In a media conference call last night, SingTel chief financial officer Chua Sock Koong said the new entity would be the world's sixth largest international carrier and among the largest of all non-Japan Asian companies. (See below for excerpts of the conference call).
Chua also hinted that there might be a tariff rebalancing exercise in the pipeline for fixed line subscribers in Singapore.
"Our position on tariff rebalancing has always been that we will look at (the) economic case and if the competition in the international services continue to increase, we would be looking at tariff rebalancing and that's something that the company is looking at actively," she said.
On whether C&WHKT chief executive Linus Cheung or SingTel CEO Lee Hsien Yang would lead the new company, Chua said, "I don't think that has been decided yet as the terms for the transaction have not been reached."
She said that it would be a merger of equals and that in the event the transaction is proceeded with, it is likely to reflect the market value of both companies.
Singtel closed at S$2.85 Monday, down S$0.33 by 10.4 percent.
Below are excerpts of last night's conference call with regional journalists with Chua representing SingTel.
Q) Can you give us some background as to why you think this (the merger) is necessary, especially in light with the liberalization announcement in Singapore last week?
A) We think that the merger, if proceeded with, would be very strategic. The merger of SingTel and C&WHKT will create a world class telecoms operator with a combined market capitalization of approximately S$100 billion and would be among the largest of all non-Japan Asian companies.
More significantly, this company will be the largest international carrier in Asia. Singtel and C&WHKT would carry an aggregate in excess of 3 billion international minutes in 1998/1999 combined, and that's more than the traffic carried by Sprint, which is about 2.9 billion minutes in 1998 and that would rank the combined company as the world's sixth largest international carrier.
In addition to that, we would actually also create the leading market position in the Asia multi-national company (MNC) business, we'll be the leading Internet backbone operator, also the largest pan-Asian mobile operator.
So, there are significant growth opportunities if the merger is to be proceeded. I think the change in the regulatory position in Singapore frankly as we have earlier discussed with analysts is something that we had expected to happen in light of the de-regulation in the industry in various parts of the world and in Asia as well. So, it is something that has not come as a total surprise to us at SingTel. So, I would not say that that has in any was impacted the discussions.
Q) How soon do you think this transaction might be completed, or is there a deadline you're working towards?
A) The merger that we are looking at, as we've mentioned in our announcement, are at a stage where negotiations are still ongoing. I am therefore not in a position to commit a deadline as to when this transaction would be concluded.
Q) When did talks start -- is it only just starting or has it been going on for awhile?
A) We have been in discussions with C&W plc since last November.
Q) How advanced into the talks are you already for this particular merger?
A) We have been discussing various forms of transactions since last November.
Q) Is C&WHKT talking to anyone else or is this exclusive to SingTel?
A) We are not in a position to comment whether C&WHKT is in discussions with anybody else. I suppose that question should be best addressed by the company directly.
Q) In light of talks with C&WHKT, what about talks with Deutsche Telecom? Are they still ongoing?
A) The DT discussion actually ... we've mentioned that they are ongoing discussions ... that actually relates to the regional mobile business and clearly, if this transaction, this merger proceeds, that would really strengthen our overall regional mobile strategy.
I think C&WHKT has approximately 1 million subscribers so we have about 1 million subscribers in Singapore, together with the another 2 million mobile subscribers that we have through our investments in the Philippines and Thailand, our investments alone, we would have approximately 4 million mobile subscribers. And that would be a very significant regional operations where we would be able to derive significant synergies both in our service offerings and in the various cost synergies in handsets, network equipment etc.
Q) Would you then still have a need to tie-up with DT for a bigger regional network?
A) Discussions with DT are still ongoing and I'm not in a position to give you additional details on that particular transaction but clearly, if this merger is to proceed, we would already have a very significant regional mobile presence. It would be the largest in pan-Asia.
Q) Is Goldman Sachs involved in this deal?
A) Goldman Sachs are our financial advisors.
Q) Could you give us an idea as to what kind of stake SingTel would have in the new merged unit and what kind of role will SingTel play?
A) I think the terms of the transaction has not been agreed but we are looking at a merger of equals and in the event that the transaction is proceeded with, it's likely to reflect the market value of both companies.
Q) Will there be one new company that will be formed or will there be two, separate listed entities?
A) The exact structure to be proceeded with is still being worked on. Basically, we're looking at merging two entities into one where it is a merger where you can maximise on the synergies, both in revenue and expenses.
Q) Will there be potentially any areas of overlap in the two companies?
A) We would be looking at maximising the synergies of both companies but what would be most exciting coming out from the merger would be the strategic intiatives that we'll be able to do in the region as a combined entity.
Q) What synergies will the two companies hope to achieve in the event of the merger and what sort of services do you hope to roll-out for the pan-Asian region if that is what your reach is?
A) I think clearly the significant traffic between Singapore and Hong Kong ... certainly we would see revenue synergies, we would have potentials to create highly competitive call charging structures between Hong Kong and Singapore, and that's one possibility that we're looking at.
Clearly, there'll be preferential roaming agreements that could be created between SingTel, C&WHKT and with SingTel's other mobile affiliates.
We would also be looking at capital expenditure; clearly with combined network planning, we'll be able to eliminate duplication in capex, for example, in some of the submarine cable investments, the trans-Pacific routes and routes to other Asian countries ... clearly there is room to eliminate capex.
