about selling down SingTel--to us it's really nothing new, because the government has said on many occasions that they are prepared to sell down their stake in Singtel.
But as you can see in the letter and also in Temasek's subsequent press statements there's actually no time flame set for divestment. Another very practical issue: if you look at SingTel's market cap and you look at the size of Temasek's stake. This is not a divestment that Temasek can do overnight. But any increase in SingTel's free float would actually improve the liquidity of the stock in the market, which has been an issue with some investors. Although SingTel has the largest market cap I think the trading volume, because of the limited free float, could certainly be improved.
Singtel has changed in the last few years from being an overwhelmingly one-market operation to being focused on the region. To what extent does that make you a portfolio company?
We are not a financial investor. We see ourselves as a strategic telco investor.
If there is an investment opportunity where we don't get any governance rights, where we don't get to play an active role in the board, in the management of the company, we would not invest.
The treasury people may buy purely for investment, but that is not our investment focus.
If you look at the kind of things we have done with our associates around the region, you would agree. For example, there is a lot of procurement that is done on a joint basis, there is a lot of bargaining power.
SingTel and its associates have 25 million mobile subs, that is the largest mobile grouping in Southeast Asia. It actually gives significant bargaining clout with suppliers. As a result we get preferred allocation with very good prices, we get preferred allocations with a hot model.
We are actually much more than a financial investor. We think we are good telecom operators, but we don't claim to be good as property owners or financial investors etc.
One of your investments has been the C2C cable network, which was always a very ambitious investment, given the amount of bandwidth available regionally. Is that one investment, with the advantage of hindsight, you wish you hadn't made?
I think our objective in investing C2C was actually to achieve a much lower cost of owning submarine cable capacity at ownership level, rather than buying at IRU prices from other cable owner.
So owning subsea systems is important to us. We have our customers, multinational corporations, who require connectivity in the region, so we need to use a subsea cable, and owning it, building it, gives us a much lower cost structure than buying it from other cable owners.
We've just come through the SARS crisis. What has been the SARS impact on SingTel's bottom line?
Relatively muted, on a net basis. I suppose being an integrated telco helps. Parts of our business benefited. We had lots of videoconferencing, audioconference. But of course in areas like mobile roaming, we actually received a slowdown. Our shops selling equipment suffered. I think on balance the pluses and minuses offset each other, so there was not a very significant impact on our Singapore business because of SARS.
Where is SingTel's future growth going to come from? Is it from mobiles, markets like China, India?
We have actually come a long way in executing our diversification strategy. The contribution of our earnings--more than 60% of proportionate revenue and more than 60% of the proportionate EBIT comes from outside Singapore. We expect Optus to continue to gain market share. Because of the very low penetration level we are actually very optimistic about the outlook both in Optus and for our overseas associates
Are you troubled by your exposure to 3G?
Markets tend to go through these stages of extreme optimism, where there's only blue skies and they pay huge sums for frequencies. Now they have totally swung the other way and everybody has to write off their 3G investment. For us, we are in the very happy position where we have paid a price where we have a sustainable business case.
We are now in the midst of closing our tender for 3G in Singapore, and we have actually seen a significant reduction in the prices for 3G equipment. I think that would be consistent if you ask any mobile operator.
We are actually not troubled at all. We have not paid a silly price for frequency, we are going to get 3G equipment prices at a level comparable for what we paid for our 2G network. I think from a cost perspective it's not going to be an issue at all.
Overall, I think it's manageable, when 3G handsets are developed to the stage where you actually can get videostreaming, enhanced messaging etc, you are going to see additional revenue streams.
When do you expect to finalize your 3G tender?
We expect to issue the 3G award in the next couple of months. In Australia, Optus has already issued their 3G contract to Nokia. In Singapore, there is a regulatory deadline, December 2004, so we would be able to meet that deadline.
Your one investment outside the region is Belgacom. Are you going to hang onto that?
When you look at the profit contribution, the dividend contribution, both have been very strong ... Belgacom is exceptional in that it had not gone crazy over 3G auctions, actually made some money out of it, and is in a very sound position. It's probably the only AA-rated telco in Europe. So as far as investment is concerned it's a great investment.
That said, I think we have since refocused our investment attention in Asia. This investment I supposed would be categorized as non-core. If you look at the shareholding structure of Belgacom, the government owns 50% plus one share, and the other consortium that Singtel is a part of, owns 50% minus one share. So, any specific decision on the company would be something that both groups of shareholders would have to work on jointly and agree on
Do you agree the role of a telco CFO has evolved rapidly since the end of the tech boom?
I think the role has not changed, but the priorities have changed. The CFO will always be a business partner, helping the company understand the financial implications of the investment decisions, even some of the business decisions.There were a lot of excesses during the tech boom, the kind of M&A activity that we have seen, the 3G tenders. I think a lot of telcos have found their financial position to have weakened significantly. The new priority has been to refocus on core business and core competencies ... I think all-round we've seen a lot more discipline in the management of cash flows
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