The recent announcement that SingTel is to set up a regional mobile joint venture with Richard Branson's Virgin Group could be yet another mistake by the beleagured Singaporean telco. The cash-rich ex-monopoly is throwing money into an area where most anlaysts believe it has very little chance of success. The plan is to set up a regional cellular operation starting in Singapore, Hong Kong and Korea and then rolling out to India, China, Thailand and Malaysia. There are no signs how the JV will differentiate itself from the well extablished encumbents, nor who will finance the deal. But comments by Richard Branson at a recent press conference suggest that while his company will provide the brand, SingTel will provide the cash.
Linus Chow, chief executive of SingTel Mobile said that he expects the new company's operation to be profitable within three years. He also reported that there was still huge demand for mobile services, expecially in the first three countries he will operate the new company. His reasoning for this fact was that less than half the populations of those countries have mobile phones. Excuse me Mr Chow for stating the obvious, but a penetration rate approaching 50% is widely regarded as a saturated makret. Apart from certain Scandinavian countries where mobile telephony is the esprit d'etat, Hong Kong, Singapore and Korea have some of the highest penetration rates in the world. It will not be easy for this JV to achieve the relevant market penetration rates to be a success as it will have to win market share from the well established encumbents, not caputre any new market share.
This announcement comes after a series of botched and ill-thought out deals by SingTel. First came its misguided attempt to buy C&W HKT - another dying monopoly with whom SingTel could realise very few synergies. Then came the proposed $580 milion investment in Time Engineering - including its various telecom and internet subsidiaries - in Malaysia. This would have bought SingTel a minority position in a heavily indebted company, with no clear accretion of shareholder value.
Perhaps the greatest failing of SingTel in both these failed deals has been its lack of understanding. The main reason it failed in its bids for C&W HKT and Time were because it failed to grasp the political ramifications of what it was trying to do. While this correspondent believes that there should be no place for politics in the international mergers and acquisitions market, unfortunately there is. And a failure to understand those sensitivities caused SingTel to fail.
But for all its faults, at least SingTel is trying to change. The question is for what reasons is it trying to change. The breadth and speed of its deal making could be a sign of an energised and dynamic telecom company moving at internet speed and trying to do deals wherever they make sense. On the other hand, it could just be the last investments of a dying monopoly as it desperately tries to justify its existence in an a much changed world. We shall wait and see.
