What's Separating SingTel and Optus


Southeast Asia's biggest telco, Singapore Telecommunications, can be forgiven for feeling a little nervous these days. CEO Lee Hsien Yang thinks he has bagged his biggest takeover deal ever -- an $8 billion bid for Australia's Optus Communications. But the Australian government must sign off on the deal, and that's no sure thing. It just rejected another big foreign bid in the oil sector on grounds that it was against the "national interest." Will that happen again? It could. But the odds are that it won't.

The oil-deal decision looks ominous for the Singaporeans, who are anxious to get off their island and globalize. Not many observers could have predicted that Canberra would nix petro-giant Royal Dutch Shell's $5 billion bid for Aussie oil-and-gas explorer Woodside Petroleum. And few industries come with more political baggage than telecoms. Just ask SingTel itself. It's 78%-owned by the Singapore government -- precisely why it has been spurned as a suitor in a succession of proposed deals (see BW Online, 4/3/01, "A Rough Start to SingTel's Aussie Adventure").

REPRESSIVE REGIME. Another reason for wariness: Nestled among Optus' assets is a $500 million contract with Australia's military and intelligence services to operate satellites for communications (read spying). Australia's defense establishment is worried about the implications for security if the company is taken over by SingTel. In leaks to the Australian press, the military has opposed the SingTel-Optus deal. One report in the Melbourne Age quoted defense department officials as saying Optus' communications networks were "fundamental to national security."

There's also concern about Singapore's reputation as a regime that represses the right to free speech and that flouts privacy -- in particular SingTel's 1999 snooping in the computers of 200,000 of its Internet subscribers at the urging of the Singapore government.

Still, it's hard to see how Australia, which is committed to globalization and free trade, can reject a second foreign takeover. The Australian dollar -- already struggling -- took a big hit when the Woodside deal was denied. Spurning the SingTel offer would send a signal to investors that Australia is no longer open to business.

ANTI-ASIAN IMAGE. SingTel has stressed that Australian jobs won't be lost. It's hoping to avoid antagonizing the xenophobic, anti-Asian One Nation party, which is picking up support among jobless Australians who have been disenfranchised by globalization. Most of Optus' operations are based in Sydney, a booming city that has benefited from the globalization trend.

Shell's problem was that Woodside's operations are centered in the remote Australian Northwest, a region impolitely but incorrectly known as a "redneck belt." Jobs are a fragile commodity there. Local politicians seeking reelection in Woodside's home state pressured Canberra to stare down the Shell bid.

As for the military security issue, Optus is owned already by a foreign company, Britain's Cable & Wireless. Turning down SingTel's bid would make Australia appear discriminatory and anti-Asian, a poor decision for a country still trying to live down its infamous "White Australia" policy of postwar immigration.

QUID PRO QUO? Australia and Singapore are negotiating a far-reaching bilateral free-trade agreement, which has upset such neighboring states as Malaysia and Indonesia. Singapore and Australia are working on these deals because they are both rich and, in the main, embrace globalization -- two characteristics that their neighbors cannot claim. And though free trade in Southeast Asia is still a long way off, Australia and Singapore don't want to be left behind.

The outcome of the SingTel deal lies in the ongoing free-trade negotiations. Australia is pushing a reluctant Singapore to open its info-tech and communications sector. In the smoky backrooms where the discussions are being conducted, such issues could be thrashed out with a quid pro quo such as guarantee of a SingTel approval by Canberra.

But securing Optus may be the easy part for SingTel. The deal specifies that SingTel shares will be listed in Sydney, which obliges SingTel to operate under Australian standards of corporate governance and transparency. That'll also make SingTel a target of Australia's boisterous media which, unlike its Singaporean counterpart, asks uncomfortable questions of and isn't beholden to politicians.

STRANGE BOARDFELLOWS. For SingTel, all this will take some getting used to. The company has long enjoyed a virtual monopoly in telecommunications, with profit margins as high as 40%. Optus is very much No. 2 in Australia and gets by on margins of 8% to 10%.

Then there's the matter of corporate governance and transparency. SingTel's Chairman Koh Boon Hwee insisted to BusinessWeek that the company operates under standards that are equal to the "world's best practices." That may be true. But in Corporate Australia, or Corporate America or Europe, you don't find the current chief of defense sitting on the board of the country's biggest telco, as Major General Lim Chuan Poh does at SingTel. Or for that matter, the deputy secretary of the Communications Ministry that regulates telcos, as does Jaspal Singh.

Indeed, it's quite common for Singaporean government officials to sit on company boards, and vice versa. Singapore Airlines Director Tjong Yik Min -- a former director of the feared Internal Security Dept. -- also attends meetings of the authority that regulates the airline.

So, if the Optus-SingTel deal underscores anything, it's that Singapore's famously cozy system of corporate governance may need some surgery. And for premier companies like SingTel, that might be a bigger challenge over time than getting approval of any one deal, even one as substantial as the Optus takeover. By Eric Ellis in Singapore


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