Between the lines: Telecom to trudge long road after SingTel blocks shortcut

By RICHARD BRADDELL

In theory, nothing has changed, but Singapore Telecom's successful bid for Cable & Wireless Optus leaves the question of where Telecom goes now.

Clearly, Telecom's argument that it could finance and gain control of Optus was wishful thinking, although there was more substance and sense to its less loudly stated strategy of being around to pick up scraps from the table.

But if Telecom had hopes of such morsels, it is now left gazing at an empty plate since SingTel, in contrast to Vodafone - which wanted only the mobile business - has no obvious intention of casting off any Optus operations.

What this week's announcement does is leave analysts and investment managers racking their brains about Telecom's long-term positioning. They were doing that anyway. But although they could see the possibility of a quick leg into Australia's big league, that now can be achieved only through extremely hard work.

Telecom was doing all right anyway with its drive into Australia, getting a huge boost last year through the $A500 million ($604 million), five-year Commonwealth Bank of Australia contract.

It has given Telecom the credibility to win a number of other corporate services contracts relying on integrating telecommunications and information technology.

The Optus venture might have been a disappointment, but the Australian market still has plenty of room for a third player and Telecom has identified nearly $A10 billion in corporate and Government business it wants a share of.

But SingTel's Optus deal again exposes Telecom Australia's uncomfortable position in the mobile market.

Arguably, it needs its own mobile network so it can offer large customers fully integrated services.

Most obviously, that would have been achieved through an alliance with Hutchison, whose 400,000 mobile customer base is similar in size to Telecom's and would have been boosted by another one million had Vodafone prevailed with Optus.

Without Vodafone, talks between Hutchison and Telecom on a joint scheme have seemingly collapsed and, given their minuscule customer bases, may never be revived. Telecom's best bet might be to work on improving the reselling agreements it has already with Vodafone and Optus.

If there is any satisfaction for Telecom in this week's developments, it may be that SingTel is now finding out what it's like to be boots-and-all into the Asia Pacific region's second-largest telecoms market.

SingTel's share price has gone into a spiral as its once comfortable balance sheet takes on more conventional debt loadings.

And in a vicious circle, Optus' has dropped too as minorities, aware that they will end up with declining-value SingTel scrip, are dumping their Optus shares now in the hope of avoiding further losses later.

This is not good for SingTel, which has been accused of paying too much and may suffer a loss of face. It will be under pressure to make Optus perform, and that could mean getting rid of sluggish assets.

There might yet be something in it for Telecom.