Chua Sock Koong talks about her new, expanded role at SingTel, and the company’s regional growth plans.Interview by Justin WoodA management reshuffle at SingTel sees group CFO Chua Sock Koong take on extra duties this month as CEO of international operations. Chua talks about her new role at the S$12.6 bn-a-year (US$7.5 bn) telco and charts the company’s regional expansion plans as it hunts for growth.
SingTel’s new management structure divides the company into three: Singapore operations, Optus in Australia, and an international division that is made up of stakes in seven mobile telcos across Asia. Each of these three divisions now has its own CEO reporting to the group CEO. Why choose this structure?
If you look at how we measure our performance and how we describe our business, we have always talked about the three key parts of the business: the Singapore telco business; the Australian business; and then all our regional investments, our international business. So it’s really just rationalizing the management structure to be in line with the way we have always measured ourselves, and the way we’re being measured by the market.
You’re already group CFO of Singapore’s biggest listed company. Will you have enough time to run its international division, too?
It’s all about time management. And good delegation. We have a team of very capable managers who look after the day-to-day operations and who manage our projects. I’m there to provide the strategic leadership.
How many hours a week do you work?
I wouldn’t want to frighten you! It’s important to strive for a healthy work/life balance, and to make time for my family and my two daughters, but I do work very long hours.
How will you divide your time between being CEO of international business and being group CFO?
It’s difficult to say. Both portfolios are of equal importance, but the split won’t necessarily be 50/50. It will depend on what is most important and what requires my time. It will be about prioritization.
Within the international division, SingTel has stakes in seven mobile operators in Asia besides Singapore. What is their contribution to the overall group?
Because we equity account our associates, the most relevant measure to use is EBITDA. So, from that perspective, if you look at the EBITDA of the three divisions, then Singapore, Australia, and International are all roughly the same size.
With growth proving elusive in the Singapore and Australian markets, SingTel is looking to its international arm to power the firm forward. Do you foresee the international division becoming the largest part of the company?
Yes, growth for the group in recent years has been driven largely by the international business, by our regional associates in Asia. If you look at Bharti in India [SingTel’s stake: 30.7%] and Telkomsel in Indonesia [SingTel’s stake: 35%], they are in relatively unpenetrated markets and we continue to get good growth from them. Most of our growth will continue to come from our international operations.
Our IT business, which is also part of the international division, has been growing in double digits recently too. So I suppose you could say that I have all the growth businesses in my portfolio.
During 2005, SingTel increased its stakes in Bharti and Globe Telecom in the Philippines (SingTel’s stake: 44.6%). As the new CEO of international, will you be looking to raise the stakes in all your regional associates? And to what sort of level?
In the longer term we would like to get to a position where we play a bigger role in the associates, and build them up as subsidiaries rather than associates. Of course, that’s a longer term objective and is subject to our partners’ willingness to sell, and to the terms and conditions they offer. And then also, in a lot of the Asian countries, the regulatory frameworks prevent foreigners from owning a majority stake and from managing the operations, so that would need to change first. We are quite realistic that this won’t happen overnight. And we are not impatient.
What about Advanced Info Service (AIS), your mobile operator in Thailand? SingTel already owns 21.4%, and the market is full of rumor that you are maneuvering to buy a further chunk of AIS currently owned by Prime Minister Thaksin Shinawatra’s Shin Corp.
I can’t comment on specific companies, but our general long-term objective remains to increase our stakes in our associates under the right terms and conditions. Thailand, of course, still has a 49% limit on foreign ownership (of telcos). (Shortly after this interview, on January 23, Temasek, the investment arm of the Singapore government which owns around 63% of SingTel, announced that it had teamed up with a group of Thai investors to buy 49.6% of Shin.)
SingTel’s international strategy is focused firmly on Asia. You have operations in Indonesia, India, Thailand, Bangladesh, Philippines, Hong Kong, and Taiwan. Where next?
Our main focus is to build our stakes in existing associates. That is the first priority. However, we are also looking at new countries with low tele-densities, and preferably large populations. Some of these countries had very low income levels so we didn’t look at them previously because they didn’t have a viable business case. But recently there have been changes in the economics of the mobile business that have made them more attractive.
