A year ago, Singapore Telecommunications lost every time it entered the race. Most spectacularly, it lost out on its bid for the Hong Kong arm of Cable & Wireless. As revealed in the REVIEW, SingTel's bid for HKT was scuppered when, in an apparent attempt to prevent foreign ownership, Chinese banks and companies backed PCCW's rival bid. That bid--one of the biggest leveraged buyouts outside the United States--won. It transformed PCCW overnight into the darling of the Hong Kong stockmarket--a promising bet on Asia's booming technology sector and positioned as one of the region's top Internet plays. Meanwhile, analysts snickered that SingTel couldn't close a deal.

The company had already lost a bid to acquire Time dotCom, the telecommunications arm of Malaysia's politically connected Renong group, stalled when it was opposed by Malaysian Premier Mahathir Mohamad, who thought it might pose a national-security risk given SingTel's links with the government. At that time, the Singapore government, through Temasek Holdings, owned 78 percent of SingTel.

What a difference a year can make. PCCW, hit in part by the meltdown of the New Economy, has watched its shares plummet, losing more than 80 percent of their value. SingTel, on the other hand, has recently completed the largest acquisition in Singapore's history--taking over Australia's second-largest telecoms company, Cable & Wireless Optus--for A$14 billion (US$7 billion). The merged entity will represent a formidable rival to Australia's largest telecoms company, Telstra, and PCCW, which finalized the merger of their Asian assets in February.

The Optus acquisition also means the Singapore government's ownership in SingTel will be diluted from 78 percent to 69 percent. "In the past they've been rebuffed on their overseas acquisitions because of political issues," says Anand Ramachandran, deputy head of telecoms research at Salomon Smith Barney in Hong Kong, who in early September upgraded the stock from neutral to an outperform. "There's a chance they might make a U-turn."

The odds certainly seem good. The telco is now gunning for other acquisitions in its backyard, and has confirmed talks with Holland's KPN to buy its 22.3 percent stake in Indonesia's leading cellular phone operator, PT Telkomsel, a unit of government-owned PT Telekomunikasi Indonesia. SingTel would enter Telkomsel as a strategic partner ahead of the Indonesian telco's planned IPO. Separately, Malaysia's Business Times has reported that SingTel may be on the verge of acquiring a stake in Malaysia's Time dotCom--the same company it failed to add to its stable in May 2000. SingTel has declined to confirm or deny the rumours.

Either way, SingTel's collection of diversified stakes in companies across the region are already starting to bear fruit. SingTel is in alliances with Thailand's Advanced Info Service, Philippines' Globe Telecom and India's Bharti Group. Globe and AIS are fast-growing telcos, analysts say, while Bharti has said it will list it shares in the domestic market by the year's end to raise cash for further expansion.

Syed Razif Al-idid, a telecoms analyst at ING Barings in Singapore, likes SingTel's investments in all three companies because they are generating enough cash to fuel their own growth and are not a burden on SingTel or existing shareholders. Al-idid also likes Bharti as a play on India's promising telecoms sector; currently India has about four million cellular subscribers but this number is expected to swell to between 40 million and 50 million by 2005.

Apart from acquisitions, SingTel also holds a 60 percent stake in C2C AsiaPac, a company that is building one of the first private submarine cable systems in the region to tap market demand for bandwidth. C2C will give SingTel and its partners the lowest cost production capability in the region and access to all the capacity they may need for future growth, Al-idid says.

But for the moment, all eyes are on the Optus deal. The acquisition helps SingTel meet its goals of diversifying out of Singapore's narrow home market of four million people, increasing the leverage of its balance sheet and lessening the government's share of ownership. "There should be scope for a lot of skill and capability transfer between the two companies," notes Al-idid. Adds Ramachandran of Salomon Smith Barney: "Optus has the potential to introduce growth into the SingTel story."

Mobile telephony is where Optus and its 3.7 million mobile subscribers will make the biggest contribution. In a report by Merrill Lynch, the investment bank forecasts cellular penetration in Australia will rise to approximately 80 percent over the next five years and, like SingTel, Optus has already purchased 3G licences. What's more, by focusing on the Asia-Pacific region, SingTel can obtain synergies such as the sharing of bandwidth, reduced interconnection charges and a better bargaining position with suppliers, the report states.

Another area where the two companies will benefit from the merger is data and networking products. Both companies have been experiencing solid growth in revenues from this sector. The combined group, writes Merrill Lynch, "would have a relatively comprehensive regional network with 79 submarine cables and four satellites providing solid coverage around the Pacific Rim." While any potential for reducing costs is difficult to estimate, there should be opportunities for savings, the investment bank writes, including the use of more cost-efficient data routing.

But SingTel must create shareholder value from the acquisition, analysts say. Going by its share price, SingTel has lost a few billion dollars of shareholder value since it announced its bid in March. Whether SingTel can recoup those billions will depend on the synergies SingTel can reap. SingTel has justified paying more than 50 times for Optus's earnings on the grounds that the combined company will grow faster and will extend SingTel's reach beyond its home market.

Still, the challenge of integration will loom large and the deal will likely become a case study of how SingTel manages a foreign carrier when it has control. "They've changed their profile," says Bertrand Bidaud, head of telecommunications research at Gartner Group in Singapore. He says with Optus, SingTel will almost double in size. It will also face more scrutiny in Australia than it has at home. "The profile of investors itself is changing as the company has less cash than previously, making it less secure, while pressure on profits increases very fast," says Bidaud. "They have never had such a challenge before."