David RichardsPhilipines Investment A Big Risk For Telstra Say Experts
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Desperate to grow new markets Telstra is taking a big punt on the Philipines a move that some say has high risks for the Australian carrier.
Desperate to grow new markets Telstra is taking a big punt on the Philipines a move that some say has high risks.
After cutting a deal with food and beer giant San Miguel to build a new mobile network in the Philippines, Telstra is now facing the real risk that busgets could blow out buring through revenue generated from Australian mobile and broadband sales.
Telstra chief executive Andy Penn told investors in October it would spend up to $US1 billion ($1.4 billion) for a 40 per cent stake in the joint venture.
Fairfax Media recently reported that the relatively risky move would represent one of the biggest overseas investments ever made by Telstra and come at a critical time for the company, which must find new ways to grow profits amid rising competition from local rivals like TPG Telecom and Singtel-Optus.
Fairfax claim that a new report from independent analyst firm Creator Tech is warning 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.
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 don’t Telstra seem to be disclosing any of those?”
Mr Mackay also called for more detail about how much the project would cost to build in the Philippines, where major projects often experience delays, and how much San Miguel would charge Telstra for using its vital spectrum resources.
One of the biggest advantages of Telstra working with San Miguel is the latter’s control over 700Mhz mobile spectrum, which is a hugely valuable resource that Mr Mackay believed was worth between $US930 million and $US2.78 billion.
“Telstra’s 40 per cent share of this equals $507 million to $1.52 billion,” the Creator Tech report said. “San Miguel may choose to gift the spectrum to the joint venture at below market value or ‘mate’s rates’ though, based on public statements, we see no commercial reason why they would do this.
Telstra has described the report as “speculative reporting” a phase that their PR people like to use when things are not going their way.
Also skeptical is Goldman Sachs analyst Raymond Tong who last week released an unrelated report into Telstra, which also warned of potential cash burn for the Philippines project.
He claims the project could cost both parties $US3.5 billion over a three to four year period.