A foreign think tank said Tuesday the planned telecom joint venture between Telstra Corp. and San Miguel Corp. will be a “big risk” on the part of the Australian company.
Steve Mackay, principal of Australian consulting firm Creator Tech Pty Ltd., warned Telstra’s shareholders of many risks that could impact on the cost of the company’s plan to invest in the Philippines through a wireless joint venture with San Miguel.
Among the risks faced by Telstra in the Philippines were the reallocation of the powerful frequency held by San Miguel and the incoming national elections.
“Shareholders have every right to be nervous about Telstra’s latest attempt to take its business offshore,” Mackay said.
Telstra’s new chief executive Andy Penn earlier said it would invest $1 billion in the Philippines to roll out a telecom network with San Miguel.
The planned joint venture between San Miguel and Telstra would see the local conglomerate holding a majority stake, in compliance with the 1987 Constitution, which limits the foreign ownership of utilities to a maximum of 40 percent
“The possible joint venture, announced earlier this year by Telstra’s new CEO Andy Penn doesn’t appear to be underpinned by sound analysis of the huge costs and logistical and cultural hurdles that expatriate companies face in these emerging South-East Asian markets,” Mackay said.
“This could be due to the lack of detail which has been given to ordinary shareholders by Telstra. Nevertheless, on the evidence available, it’s a big risk,” he said.
Mackay said previous attempts by Telstra to move into offshore markets had resulted in costly failure, allegations of corrupt payments and ignorance of endemic business practices in target countries.
“The Philippines move, based on our preliminary study, looks like it could suffer the same fate,” he said.
Mackay said Telstra would face two barriers that could impact on its planned entry to Philippine market in partnership with San Miguel.
Mackay cited the threat of legal actions by Philippine Long Distance Telephone Co. and Globe Telecom Inc. against NTC, in a bid to compel the regulator to order San Miguel to relinquish ownership of critical 700 megahertz spectrum and put it to public auction.
He said the foreshadowed legal actions would be lengthy and costly and “is likely to overlap the national elections in May next year.”
“Telstra could be facing a whole new set of case law and government regulations covering telecommunications in the country after the court case and the national election,” Mackay said.
“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,” he said.
Mackay said Telstra should provide all shareholders with a full and transparent business plan before shareholders can be satisfied that management has done proper due diligence on the Philippines foray.
Telstra was attracted to the Philippines market because of the growth potential in the relatively unsophisticated Philippines market, he said.
He said the spectrum was “important because without spectrum, there is no 4G service,” adding that neither San Miguel nor Telstra disclosed the value of the 700 MHz spectrum whose ownership, currently with San Miguel, was in dispute.
“Based on current exchange rates, we estimate the possible value of this asset to be in a range from Au$1.26 billion to as high as Au$3.8 billion. Telstra’s 40 percent share of this critical asset is therefore valued at somewhere between Au$507 million and Au$1.52 billion – thus, spectrum cost alone could wipe out the $1.4 billion that Telstra has in its Philippines war chest,” he said.