Australia | Jan 31 2007
By Greg Peel
In what is no doubt a response to Telstra’s (TLS) success to date with its NextG rollout, Optus (owned by SingTel (SGT) has announced it will build a new 3G network, with 96% coverage of the country, in rapid time. Analysts have differing views on how to interpret this.
Telstra fans, such as its greatest champion Credit Suisse, see this as a desperate attempt to compete with an incumbent telco set to run away with the spoils. With little impact being made on unconditioned local loop or ULL, CS sees the competition’s reactions as only cementing their positive view. But then there’s the negative side.
JP Morgan, long a Telstra detractor, believes the added competition will simply weigh on an already deteriorating mobile market. Citigroup agrees, but warns that Telstra might turn nasty.
Whichever way you look at it, there has been a general consensus that Optus has been a dud for Singapore Telecom. The 3G initiative has not sparked anyone to suggest otherwise, and analysts harp back to the fact that SingTel’s other subsidiaries – such as Bharti and Telekomsel – provide reasons why this S-dollar stock should have a Buy rating, with Optus not sufficiently impacting otherwise.
That said, Intersuisse analysts have focused on those smaller companies that potentially stand to do well from the Optus initiative, regardless of Optus’ fortunes. Optus is spending $500-800m on the project, and hopes to have it complete by 2010. It can’t do it all by itself.
The stand out winner, Intersuisse believes, is M2 Telecommunications Group (MTU).
M2 provides a wholesale “gateway” already for Optus and manages, as a distributor, the growing usage of Optus services by smaller telcos and others. Intersuisse already had a Buy on M2, and the 3G move only strengthens the analysts’ view.
Unlike Telstra, notes Intersuisse, Optus actually encourages the wholesale use of its infrastructure by smaller players. It will thus sell its new capacity on to mobile resellers, and that’s where M2 stands to benefit.
Another potential beneficiary, says Intersuisse, is the recently formed Service Stream (SSM).
SSM is the result of a merger between the old Service Stream (STR) and Total Communications Infrastructure (TCI). This has created “a clear leadership in outsourced managed services with a focus on nationwide telecommunications installations”, says Intersuisse, which is just what the Optus project is.
STR focused on fixed line telephony, while TCI’s expertise lay in wireless. Thus the merger brings together strong competencies in executing and managing complex projects. This could be just what Optus needs. However, SSM does not have a previous arrangement with Optus on 3G, but it does presently do other work for Optus. It also presently provides services for Telstra and others, notably Vodaphone on 3G.
To date Optus has outsourced its work to the likes of Leighton (LEI) and Downner EDI (DOW), but Intersuisse expects the urgency of the Optus project will require the telco to cast the net further. In any case, The Optus initiative will likely spark other telcos into an infrastructure scramble of their own, and this can only provide upside for a company such as SSM.
On the back of the merger, Intersuisse already had a Buy on SSM as well, so again the analysts feel the view is embellished by the Optus 3G plan.