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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

A Monopoly Fights Back

But does SingTel have what it takes to win?

By Cesar Bacani


A CASE OF OVERKILL? Soon after newcomer MobileOne started selling cellular services in Singapore April 1, the country's dominant phone provider, Singapore Telecommunications, turned surprisingly aggressive. MobileOne claimed it had grabbed 10% of the market -- that's some 35,000 subscribers -- after only three weeks. SingTel then slashed its mobile-phone charges by nearly a third. "It went berserk," says Jason Billings, a regional telecommunications analyst for SBC Warburg brokerage firm. "Other former monopolies have tried to show the market that they have the superior network. When SingTel panics like this, one wonders." And worries. Nervous investors drove SingTel's share price to a record low, paring more than $6 billion from its market capitalization.

That is a big deal in Singapore, where most families own SingTel stock. Many of the 1.5 million shareholders hang on to the scrip because the company gives bonus "loyalty shares" to those who have not sold since the initial public offering in 1993. But if the slump continues, they may follow the example of one fund manager in Hong Kong, who has disposed of his unit trust's holdings long ago. "SingTel is a great company whose shares are going nowhere fast," he asserts. "It is one of the best defensive stocks there is in Asia. But if I buy SingTel, my fund will underperform against everyone else."

The company makes no apologies. "We will do whatever is necessary to maintain our strong position," says Brig.-Gen. Lee Hsien Yang, the 40-year-old president and CEO of the Singapore Telecom Group and youngest son of Senior Minister Lee Kuan Yew. With a cash hoard expected to swell to $3.5 billion next year, SingTel is well provisioned for a price war. But does it have the guts and competitive fire? "They have tried everything, including investing in a big way overseas, but without much success," grouses Jeffrey Camp of Morgan Stanley Asia in Hong Kong. "If I were them, I'd sit down and say: 'This isn't working. Let's just distribute most of the money to shareholders and relax awhile. Then let's start all over again.'"

But SingTel insists it is delivering. It reports adding record numbers of new customers in April -- 30,000 mobile-phone subscribers and another 30,000 paging clients. "We believe that many of [MobileOne's customers] are trial users who had signed on with them as early as December last year and were attracted by the various freebies and give-aways," sniffs Lung Chien Ping, CEO of SingTel Mobile. True, the phone company's 30% discounts may hurt the bottom line, since cellular and paging operations accounted for 16% of group profits last year. But SingTel argues that lower prices would encourage subscribers to stay on the phone longer.

As for overseas investments, Lee says SingTel is not really at the losing end. "One has to look beyond the profit-and-loss statements," says the CEO. "In many instances, we have chosen to exit and realized significant gains because the companies were worth more than what we had [originally] invested." SingTel has cashed out of ventures in Sri Lanka and Britain, but it still has stakes in 53 telecom-related companies in 21 countries. These include 12.5% of the profitable Belgian phone monopoly Belgacom, 20% of loss-making Netcom, Norway's second mobile-phone operator, and 40% of Globe Telecom in the Philippines, which wrote off $28.5 million last year due mainly to customer fraud.

A reservist with two decades of experience in the Singapore army, an engineering degree from Cambridge and a master's degree in management from Stanford, Lee faces a tough campaign. After decades as the country's sole provider of telecommunications services, SingTel must now compete not only with MobilOne, a partnership between Britain's Cable & Wireless and Hongkong Telecom. Its subsidiary, SingTel Paging, is also fighting it out with three other companies. By 2000, fixed line and international services will be thrown open to selected newcomers, though the government will pay SingTel more than $1 billion as compensation for agreeing to cut short its exclusive franchise. The liberalization moves fulfill Singapore's obligations to the World Trade Organization.

SingTel is already under pressure on overseas calls, which account for more than 40% of earnings. "The terms of SingTel's international license effectively create competition by keeping its international call prices in line with a basket of other charges, including those in Hong Kong and the U.S.," explains Morgan Stanley's Camp. "Because those markets are facing competition, prices there are being forced down, lowering rates in Singapore too." SingTel has cut charges more drastically in some areas to fight callback operators, which buy cheap international-call time from giants like AT&T and resell them to users in Asia and elsewhere. In the past two years, SingTel has reduced rates to the U.S. from S$3 per minute to just S$1.20.

Even if SingTel vanquishes local upstarts, however, the home market is too tiny to keep profits surging. That is why Lee places such a high priority on foreign investments. "But SingTel's overseas strategy has been a mixed bag," asserts SBC Warburg's Billings. "When things get rough, instead of trying to see how it can improve matters, SingTel pulls out." Lee denies rumors that the company is withdrawing from the Philippines. But he says SingTel is re-examining its approach to the cable-TV industry in Europe, including its stake in Sweden's Stjarn TV.

What else should SingTel do? "If I were the CEO, I'd put together more big deals like Belgacom," says Billings. "An obvious target is Hongkong Telecom. A merger with Cable & Wireless or a link-up with Germany's Deutsche Telekom, France Telecom or Sprint of the U.S. would be interesting strategies. SingTel has to think big." As big as a giant with $3.5 billion in cash can afford to be.

-- Reported by Assif Shameen and Santha Oorjitham/Singapore


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