Ovum foreshadows era of cross-border telco consolidation

Stuart Corner
Friday, 31 October 2008 04:33

Opinion and Analysis

In the nineties, Telstra embarked on an aggressive overseas expansion strategy. At one point  then CEO Frank Blount set out a goal of having 20 percent of revenues coming from offshore by 2000. That strategy came to nothing and his successor, Ziggy Switkowski also embarked on series of major and unsuccessful overseas investments.

Telstra has suggested overseas investment as growth avenue should it decide not to participate in, or fail to win, the national broadband network, and the ACTU which this week issued a report expressing concern at Telstra's hardline tactics, claims that:

"After what could be considered a string of failed overseas ventures in the 1990s the last major foray [Telstra] made was a $3.5 billion outlay to enter a joint venture with a Pacific Century Cyberworks, a Hong Kong company, in 2000. The deal created Reach Ltd, which was the largest international carrier of internet and voice data in Asia, and CSL, a mobile carrier in Hong Kong. Neither of these was considered a success and just three years later Telstra was forced to write down the value of Reach from around $1 billion to zero."

Walker cites SingTel today as something of a success story in telco internationalisation with a string of investments, mostly in Asia and mostly in fast growing cellular markets. But this success has not been easily achieved and represents its second attempt at internationalisation The company made a number of investments in other markets in the nineties, all of which it has since exited.

Walker acknowledges that "mergers are not easy. Anyone that's been through one, even a small one, knows how difficult and costly it is to integrate all the various internal IT systems, facilities, divisions, etc. together."

Yet, he says, "the opportunities to pool risk, increase access to capital markets, and better negotiate with suppliers are worthy goals. Those service providers with cash available or the ability to creatively finance should attack opportunities to grow inorganically over the coming months; there will be many."

Indeed there may, but they would do well to proceed with caution and heed the lessons of history.