Telecom Asia

Can telecom reform withstand the regional cable shakeout? – Telecom Planet

Can telecom reform withstand the regional cable shakeout? – Telecom Planet – Brief Article

Grahame Lynch

The sale of Global Crossing to Hutchison Whampoa and Singapore Technologies Telemedia for an effective price of less than four cents in the dollar continues the process of the Asianization of global telecom assets.

For much of the last few years, global telecom infrastructure has essentially been an Anglo-American affair.

Global Crossing, FLAG, Level 3 and TyCom dominated new cable deployments, while the spoils of part-privatizations of national PTTs usually fell to cashed-up American or European giants such as Verizon, British Telecom and AT&T.

But the dominant theme of the last year has been the sale of many of these assets to cashed-up local interests.

Probably the most remarkable of these was the “sale” of Level 3’s Asian network to Reach, the joint venture of Australia’s Telstra and Hong Kong’s Pacific Century Cyberworks. I say “sale” with qualification because Level 3 actually gave $90m in working capital to Reach to facilitate the transfer, with Reach agreeing to do little more than take over some $150m or 50 of capital commitments for a network rollout that is nearly complete.

According to Level 3’s 10-Q SEC filings, the “sale” took $300m of future funding commitments off its hands, which suggests it saw the better part of $150m of operating losses on the horizon. Reach can make a creditable claim to be Asia’s largest existing wholesale carrier and is in a much better position to make the network pay.

The sale of Global Crossing is equally remarkable, although Hutchison and Singapore Technologies Telemedia did actually pay cash for the acquisition. With its extensive port, property and Hong Kong retail chain holdings, Hutchison has cashflow and financing strengths not enjoyed by its pure-play telco counterparts. STT is no slouch either, having piloted Singapore’s number two full service carrier StarHub to impressive market share and financial results after just two years of operation — a track record that many North American and European competitive carriers could do well to emulate.

Disposal mode

In both instances, American-financed global cable operations have been effectively Asianized — but they are hardly isolated incidents.

One of the largest global telecom investors of recent years has been British Telecom. Together with AT&T, BT ran one of the world’s largest multinational service providers while also keeping an extensive portfolio of investments in competitive carriers in countries such as Hong Kong, New Zealand and Singapore. Now BT is in disposal mode — most recently, BT’s pioneering investment in New Zealand’s number two carrier Clear Communications was sold to Telstra. BT has now repatriated or retrenched many of its Asian-based executives, maintaining just a small clutch to promote such offerings as Ignite and Genie.

The Asianization of the region’s telecom infrastructure will have an interesting effect on the pace of liberalization in developing markets.

Much of the pressure on Asian governments to do things such as reform international settlements, issue new carrier licenses and instal independent, pro-competitive regulation came as a result of North American and European pressure through channels such as the International Telecommunication Union and the World Trade Organization.

But as Western telecom giants such as BT, AT&T, Level 3 and Global Crossing lose interest in foreign markets, much of the impetus for continuing telecom reform will also disappear.

Outfits such as Telstra, Singapore Telecom and Hutchison are regarded as national champions and nation-builders.

Their domestic positions are strong and, from a consumer point of view, their dominance can only really be matched by cashed-up, powerful Western competitors.

As these competitors fall prey to bankruptcies and cost pressures, there appears to be few serious players willing to fill the vacuum. The dominants are becoming stronger and competitors appear destined to only make a mark in niche areas.

The task of asserting dominance is made considerably easier when one can secure infrastructure for cents on the dollar. The typical regulatory tendency to measure interconnect and network benchmarks on formulae such as replacement network cost is useless when that actual network cost is discounted by a factor of 80% or more.

The economics of global network deployment suddenly look a lot healthier than they did this time a year ago. But whether that will be good for those who see healthy and sustainable competition as a pre-requisite for a pro-consumer telecom environment remains to be seen.

Grahame Lynch Is CEO of Decisive Media in Sydney, Australia, and a former editorial director of this magazine. He can be contacted at

COPYRIGHT 2002 Advanstar Communications, Inc.

COPYRIGHT 2004 Gale Group