Share this
Digg
Del.icio.us
StumbleUpon
Netscape
Yahoo
Technorati
Googlize this
Facebook
Export PDF
Print
E-mail
FIND A MOBILE-phone market where penetration rates are low but growing quickly. Buy a major stake in one of the players in that market and ensure that it has all the funding it needs to grow its market share. Watch its revenue and earnings take off. Rinse. Repeat. From Indonesia to India, Singapore Telecommunications has built a formidable portfolio of overseas telecoms assets across the region. But, its formula of getting into frontier markets early doesn’t appear to be working as well as it once did. And, analysts are watching with growing unease as problems emerge at more and more of the telecom juggernaut’s overseas investments.
SingTel’s 45%-owned Pacific Bangladesh Telecom (PBTL) is the latest of its overseas units that appears to be running into trouble. The lossmaking unit ended April with a 3.4% subscriber share, down from 4.1% in April 2009. “This is despite [its] offering the market’s lowest on-net call rates and the fastest mobile data [speeds] — an advantage of its CDMA 1x network,” says William Bratton, an analyst at Deutsche Bank, in a report last week. And, things could be about to get worse as the Bangladesh government prepares to issue 3G licences — perhaps as early as August — which will reduce the advantage it currently has in data speeds. “It is unclear to us how PBTL’s performance can be materially improved, especially given the increasingly aggressive positioning of GSM-based competitors,” Bratton says.
To be sure, Bangladesh is a very small piece of SingTel’s empire. Yet, it is supposed to be one of the world’s fastest-growing mobile markets, with a penetration rate of just 30%. So, why isn’t SingTel making money with its investment in PBTL? What can it do about it? And, what lessons does PBTL hold for SingTel’s other overseas investments?
SLOWING GROWTH
One key problem that PBTL faces is that subscriber growth rates in Bangladesh are slowing rapidly. In a report last week, Research and Markets said the industry’s average subscriber growth rate was just 11.7% in 4Q2009 — down significantly from 31.9% in 4Q2008. Even at the largest mobile operator, GrameenPhone, subscriber growth declined from 27.4% to 10.8% in the period. Another problem at PBTL is that it is dwarfed by its competitors. Research and Markets expects that PBTL will have a market share of just 4.6% by 2014, compared with 46.7% for GrameenPhone.
The combination of rapidly saturating market penetration and intensifying competition is also hitting SingTel’s hitherto successful investments in other overseas markets. Its 30.4%-owned Bharti, the largest mobile-phone operator in India, has lost market share for three consecutive quarters. On top of that, the Telecom Regulatory Authority of India (TRAI) wants Bharti to pay a large one-time fee for some 2G spectrum it holds. Meanwhile, new mergers and acquisitions guidelines being proposed call for limits on market shares to be pegged at 30%, down from 40%; and a minimum of six players in each service area, up from four. Those regulatory moves have prompted UBS analyst Suresh Mahadevan to trim his price target on Bharti by 9.5% to INR40.
BHARTI’S AFRICAN VENTURE
Now, Bharti is looking to other markets in pursuit of growth, and it is running into some of the same problems SingTel has encountered with its own overseas forays. Notably, Bharti is in the midst of acquiring 15 mobile- phone businesses in Africa from Kuwait-based Zain, which analysts fear will have a negative impact on its earnings in the near to mid-term. According to Matt Ablott, an analyst at research firm Wireless Intelligence, many of Zain’s African businesses are
lagging behind their peers.
In Nigeria, for instance, market leader MTN Nigeria added more new customers in 1Q2010 than the other eight operators in the country combined. Zain Nigeria, on the other hand, is languishing in third place. In Ghana, Zain has reported declining net subscriber additions for three consecutive quarters. MTN added almost seven times as many customers as Zain in 1Q. The only Zain subsidiary in Africa that is doing well is Zain Sudan, which isn’t being sold to Bharti.
Curiously, Bharti has also recently acquired a stake in Warid Telecom Bangladesh, putting it in direct competition with SingTel’s PBTL. How Bharti copes with problems in its home market and handles the potentially difficult overseas markets it is now getting into will matter greatly to SingTel. Bharti accounts for about one-fifth of SingTel’s earnings and has been the latter’s most significant growth driver for years.
Analysts also see problems brewing at SingTel’s other overseas associates. In Indonesia, its associate Telkomsel is battling fierce price wars, the latest being SMS-based price competition. In the Philippines, Globe Telecom is faced with a loss of wireless-revenue share even as it raises capital expenditure for a broadband push, which will affect free cash-flow generation over the next three years. In Thailand, Advanced Info Service continues to be plagued by the political unrest. Then, there is Warid Telecom in Pakistan, SingTel’s newest investment, which is still loss-making.
HIGHER STAKES
This isn’t necessarily a reflection of SingTel’s ability to manage a telecoms business in the face of competition from larger players in mature markets. It has, after all, done reasonably well with Australian telco Optus, which it acquired in 2001. And, at home, SingTel has managed to reverse a market-share decline with aggressive marketing. But, perhaps it’s time for SingTel to rethink the manner in which it has chosen to gain exposure to emerging markets.
SingTel has always insisted that its investments in its overseas units need to be large enough for it to have some degree of control. For the most part, it settled for associate stakes in these entities. Now that the markets where these associates operate are becoming more saturated and increasingly competitive, it might be time for SingTel to rationalise these overseas holdings, raising its stakes in the ones that have managed to gain leading market positions and exiting the ones that haven’t. That could put it in a stronger position to drive strategy at these overseas units, helping them maximise revenues through marketing of data plans and content, and boosting SingTel’s share of profits too.
As for PBTL in Bangladesh, some analysts think SingTel ought to simply cut its losses before the investment loses any more value. Such a move might also be a means for Sing- Tel to provide worried investors with a signal that it is rethinking its overseas strategy. “We recognise PBTL may be a small component of Sing- Tel’s value,” Bratton says in his report. “But, it remains loss-making and we view how SingTel manages this non-performing asset as indicative of SingTel’s wider international strategy.”
