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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Monday, December 28, 2015
Telstra's Philippines foray could burn through $5b of cash, say analysts
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| 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.
Monday, November 2, 2015
The High Cost of Telstra in the Philippines
Can Telstra really have the will power to face the challenges in the Philippines? We'll take a look on how an Australian company can really survive the harsh climate in the Philippine scene.
Wednesday, November 5, 2014
Telstra’s Ties With ‘Tainted’ ZTE A Red Flag For Philippines
A potential wireless joint venture between San Miguel Corporation (SMC) and Telstra Corporation, Australia’s largest telecommunications company, has raised concerns in the Philippines given Telstra’s close ties with Chinese firm ZTE – company that was involved in a corruption scandal which caused the impeachment of former President Gloria Macapagal-Arroyo.
Telstra recently confirmed that it was in talks with SMC to launch a mobile carrier in the Philippines that would provide voice, text and internet services with a focus on mobile broadband. The move has alarmed Telstra investors and analysts alike, given the hundreds of millions of dollars worth of investments required into a risky market already dominated by PLDT and Globe Telecom. Add to this Telstra’s inexperience in emerging markets, and mixed track record when it comes to investments overseas.
Reports are that Telstra would not be working with its mobile technology provider Ericsson on its Asian investments, but would instead work with ZTE on building a new mobile network in the Philippines. Telstra has partnered with ZTE in the past, having also used the Chinese firm’s technology to build subsidiary CSL’s high-speed broadband network in Hong Kong in 2009.
Filipinos are wary of ZTE and associate the company with corruption after it was anomalously-awarded US$328 million national broadband network (NBN) contract by the Philippine government in 2007.
Whistle blowers Joey de Venecia and Jun Lozada exposed under-the-table payoffs by ZTE that led to a bloated contract price which was more than double the actual cost. The Office of the Ombudsman in December 2011 then filed graft charges against the former President for supposedly approving the multi-million dollar NBN-ZTE contract, despite being “fully aware” of its supposed irregularities. Government investigations and hearings on the matter eventually led to the cancellation of the ZTE contract and the impeachment of Arroyo from office.
Her husband, Jose Miguel “Mike” Arroyo was also indicted on charges that he and his wife received millions of dollars in bribes from ZTE to push the overpriced government NBN contract. The former president is currently detained at the Veterans Memorial Medical Center over plunder charges.
Aside from corruption scandals, ZTE has also been labeled as a security risk by countries including the United States, UK and Canada because of espionage and cyber attack concerns. In June of this year, the US in fact identified a massive security breach traced to Chinese hackers. The security breach exposed the social security numbers of millions of US federal officers, creating a major privacy violation. As a result, several other countries have taken heed and exercised caution in dealing with Chinese companies.
The Australian government itself banned Chinese companies from bidding as suppliers to its own national broadband network in 2012. In addition to this, new laws being drafted under the Telecommunications Sector Security Reform will give the Australian government the capacity to revoke the service licenses of telecoms carriers should they be found to violate the new rules. This move may further restrict Chinese companies from supplying Australia’s networking and telecommunications infrastructures.
The Philippines is especially sensitive to China’s security threats, considering its ongoing dispute with the Chinese over sovereignty in the West Philippine Sea. ZTE’s involvement with Telstra in building a new telecoms network in the country would certainly be watched closely by government regulators and security officials.
"We note recent speculation concerning Telstra considering an investment in a wireless joint venture in the Philippines with San Miguel, and that financing is being sought in relation to that joint venture," Telstra said in a recent disclosure to the Australian Securities Exchange. "We are in discussions in relation to these matters. However, no agreements have been reached in relation to these matters and there is no certainty that this will occur."
Telstra recently confirmed that it was in talks with SMC to launch a mobile carrier in the Philippines that would provide voice, text and internet services with a focus on mobile broadband. The move has alarmed Telstra investors and analysts alike, given the hundreds of millions of dollars worth of investments required into a risky market already dominated by PLDT and Globe Telecom. Add to this Telstra’s inexperience in emerging markets, and mixed track record when it comes to investments overseas.
Reports are that Telstra would not be working with its mobile technology provider Ericsson on its Asian investments, but would instead work with ZTE on building a new mobile network in the Philippines. Telstra has partnered with ZTE in the past, having also used the Chinese firm’s technology to build subsidiary CSL’s high-speed broadband network in Hong Kong in 2009.
Filipinos are wary of ZTE and associate the company with corruption after it was anomalously-awarded US$328 million national broadband network (NBN) contract by the Philippine government in 2007.
Whistle blowers Joey de Venecia and Jun Lozada exposed under-the-table payoffs by ZTE that led to a bloated contract price which was more than double the actual cost. The Office of the Ombudsman in December 2011 then filed graft charges against the former President for supposedly approving the multi-million dollar NBN-ZTE contract, despite being “fully aware” of its supposed irregularities. Government investigations and hearings on the matter eventually led to the cancellation of the ZTE contract and the impeachment of Arroyo from office.
Her husband, Jose Miguel “Mike” Arroyo was also indicted on charges that he and his wife received millions of dollars in bribes from ZTE to push the overpriced government NBN contract. The former president is currently detained at the Veterans Memorial Medical Center over plunder charges.
Aside from corruption scandals, ZTE has also been labeled as a security risk by countries including the United States, UK and Canada because of espionage and cyber attack concerns. In June of this year, the US in fact identified a massive security breach traced to Chinese hackers. The security breach exposed the social security numbers of millions of US federal officers, creating a major privacy violation. As a result, several other countries have taken heed and exercised caution in dealing with Chinese companies.
The Australian government itself banned Chinese companies from bidding as suppliers to its own national broadband network in 2012. In addition to this, new laws being drafted under the Telecommunications Sector Security Reform will give the Australian government the capacity to revoke the service licenses of telecoms carriers should they be found to violate the new rules. This move may further restrict Chinese companies from supplying Australia’s networking and telecommunications infrastructures.
The Philippines is especially sensitive to China’s security threats, considering its ongoing dispute with the Chinese over sovereignty in the West Philippine Sea. ZTE’s involvement with Telstra in building a new telecoms network in the country would certainly be watched closely by government regulators and security officials.
"We note recent speculation concerning Telstra considering an investment in a wireless joint venture in the Philippines with San Miguel, and that financing is being sought in relation to that joint venture," Telstra said in a recent disclosure to the Australian Securities Exchange. "We are in discussions in relation to these matters. However, no agreements have been reached in relation to these matters and there is no certainty that this will occur."
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