Robert Clark Going abroad E ver since deregulation began, it's been the dream of incumbent tel- cos to take tbeir business abroad. Wby not? Tbey're market leaders, tbey have experience, expertise and massive resources. As we know, many bave fe lt tbemselves called to this grand project, yet tew bave been chosen. During the boom years, European and American telcos leveraged their high stock prices to take unsustainable positions in A.sian carriers, virtually all of which bave been unwound. Tbeir global alliances fared no bet- ter. Incumbent teicos just don't play well away from home. It's partly cultural and, let's be honest, ego. These are companies not used to playing second fiddle, especially not in an emerging market. It's also had to do with scale; boards accus- tomed to dealing in billions of dollars get impatient with minority stakes with net pres- ent value of a mere $100 million. Well, that was then. Today, telcos from mature markets don't even have a lot to offer. Their stocks are well down, their engineering strengths have been commoditized and their brands have never counted for mucb out of their domestic market. But it seems teicos are figuring out to expand abroad. The Asian example is Singapore Telecom, whose revenue is primarily derived from off- shore. Over a decade, it's taken a measured strategy of investing in mobile in Asean and Australia. It's a focused .strategy of going into familiar territories. And, because the company is committed to those markets, it hasn't expect- ed returns overnight. Each of these took place only with the sup- port of the respective governments, as you'd expect in Asia in a sensitive industry (and it's not just an Asian sensitivity). This has been underscored by tbe Malaysian government's continual refusal to allow SingTel to buy into tbat market. It's not rocket science, but if you were going to prescribe a formula for offshore investment by a telco, SingTel's approach is it. Companies like Vodafone, FT Orange and Hutcbison 3 have also worked by slowly growing a chain of mobile operators. If there's a salutary example of bow a gov- ernment telco can vaporize shareholder value abroad, it's Australia. Telstra isn't alone in making bad investment calls. Although its off- shore business goes back to tbe mid-80s, it has never been able to settle on an overseas strategy (at one point ludicrously basing its regional office in Hanoi). Its government shareholder and the politi- cally-friendly directors appointed to the board bave no appetite for the bard slog of Asian deal- making. The carrier operates in a toxic political environment, with public opinion sharply divided over whether it should remain in pub- lic ownership. We'll see which way tbe new CEO Solly Trujiiio takes tbe company. There is a reason for tbese ruminations, which is that China's four listed telcos bave received a public push to go international. Lu Yang, deputy director of the Mil's telecommunications administration, last month told a conference that the government is "encouraging" the carriers to invest globally. "It's part of our overall strategy," he said. It's not certain bow much credence we should give this. Government officials love to make such meaningless expressions of support. And in tbe same speech Lu also claimed tbe government welcomed investment from for- eign telco.s and promised "fair competition." But nonetheless it's reasonable to expect the two biggest carriers, Cbina Mobile and China Telecom, will chase opportunities abroad, just as the Chinese vendors bave. Judging by the market rumors of China Mobile's interest in the Hong Kong market, it's som ething investors expect, too. Ironically, it will be to tbese carriers' com- mercial advantage that tbey are state-con- trolled. This will set them up sweetly for deals in politically-friendly markets in Asia, Africa or Latin America, where their engineering and business skills will be worth a premium. So, politics still counts for a lot. But for tel- cos investing abroad for commercial reasons, it helps to be focused, and in it for tbe long-term. tdeoKn If you were going to prescribe a formuia for offshore investment by a teico, SIngTei's approach is i t Robert Clark is a Hong K ong- based technology journalist [email protected] 34 August 2005 Telecom Asia ww w. elecom asia.net