Telstra-SMC mobile venture faces shareholders’ scrutiny

The possible joint venture of Australia’s biggest telephone company Telstra Corp. with San Miguel Corp. (SMC) for a mobile network in the Philippines needs more careful study amid concerns about the viability of the business, consulting firm Creator Tech Pty. Ltd. warned.

According to a report of Creator Tech, a firm providing strategic marketing and business development services to communications and information technology companies, these issues include the availability to Telstra’s shareholders of detailed costing in providing the 4G service in the Philippines.

Creator Tech principal Steve Mackay said it is unclear whether Telstra’s shareholders have been made aware of the open-ended costs that could be incurred to develop the mobile network to customers in a country with 7,107 islands.

Telstra chief executive officer Andrew Penn announced earlier the firm was considering investing less than $1 billion for a 40 percent share in the joint venture with SMC, but details on how such would be spent as well as the target date for finalizing the plan have yet to be made public.

“Our analysis, which is ongoing, suggests that Telstra’s management may need to do a lot more detailed work on the costs associated with the proposed Philippines joint venture,” Mackay said.

He said there are also concerns on the value as well as ownership of the 700 megahertz band, an indispensable asset to mobile operators.

The 700 Mhz is considered the most valuable frequency range for 4G technology as it can easily penetrate buildings and walls and has greater coverage with less investments required compared to frequencies on higher bands.

The bulk or 90 Mhz of the total 100 Mhz on the 700 band in the Philippines is assigned to SMC through wi-Tribe Telecoms Inc.’s 80 Mhz and High Frequency Telecommunications Inc.’s 10 Mhz. The 10 Mhz balance is held by New Century Telecommunications.

Mackay noted neither SMC nor Telstra have disclosed the value of the 700 Mhz spectrum.

“Based on current exchange rates, we estimate the possible value of this asset to be in a range from A$1.26 billion to as high as A$3.8 billion.

Telstra’s 40 percent share of this critical asset is therefore valued at somewhere between A$507 million and A$1.52 billion – thus, spectrum cost alone could wipe out the A$1.4 billion ($1 billion) that Telstra has in its Philippines war chest,” Mackay said.


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Telstra's Philippines foray could burn through $5b of cash, say analysts

Telstra chief executive Andy Penn told investors in October the company would spend up to $1.4 billion for a 40 per cent stake in the Philippines' third mobile network. Photo: Vince Caligiuri

Telstra's plan to help food and beer giant San Miguel build a mobile network in the Philippines could face major cost overruns and burn through substantial amounts of cash.
Australia's biggest phone and internet provider is in the final stages of negotiations with San Miguel to launch the archipelago's third mobile network. Telstra chief executive Andy Penn told investors in October the company would spend up to $US1 billion ($1.4 billion) for a 40 per cent stake in the joint venture.
The relatively risky move would represent one of the biggest overseas investments ever made by Telstra and would come at a critical time for the company, which must find new ways to increase profit amid rising competition in Australia from rivals like TPG Telecom and Singtel-Optus.
A report from independent analyst firm Creator Tech warned the push into the Philippines could become an expensive mistake, costing the joint venture up to $5 billion if construction is hit by cost overruns and delays. Major shareholders are also expressing doubts over whether it is the right move.

Creator Tech is a boutique analyst company that has written reports for large global companies and organisations like the Communications Alliance. Its co-founder, Steve Mackay, said Hong Kong-based executive Ferdi Stolzenberg had commissioned the paper on behalf of some potential Telstra investors.
Mr Mackay said the high profit margins enjoyed by incumbent mobile providers Globe Telecom and PLDT meant it made sense for Telstra to be interested in the Philippines.
"The business case for 4G in the Philippines, where both of the incumbents are making profit margins that nobody else is making, is a no-brainer and I can absolutely see why they'd do it," he said. "But what are the costs, what are the risks to the costs and why doesn't Telstra seem to be disclosing any of those?"

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