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CPF depleter # 41: SingTels $14b purchased bombs out

According to this article published in the influencial
‘Australian’ newspaper on the 17 January 2002, SingTels
much lauded $14b acquisition of Australian Optus telecommunications
has been turned out not to be the ‘cash and profit
powerhouse’ SingTel made it out to be.

SingTel is controlled by Lee Hsien Yang, the 43 year old son of Lee
Kuan Yew. Hsien Yang’s elder brother is Deputy Prime Minister,
Minister of Finance and heads the Monetary Authority of Singapore MAS
(Singaporean version of the state central bank). His 78 year old
father heads the secretive SGIC. All concerns are funded wholly or
partially by Lee Hsien Loong’s MAS.

Read on ......

Singtel was sold an Optus pup
Mark Westfield, Insider
JANUARY 17, 2002 
http://australianit.news.com.au/articles/0,7204,3604882%5e15309%5e%5enbv%5e,00.html

NORMAN Gillespie's departure from Optus comes at a time of great
challenges for Australia's second largest telco and its new parent,
Singapore Telecom.

Not the least of these will be a more restrained approach to the Optus
accounts under the new ownership which will show that the company is
not the cash and profit powerhouse it was claimed to be by Gillespie
and his chief executive Chris Anderson.
When Singtel moved on Optus last May it restated its claimed result of
bullishly roaring net earnings of $423.8 million for the year to March
31, 2001, announced 11 days earlier, to a loss of $34 million. That's
quite a difference.
The industry outside the Singtel-Optus group is unanimous that the
Singaporeans paid far too much for Optus. Singtel's initial offer
implying a value of $17 billion for Optus was soon adjusted down by a
sceptical market to $14 billion as Singaporean institutions reacted to
the over-payment by dumping Singtel stock. Singtel is expected to
announce further writedowns in goodwill and on its fibre-optic cable
network in its results for 2002 to be announced in May.
Telephony has changed dramatically since those giddy days when Singtel
made its lunge at Optus. The industry that was growing at 10 per cent
a year has slowed to 3 per cent. In the last 12 months, too, the
industry hasn't had its free kicks at the expense of the dominant
former monopolist, Telstra, which through the 1990s was surrendering 2
to 3 percentage points of market share to its rivals, mostly Optus, a
year.
In 2001, Telstra held its ground. The easy days of grabbing share and
revenues are over for Optus.
A $35 billion company like Singtel will comfortably survive the
short-term embarrassments of poor earnings and writedowns from its
Optus investment.
Longer term, Optus must share the market with a rival which will
become more predatory as a result of the further selldown by its
largest shareholder, the federal Government, and a more liberal
regulatory regime.
The Government is showing every sign of adopting the Productivity
Commission's report into telecommunications competition regulation and
its key recommendation of a more benign regulatory environment. In
other words, every time Optus finds itself in a tight spot, it won't
be able to run to Australian Competition and Consumer Commission
chairman Allan Fels.
Fels will be told to pull his head in. With the Government making
initial soundings in the market to get the sale of its residual 50.1
per cent under way this year, the last thing it wants is a pesky
regulator causing trouble for Telstra and depressing its share price.
Optus has a good mobile phone business to which even its competitors
dip their lids.
It has been the revenue and earnings powerhouse of the group for its
10-year life. It accounts for 43 per cent of Optus's $2.2 billion
revenues and earns nearly $1 billion before interest, tax,
depreciation and amortisation. What's more, Optus owns the business.
Nearly half its fixed phone business is resale off the Telstra network
from which Optus gets good revenue but pays most of it back to
Telstra.
Its other two divisions are a mixed bag. Its data and business
division promises much but makes half the EBITDA of the wireless
division and is dwarfed in the market by Telstra. It is a demanding
market with fussy customers.
The consumer and multi-media division loses about $50 million a year
that Optus owns up to and is heading nowhere against the dominance of
Foxtel in pay TV and the far larger Big Pond cable modem operation of
Telstra. Optus's cable-based phone system still does not work properly
after six years.
Singtel effectively paid $14 billion for 33.3 per cent of the
Australian mobile industry, which is slowing and becoming intensely
more competitive, plus a grab-bag of poorly performing businesses.
Dividends to the parent will be skinny.
The Singaporeans will survive the experience, but it will prove a
costly one for them. And the toughest part is yet to come.