Tech Talk: SingTel Heads Down Under

So Singapore Telecommunications seems to have at last pulled off a big deal. And not just any deal. The $7 billion it is forking out to buy Australia's second largest phone company, Optus, is the biggest business ever undertaken by that peculiar, powerful beast called Singapore Inc.

But that's the easy part. The hard part will be making this transaction work so Optus shareholders don't experience the same fate with their investment as long- suffering SingTel shareholders. True, the telco industry has been sick since last year's tech wreck, but there were a few good years before that, and people's communication needs are getting more intense, not less.

SingTel has been a monopoly for most of its life and in Singapore -- where the government does what it can to cosset business -- managing a company has mostly meant showing up for work. But despite the free kicks that the government-owned SingTel gets, it's been a dog for investors. Indeed, there's a strong case to suggest that the company has treated shareholders with contempt.

The outgoing chairman, Koh Boon Hwee, said earlier today that the 1993 public offering was "priced too high" (so why was it?) and that he didn't think a northbound share price should determine the company's strategy. Umm, hello? Why do investors invest? Because they want to make money, and there hasn't been a lot to make by investing in SingTel over the last eight years. Today it trades at precisely the same price that it floated at, if you are a Singaporean that is.

Koh's extraordinary remarks require some translation. SingTel has pushed ahead with the Optus deal despite it being one of the year's most unpopular deals. The telco's shares fell 40% within a few weeks of announcing its move on the Australian carrier. Then the company went through the unedifying spectacle of having to justify itself at every turn. And the deal still isn't complete, six months on. Australians, meanwhile, are skeptical because SingTel is owned by the Singaporean government -- they don't understand guided democracy and nation building Down Under.

SingTel has responded unconvincingly, saying just because the government owns 78% of the firm (rising to about 85% if you count the government-managed state pension plan), it is not "controlled" by the government. Of course, the fact that Senior Minister Lee Kuan Yew's son is CEO, and that an official of the Ministry of Communications sits on the board, as does the head of Singapore's Armed Forces, clearly means little in terms of SingTel's tightness with the government.

Nevertheless, SingTel pushed on with Optus, and gave Cable and Wireless, the exiting owner, a great deal, just like Richard Li gave C & W last year when he bought them out of Hong Kong Telecom (which SingTel also coveted until China said 'no way'). It was hard work getting Australian government approval for the Optus deal. But it's going to be harder proving to SingTel (and now Optus) shareholders that it's a good idea. Even leaving aside the cultural differences, the two companies are different beasts; SingTel is a lumbering giant that only recently stopped being a monopoly. It has profit margins of 40-50%. Optus, by contrast, is the company that took on Australia's biggest telecommunications firm, Telstra. And it gets by on margins that are a third of SingTel's.

Then there's the different regulatory environment that SingTel has subjected itself to. The Australia business world is largely a transparent, open system. Singapore likes to say it has the world's best practices of corporate transparency and that compared to its neighbors it's a paragon of virtue. But it's a fair way short of Australia, so SingTel will have to adjust.

That could be a painful experience in the short term, but SingTel might find the pain an enjoyable experience. And because it's Singapore Inc.'s biggest company, so might the city-state in time.