Michael Sainsbury
March 15, 2016

Telstra walks from San Miguel deal

Telstra walks from San Miguel deal

Andy Penn: Knows when to hold 'em, knows when to fold 'em

Telstra chief executive Andy Penn has just been forced to walk away from his first big Asian deal, to partner with the San Miguel group to build the Philippine’s third mobile network.

It was a rare, pretty much unrepeatable opportunity in Southeast Asia’s second most populous nation, and the one with the fewest mobile networks.

Indeed, while Telstra decided not to commit the $1 billion or so to help fund the JV it has still offered, as Mr Penn said “to continue to provide technical network design and construction consultancy to support San Miguel should they require those services."

San Miguel is pressing ahead with the network although InnovationAus.com understands that many of the loans that were being lined up depended upon Telstra’s involvement.

It is also understood that the reason the deal fell over was that San Miguel was simply too difficult to work with and Telstra is not the first company to find this.

The group has had a history of high executive turnover in its telecoms business during its numerous attempts to launch various services over the years.

But the failure of a deal that many believed to be a sure thing has not cooled Mr Penn’s, ardour for Asian deal making.

It’s worth remembering that Mr Penn, the former chief executive of regional insurance group AXA Asia Pacific, was selected first as the company’s finance chief by its previous and now legendary CEO David Thodey, and then as his successor by the company’s board, not for his knowledge of technology but for his experience in Asia.

With the National Broadband Network coming down the pipe, so to speak, Telstra's natural fixed line monopoly was, at some point and in some way, going to be wiped away.

Mr Thodey and the company’s other directors understood that, finally, Australia was not going to be enough to maintain the sort of growth profile that would sustain and hopefully increase the dividends of a blue chip stock like Telstra.

Some commentators, who clearly have no idea about the Southeast Asian, or in particular Filipino mobile sector have equated the now dead San Miguel deal to the ill-timed joint venture former chief executive Ziggy Switkowksi made with PCCW just as the 2000 dotcom crash was unfolding. It was no such thing.

In fact, what has been lost in the mists of times is that Mr Switkowski forsook Telstra’s prescient involvement in the very first mobile networks in places like India, Vietnam, Laos and Indonesia. Investments that, if they had not been cashed-in for nothing to focus on the dud deal in Hong Kong, would have seen Telstra in position as a regional mobile player potentially even more powerful than Singapore Telecommunications is today.

Telstra is pushing ahead with various strategies in Asia, including the pretty much done deal integration of Pacnet – itself a deal worth, all up, about $1 billion – as well as its Indonesian telco JV, and its broader cloud computing strategy. It also has a Singapore-based start up accelerator.

There are other mobile options in Thailand, Malaysia and Singapore at least, Nomura analyst Sachin Gupta reckons, but whether they pass Telstra’s stringent assessment process is anyone’s guess.

A legacy of Telstra’s remarkable transformation by Mr Thodey is a far better run company that is prepared – as yesterday’s announcement proves – to walk away from deals that don’t tick all the boxes.

With the government’s $12 billion payment to take its copper wires for the stumbling NBN, Telstra should be using at least some of this as risk capital to create new businesses and Asia remains a huge opportunity – perhaps one area the company could explore is business focused virtual mobile networks.

Shareholders should be comforted by that, but they should also be keen that Australia’s largest technology company continues to pursue a significant and sustainable business in Asia, helping create regional ecosystem from which other Australian technology companies and professionals can benefit.

It’s probably redundant to say this, but it's still worth noting that Telstra's investment in Asia dwarfs anything that Malcolm Turnbull’s Innovation and Science Agenda has yet to throw up.

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