Telcos and financiers meet in Singapore

More than 200 telecom executives, financiers and advisers gathered in the Grand Hyatt Singapore for the inaugural TMT Finance and Investment Asia conference on November 5-6. M&A strategy, financing and partnership opportunities were top of the agenda as industry, finance and legal leaders from across the world debated the key business challenges facing the sector.

Tata focuses on global transition
Vinod Kumar, President & COO, Tata Communications formally opened the conference with a visionary keynote on “ Telecom Strategies for Growth: A Global Perspective.” Mr Kumar highlighted Tata’s transition over the past five years into a global business explaining that it was a “tough” but “necessary” process which had taken time, patience and investment. “The market mantra is “next generation everything” he said, “but not all of the market is ready for some of the next generation offerings.” Nevertheless, he said it had been essential to take the company global and provide next generation platforms and services, especially because of the competitive nature of Tata’s domestic market. Tata has increased its revenues outside of India to 67% of its business through investments in its global networks and expansion in the emerging markets, compared to just 20% in 2006. Mr Kumar emphasized the significance of a company the size and quality of BT using Tata’s next generation platforms to improve its global offering and said further investment activity would continue. “The whole-sale business has deliberately driven our global multi regional strategy , especially in the emerging markets, whereas for retail we are more multi domestic,” he added. Mr Kumar highlighted Tata’s acquisition of Teleglobe in Africa as evidence of its ambitions to expand further by acquisition also, but said the company would take several small steps as it was better able to digest smaller acquisitions. “We are building new relationships in the emerging markets which over time will develop into equity based relationships. We are targeting one Greenfield investment each year,” he said.

Axiata highlights strategic challenges Yusof Annuar Yaacob, Group Chief Financial Officer of Axiata Group lit up the conference with a bold appraisal of the challenges facing telecom operators across Asia which was much talked about for the rest of the conference.

It is perhaps no wonder that European operators are reluctant to enter highly competitive Asian markets Mr Yaacob said. “Look at Indonesia, where revenues per minute have c rashed,” he said, “and Sri Lanka is a big black hole that sucked everyone in.” He highlighted the increasing significance of broadband in mature Asian markets such as Singapore and Malaysia, especially broadband mobility, but warned of the grave dangers of operators becoming a “dump pipe provider” for broadband. “The iPhone has taken a lot away from operators because it acts as a payment gateway. There are benefits but we don’t seem to see these as operators , and this is a major challenge for operators. Internet companies like Google and Facebooks have developed deep relationships with customers which operators have never achieved.”

Mr Yaacob said that we were entering a new business phase where data was a commodity and content and applications were key. “In the future data-ubiquitous world, the battle will be for information and customer ownership. The mobile industry needs to transform beyond service provision,” he said.

Despite these challenges Axiata does believe the domestic market still has a potential . “We still think expanding in the local market is the way to go. Our focus will be on the domestic market,” he said.

Telecom Leadership Round Table
Following the opening speeches, Tata and Axiata joined the Telecom Leadership Round Table which also featured executive leaders from Batelco, Etisalat, BT Group, and Bakrie Telecom. The session was chaired by Karim Sabbagh of Booz&Co and focused on international strategy.

BT maintains partnership model
Picking up on the theme of transition, Germon Knoop, CFO of BT Asia, explained that like Tata Communications BT had also transformed its business model over its recent history to meet the challenges of becoming a global business. “BT chose a business model as a retail operator in the UK market but decided not to compete with retail outside of the UK. It offered its network to core customers via BT Global Services,” he said. For future expansion, BT will only enter new markets through partnerships, with the Open Reach model acting as a benchmark. “Prior to the recession, we acquired one company a month globally to expand away from owning a network. We made 24 acquisitions in two years, financed by free cash flow. That strategy was right for us and we have built our revenue in Global Services to US$10bn from scratch in virtually in 2 years. There is not so much patience now from shareholders, but we think the strategy is right to partner.”

Batelco targets acquisitions Asia and Africa
Batelco CEO Peter Kaliaropoulos seized on the debate on telcos transforming from becoming “a dumb pipe provider” by warning against losing sight of the management of the network, and maintain a focus on operational excellence alongside strategy. He highlighted legendary investor Warren Buffet’s recent US$34bn investment into railways as evidence that the dumb pipe was not dead yet, by joking “there must still be some money in being a pipe provider!” Mr Kaliaropoulos said: “We are a boutique telco, so I think we don’t have a choice: we have to be a pipe provider because that’s where the value is. The future is in applications, but if you don’t manage your network you won’t have the cash for applications.” He further explained that Batelco saw itself as a “multi domestic” rather than a global or local player. “A customer in India wants to identify with a local brand, ” he said.

Batelco announced that it was continuing to explore investment opportunities in Africa and Asia, but Mr Kaliaropoulos added that it was difficult to find high quality assets at present as current expectations of value were “totally unfounded”. Most of the assets on sale currently are distressed assets, he said.

Batelco recently completed its US$175m investment in S Tel in India for a 42.7% per cent shareholding, and the operator will be launching its services in November with a licence to operate in six states in India. It is the leading integrated telco in Bahrain and has operations in 7 markets across the Middle East, North Africa and Asia.

Batelco plans to continue its regional expansion drive through targeted acquisitions of other operators and licences in India and Asia Pacific, while maintaining its market leadership in Bahrain. Mr Kaliaropoulos said Batelco would continue actively looking for acquisitions and was well positioned cash in the bank, net debt of zero, an excellent international expansion record, and the ability to raise further finance. “We can raise debt for further expansion, but we cannot find worthwhile acquisitions,” he said. Mr Kaliaropoulos also said telcos generally needed to invest more in the marketing and applications side, but emphasized the importance of telecom leaders focusing on operational excellence alongside strategy. “As C level executives we need to be spending more time on operations,” he said. “[International telecom operators] all ultimately have the same strategy, so it’s really all in the execution now.”Mr Kaliaropoulos also warned against the problems incurred by regulator’s attempts to break up companies into opcos and services companies, which he said devalues companies.

Etisalat targets the Philippines
Asher Siddiqui, Group Director Asia, Etisalat International Investments introduced the Middle East based telco into the debate by saying that they see themselves as a “multi regional” operator, and also continue to look for acquisitions.

Etisalalt, which has a market cap of US$25bn, also has operations in Africa and Asia. “Admittedly valuation expectations have been high but we continue to see investment opportunities,“ he said highlighting the Philippines as the next destination of choice. “We want to go to a market where we can extract value from existing operations because we continue to pursue growth applying a cluster approach, as we have done in Afghanista, Pakistan, India and Sri Lanka.” In South East Asia, Etisalat already has an investment in Indonesia, but Mr Siddiqui emphasized the importance of taking a careful approach to investment and highlighted the value of partnerships in the region. “On a global scale operators need to work more with each other across borders, and look for more partnerships in markets, ” he commented. Etisalat is present in 18 markets across the world and has a subscriber base of 94 million.



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