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So What Will SingTel Do For An Encore?


At the height of the telecom boom, Singapore Telecommunications Ltd. (SGTJY) just couldn't seem to get any respect. The state-controlled telco lost a bid for the assets of Cable & Wireless (CWP) in Hong Kong to tycoon Richard Li in 2000. Then a year later, SingTel's stock plunged 38% after analysts said the company overpaid for Cable & Wireless Optus, Australia's second largest telco. Shareholders also questioned investments in mobile players in developing countries. "Five years ago, when we said we wanted to be a regional company, people laughed at us," recalls SingTel CEO Lee Hsien Yang.

Few are laughing now. Today, SingTel is Asia's third-largest phone company, and three-fourths of its sales and 66% of operating profits come from outside the city-state. Better yet, the Optus deal now looks like a steal, and its cellular holdings are soaring in value. Net profits rose nearly threefold for the year ended Mar. 31, to $2.64 billion, and the company paid out $2.4 billion to shareholders. Its shares have risen 55% in the past year.

Those results, though, may be hard to reproduce. Last year's earnings included $1.95 billion from selling stakes in Belgium's Belgacom, Singapore's post office, and the local yellow pages. Without those onetime gains, operating profits would have increased by only 38.2% -- still very impressive but not quite as dramatic. Another issue is that SingTel has already bought into many of the most promising companies in Asia, such as India's Bharti Televentures Ltd. and Indonesia's Telkomsel. "In some ways, SingTel is a victim of its own success," says Bertrand Bidaud, an analyst at researcher Gartner Group in Singapore. "The key for them is to articulate a long-term strategy."

OPTIMISTIC TONE

Singtel's answer: The markets where it operates offer plenty of room for growth, and it can boost profits by winning over more corporate clients. As for new acquisitions, "we'd like to replicate our success by buying into markets that currently have fairly low cellular penetration," says Stephen Rotheram, SingTel's executive vice-president for strategic investments. SingTel is scouting developing markets such as Pakistan and Bangladesh for cellular opportunities. The company is also taking a look at Hong Kong mobile operator CSL (TLS) and Malaysia's Celcom, which Telekom Malaysia is expected to sell by yearend. Lee says SingTel would consider either "if the price is right."

Optus still has growth potential, too. Last year, its revenues increased 10.4%, to $4.6 billion, while operating profit jumped 27.7%, to $445 million. To keep its earnings heading skyward, Optus is moving away from its reliance on consumer subscribers to higher-margin mobile services for business users, who make more long-distance and international calls. Optus also hopes to expand its offerings with a planned $159 million acquisition of Uecomm Ltd., an Australian fiber-optic player.

There's one laggard in SingTel's portfolio: the company's own home network. Earnings in Singapore last year fell 15.8% and sales dropped 14.6%. The problem: With a population of just 4 million and mobile penetration of 85%, growth opportunities are slim. SingTel could also face reinvigorated competition if hometown rival StarHub takes over local cellular operator Mobile One Ltd., as proposed. Lee says SingTel will defend its market in Singapore but acknowledges that the city-state's share of total revenue will decline as regional operations grow. "We will be a more focused regional player, and we will continue to do what we have been doing," says Lee. Encouraging words, but he'll need to follow through if he wants SingTel to keep pumping out stellar results.

By Assif Shameen in Singapore


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