The profit forecast for the three months ended December 31 is based on the average estimate from a Bloomberg News poll of four analysts, with the numbers ranging from S$500 million to S$600 million. SingTel, as the company is also known, didn't release third-quarter profit a year ago as this is the first year it announced quarterly figures. The former monopoly will unveil earnings after the market closes tomorrow.
"Going forward, the competition is going to bite more into its domestic operation--that's a given," said Michael Millar, an analyst at SG Securities Pte Ltd in Singapore. "The story on SingTel is more of what it's doing with its cash pile."
With US$3.5 billion in cash, Southeast Asia's biggest phone company needs to enter newer markets to make up for potential revenue loss at home after Singapore opened up its phone market to competition in April 2000. Among likely acquisitions is its bid for Cable & Wireless Optus Ltd, Australia's No. 2 phone company.
Competition
At home, SingTel's key competition comes from rivals offering international calls. StarHub Pte Ltd, partly owned by British Telecommunications Plc, is its biggest competitor, entered the market in April. Others such as Pacific Internet Ltd have also started similar services.
International calls, which accounted for a quarter of sales in the first half, have been the biggest contributor to revenue. With the phone company slashing rates by up to 60 percent since April, analysts say it's tough for any other business segment to make up for that loss.
"International direct dial revenue will continue to decline," said Tjandra Kartika, an analyst at GK Goh Research Pte. "There will be gains in data and mobile, but that won't be sufficient to offset the drop in IDD with more players coming into the market."
More than 180 new companies such as Australia's Telstra Corp to WorldCom Inc are expected to set up shop in the island within the next few months.
SingTel's data business, which includes revenue from its Internet services and phone lines leased by companies for data connections, will match international calls as the key revenue contributor at the end of March, analysts say.
Another growing business is cellular services, where SingTel more than half of the island's 2.2 million subscribers. Data and mobile phone services each make up about a fifth of sales.
The quarter is also expected to be weaker than the first two quarters because businesses and consumers made fewer calls in December. That's when many Singapore residents travel during the school holidays. Business activity usually slows just before Christmas and the new year.
Overseas investment
While overseas expansion is crucial for earnings growth, SingTel is counting on new investments to create an Asia-wide mobile network. A stronger regional presence would help SingTel fend off competition from global players such as Vodafone Group Plc, the world's No. 1 cellular company that's expanding in Asia, as well as Pacific Century CyberWorks Ltd, Hong Kong's dominant phone company that's setting up a similar regional network.
Among SingTel's biggest overseas investments are an eighth of Belgacom SA, Belgium's biggest phone company, a third of Globe Telecom Inc, the No. 2 cell phone company in the Philippines, and a fifth of Advanced Info Services Pcl, Thailand's largest mobile phone company.
Earnings from these companies make up about one-eighth of SingTel's pretax profit. The phone company wants such contributions to rise to a quarter next year with more acquisitions. Optus apart, likely targets include Hong Kong's New World Development Co's phone assets or the one-fifth stake in SmarTone Telecommunications Holdings Ltd, Hong Kong's No. 3 cell phone company, which British Telecom may sell.
"SingTel has got a lot of options in Asia and it has the fire power at a time when values are depressed," SG Securities' Millar said. "Investors are going to look more at acquisitions to drive its stock price in the near term."
SingTel shares rose as much as S$0.04, or 1.4 percent, to S$2.89, its highest in nearly two months. They recently traded at S$2.86.
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