International -- Asian Business: TELECOMMUNICATIONS
ASIA'S TELECOM PLAYERS: STRUGGLING TO STAY PLUGGED IN (int'l edition)
As the crisis drags on, telecom companies across Asia are in trouble
It was one of the great booming businesses in Asia. Millions of newly affluent urban dwellers needed phones, and dozens of companies, from telecom multinationals to local providers, rushed in to meet that need. Investors gladly ponied up billions to get a piece of the action. But even the telecom industry is encountering difficulties in this promising market as the crisis drags on. In many areas, the supply of phone lines now far outstrips demand. Companies with huge ambitions are either struggling to pay off huge debts, fighting off rivals, or waiting desperately for concessions from local governments. Two stories highlight the turmoil. One details the plight of Bangkok's TelecomAsia, a stock-market darling that has fallen far. The second looks at the battle to determine the prevailing cellular-phone standard for China.Return to top
THAILAND: A GIANT FALLS HARD (int'l edition)
TelecomAsia, once a market darling, sends out an S.O.S.
For a man who spends his days selling off assets and laying off employees, Vallobh Vimolvanich seems in surprisingly good spirits. The vice-chairman of Thai telephone operator TelecomAsia (TA) bounds around the conference room at the compaNy's Bangkok headquarters, energetically drawing charts on awhite board, explaining TA's survival strategy. This is a no-brainer: You just close whole divisions. Sell others. Cut the workforce by a third. TA has gone through "a drastic downsizing," he says cheerfully.
Admittedly, there is a touch of black comedy about Vallobh's predicament. A few short years ago, foreign bankers and businesspeople were begging him to take their millions. They leaped on the chance to get in on the Asian telecom market and to team up with CP Group, the Thai conglomerate that controls TA. Now, these would-be wooers either avoid TA like the plague--or dun Vallobh for the payment of debts. Yet despite drastic restructuring, TA doesn't seem to have a chance of serious recovery anytime soon. And if TA, a Thai blue chip, cannot recover its health, it's unclear how any of Thailand's top companies will get back in the black.
TA's problems have actually worsened in the past few weeks. In late August, it reported second-quarter losses of $32 million, a result of collapsing demand in the Thai market. It has become apparent that an expensive and risky mobile-phone venture is turning sour. And despite a frantic search for new investors, TA still has no new partner and no new resources to pay down almost $1 billion in unhedged, dollar-denominated debt.WRONG MOVE. The moral of the TA story: Don't believe your own hype. CP Group Chairman Dhanin Chearavanont got into telecoms when he decided to turn his poultry, shrimp, and feed empire into a diversified conglomerate. He easily used his political connections in 1991 to get government approval to start Bangkok's only private, fixed-line telecom service. Soon, Bell Atlantic Corp.'s Nynex signed on as a minority partner to provide the technological knowhow.
An initial public offering in 1993 raised an impressive $500 million, which TA used to invest in such ventures as a satellite company and cable-television operator. And even after the start of the crisis in July, 1997, TA officials said they would have no trouble handling their hard-currency debt.
They got that wrong. Thailand's depression is so severe that half of TA's 2.6 million phone lines now lie unused. Cash flow can just cover interest payments, but some major payments of principal are due later this year. Now, it's imperative to reschedule debt. "If creditors are willing to give us some breathing room, we should be able to fulfill our commitments," says Vallobh hopefully.
Executives have started meeting regularly with creditors like NEC, Siemens, and Lucent to update them on TA's huge debt burden. Partner Bell Atlantic has sent officials from New York to help local management get out of its mess. The government may provide some relief, too, by letting TA back out of a deal to pay big annual fees in return for its concession.
TA management is also seeking an outside savior, talking with local rivals like Shinawatra as well as foreign telecom operators. "We have to get new partners," says Vallobh. "It's a matter of survival." Meanwhile, all Vallobh can do is keep selling bits and pieces at depressed prices. A stake in a Chinese satellite company is long gone, as are a construction company and joint venture in mobile phones. Next to go may be an 18% stake in a Bell Atlantic fiber-optics venture and TA's piece of the cable-TV company it merged with Shinawatra's operation.
More money is probably needed. With the Thai stock market in tatters, selling new shares is not an option. Foreign operators might still come to the rescue, but they are in no rush. "It's very much a buyer's market," says Joan Kiernan, regional telecom analyst for ABN-Amro in Hong Kong. TelecomAsia can only hang on, waiting for a savior who may not come.By Bruce Einhorn in BangkokReturn to top