I think we're looking at both revenue and cost savings synergies and in addition to the synergies, we are also looking at initiatives the merged entities can embark on in the region. In addition, there are also areas of Internet and e-commerce where clearly, we would build significant skills if the merger is to proceed.
Q) Are we looking at lower tariffs for domestic (Singapore) fixed line charges as well?
A) I think if you look at the local tariffs, both in Singapore and Hong Kong, they are already amongst the most competitive in the world. So, frankly, if you look at the comparison of the competitors' business of the local services in these two countries on a global basis, I think the rates are already very attractive.
Q) So there is no basis for (tariffs) actually coming down?
A) That would not be the focus currently.
Q) What about (tariffs) going up as some have speculated?
A) I think C&WHKT has already proceeded with the tariff adjustment over the last couple of years. Our position on tariff rebalancing has always been that we will look at (the) economic case and if the competition in the international services continue to increase, we would be looking at tariff rebalancing and that's something that the company is looking at actively.
Q) Given the current economic pickup that you're seeing, is there a case right now?
A) We think so and that's something that the company is actively considering.
Q) What's the role of the two chief executives with Linus Cheung and Lee Hsien Yang? What's going to happen to the leadership of the new company?
A) I don't think that has been decided yet. As we've mentioned, the terms for the transaction have not been reached.
Q) Because there has been some speculation that Linus Cheung would be heading the new company?
A) I'm not aware of this.
Q) There's also been speculation that there's going to be a need to lay off employees as a result of the merger. Can you comment on that?
A) I think clearly the merged entity would have a lot of growth potential going forward so we would like to look at it in that very positive light of the initiatives that we would be able to embark jointly.
The new merged entity would have significant financial and other resources to take advantage of the significant growth opportunities in the telecommunications sector in Asia specifically in the Greater China region, both in the traditional voice telephony and also in the modern data communications area. So, i think there are a lot of exciting growth opportunities which the merged entity will be able to embark on.
Q) So, are you saying that there would probably be no layoffs as a result of the merger?
A) I think if you look at the companies on their own, whether a merger transaction happens, there would always be a need to review how manpower is deployed. So, I would rather not relate the layoff issue to the merger but focus on the growth opportunities that the merged entity would be able to embark on.
Q) What are your plans for China?
A) Well, I think everybody else is looking very excitedly at China to see how the Chinese market will be liberalized following plans (for China) to enter WTO. Clearly, (the) positioning in Hong Kong would be an advantage for investment into Greater China.
Q) Looking at C&WHKT, Hong Kong is just opening up its market, the company is loosing a lot of market share, it's even losing money. Why would SingTel be interested in a company like that?
A) I think I have outlined the strategic rationale earlier. I think the transaction would be an opportunity for the merged group to gain significant scale and scope in the various activities (mentioned earlier) and that the merged entity would have a lot of strength.
I think de-regulation of the market is something that we see in all major markets so it is not a trend that can be avoided.
Q) What kind of market share would the merged entity have and what kind of profit potential will it have?
A) If you look in terms of market capitalization, we are looking at approximately S$100 billion and if you look at the MNC market, that would be a 60% share of the MNC market in the Asian (excluding Japan) region.
I think both companies are publicly listed companies and are quite well followed and researched so you would know the profitability of the companies on a standalone basis but of course, we're looking at the synergies and the growth opportunities for the merged entity going forward.
Q) There've been talks about global alliances. Where does this fall into place in terms of SingTel forming a global alliance and also your partners such as KDD and your talks with Telstra?
A) I think this transaction, if proceeded with, would significantly improve our regional presence. We would have significant presence in Singapore, Hong Kong and the rest of Asia, where we have built-up points of presence, including hard to reach places like Vietnam, China and India.
So, we would be a very significant regional player, particularly if this merger is to be proceeded with. I think that would certainly be extremely attractive to any global service provider who would need an Asian leg for the delivery of their services to their customers in this region.
Q) Is there anyone that you're talking to right now?
A) I think we are in discussions and we have agreements with a number of GSPs in Singapore.
Q) Where would the merged company be based in and what kind of trading ... will it be in Singapore or Hong Kong currency?
A) We don't have those details yet.
Q) Someone was commenting that with this merger, SingTel would effectively become an associate of Cable & Wireless. How do you feel about that comment?
A) I think I said that this would be an independent communications company in the Asia Pacific region. There could be business arrangements with Cable & Wireless.
Q) What about C&WHKT's holdings in Singapore such as M1 and well as C&W Asia Network Services?
A) I think that if you look at the scale of this transaction compared to these investments, we are not really talking about things in the same scale but clearly these are issues that we would need to address at a later stage. We would need to rationalize some of this but those are not issues of immediate concern but clearly we would need to focus on that if the transaction is to be proceeded with.
Q) Could you please provider some background information as to who approached who? Can we assume that your various subsidiaries around the region will be pumped into this new vehicle; and can we assume that there will be a common branding name and do you have a working title for that?
A) Frankly, in a discussion of this nature, we have been in discussions on various transactions over such a long period of time on various options ... we have been business partners ... so who approached who is really not relevant here.
This is basically of a merger so it will come with whatever assets the companies now own. On the branding issue, I think that's something that's pretty premature but we're working on the concept that its a merger of equals.
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