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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