In particular, I’m referring to the development of the micro pre-paid model. If you are in a developed market like Hong Kong, you buy a mobile pre-paid card and the minimum denomination is something like US$5 or US$10. But if you go to Indonesia or India, you can buy a pre-paid card for less than US$1. The analogy often used is that, in developed countries you buy a bottle of shampoo, but in the poorer countries you buy just a sachet. So, instead of buying a large block of pre-paid air-time, you buy a very small block.
Just as importantly, the cost of handsets has come down significantly. A number of the mobile phone suppliers have started producing very low-priced handsets. You are talking about price points between US$20 and US$50. Getting a handphone is now no longer so prohibitive. And, of course, there is now also a very large market of second-hand handsets that can be bought for very low prices.
So changes in the dynamics of the mobile industry mean that a number of countries which previously had income levels that were too low, now offer much more viable business cases.
Do you have any particular countries in mind?
A good example would be our recent investment in Bangladesh. (In June last year, SingTel paid US$118m for a 45% stake in Pacific Bangladesh Telecom.) It has a population of 140m, but mobile penetration is only about 5%.
Singapore was the first telco to adopt an aggressive regional growth strategy. Now many other Asian players are doing the same. Is competition in the regional M&A market getting stiffer?
Actually, I don’t think SingTel was the first. In the first wave, we had a lot of US firms investing in Asia, the likes of Bell South and Bell Atlantic. They invested here but then retreated. Then it was the turn of the European telcos. Deutsche Telekom and BT of the UK invested very aggressively in this region but, with the exception of Telenor, most of the European players have now exited. Frankly these things come in cycles. Now we have a number of Asian players expanding into the region, and of course, we’ve got Middle Eastern players now in the M&A market as well.
So it is not the case that we have had the market to ourselves in the past. There have always been different players, all of them behaving in different ways. Some of them are quite aggressive and less price-sensitive. For example, if you have a lot of oil revenue behind you then you can probably be a little less price-sensitive in making acquisitions.
Where SingTel stands out is in our execution. We’ve been very disciplined in our approach to new investments. If there are deals where we’re not comfortable, we won’t overpay. I think you’ve seen this with the Pakistan Telecom privatization (26% of Pakistan Telecom was put up for sale in June 2005). We put in a price that we felt was appropriate but which turned out to be the lowest. We lost the deal, but we weren’t unhappy. (Etisalat, a telco based in the United Arab Emirates, won the bid.) We felt we should only bid to a level where we know that if we won we would be creating value for shareholders. We are not deal-junkies.
That said, we are not averse to taking calculated risks. I think people look at our Telkomsel investment, and they forget that when we made it, Indonesia was considered by many observers to be almost a basket case. Everybody was just rushing to get out. We bought our stake from KPN of the Netherlands, and they were keen for various reasons to get out. When we bought our stake in AIS in Thailand, that was just at the start of the Asian financial crisis. So we are prepared to take calculated risks. We bought these assets when they weren’t necessarily under the most rosy conditions.
But of course, if we come to a situation where we think there are no good deals, we are quite happy to return money to shareholders. Things do come in cycles. When the valuations correct themselves, we will be happy to go back to the market.
As part of the international business, you are also looking after NCS, your wholly-owned IT services subsidiary. NCS has a strong position in Singapore but is small elsewhere. Does it have the scale to be successful?
NCS is the number one IT service provider in Singapore, but it’s true, regionally NCS is small.
However, I think you have to look at where NCS came from. It started life as the in-house IT department for the Singapore government. So it is unique in the sense that it has significant e-government domain knowledge. What NCS is able to do now is to use that knowledge to win contracts from a lot of the governments in the region who are keen to improve their operating efficiency. We have worked on healthcare system management in Hong Kong, and on improving systems for immigration. There have been a number of projects in the Middle East and in Sri Lanka.Only 17% of NCS’s revenues come from abroad, but we certainly want to get that much higher, probably to about 30% in three years’ time.
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