Singapore Telecom: A Fistful Of Billions And Looking For Action

As its monopoly ends, Singapore Telecom hunts foreign profits

Lee Hsien Yang doesn't look like a man with a problem. The youngest son of Singapore's former Prime Minister, Lee Kuan Yew, and a former army brigadier general, he is president and chief executive of one of the best-regarded telecommunications companies in the world. Ranked by market capitalization, Singapore Telecommunications Ltd. is the largest company in Asia outside Japan--and, at $36 billion, nearly the size of Walt Disney Co. The company has used profits from the monopoly it enjoys in its prosperous domestic market to fund 53 overseas investments in 21 countries, and more are on the way. Despite the $1.6 billion buying spree, Singapore Telecom is flush with cash. And it's soon to get an additional $1.1 billion as compensation for the premature ending of its monopoly.

But Lee is facing testing times. Singapore Telecom's domestic monopoly ends next April, when the cellular and paging market opens to competition. The rest of the telecom market will be thrown open in 2000, seven years ahead of schedule, thanks to a recent government decision to speed up liberalization. New-line growth in the core domestic market is an unexciting 7%. Long-distance rates, which are the company's primary source of revenue, have been repeatedly slashed. Lee warns of more cuts: "Competition will mean continued decreases in pricing."

"SINGAPORE'S PROBLEM." So with lots of money and a small domestic market that is about to be rife with competition, Singapore Telecom has no choice but to expand abroad. The problem is, with a thin management team investing in a grab bag of minority stakes around the globe, the company has no clear expansion strategy except spending money from its bulging coffers throughout Europe and Asia. "Singapore Telecom's problem is Singapore's problem," says a telecom analyst for a leading U.S. investment bank. "They have all this money and nothing to do with it except spend it overseas."

Although Lee says the company's competitive advantage lies in Asia, it plunked down $650 million in March for a 12.15% stake in Belgacom, Belgium's monopoly operator, along with Ameritech Corp. and Tele Danmark. Lee thinks he can learn from the Belgians, who are also going to lose their domestic monopoly. He also hopes to take advantage of strong growth in the Belgian market.

Like other Singaporean government-owned companies trying to expand abroad, Singapore Telecom has had trouble generating substantial returns. Total losses at its overseas operations more than doubled last year, to $62 million--a tiny amount given its overall $1 billion profits, but embarrassing nonetheless. It has taken minority stakes in a range of projects, in the process often looking more like a venture capitalist than a hands-on telecom operator. The international operation was restructured following last year's departure of one of its top executives. Now, says Lee, the cash hoard mostly will be spent on larger projects, which should allow management to remain more focused.

PAGING IN CAMBODIA. Lee believes that losses abroad have peaked, and he is looking for "significant improvement" this year. He points to unrealized gains in listed ventures such as Globe Telecom in the Philippines. About a fifth of Singapore Telecom's overseas investments are publicly traded, and they are now worth 2.5 times what the company paid for them. Lee next plans to keep pruning some of the less promising ventures. The company already has pulled back from cable projects in Britain, divesting one company and merging another with a larger competitor. Singapore Telecom is now more focused on Asia, where its holdings range from paging operations in Cambodia and China to a large conventional line-installation project in Indonesia.

Lee, 38, has a reputation as a more relaxed person to work with than his hard-driving father, who continues to play an active role in government, or his elder brother, who is Deputy Prime Minister and a rising political force. But the younger Lee, who insists he has no plans to go into politics, is well aware that he will need to start getting higher returns if he is to continue thriving in an increasingly competitive environment. It would be a mistake to think that Singapore Telecom isn't up to the challenge of competing at home. But to get the growth he needs, Lee is going to have to show that he can generate solid returns abroad. And on that score, he's got some way to go.

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