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Telstra under extreme pressure at home due to NBN Co increases investment in Asia Pacific Part 2
Published Date: 3/8/2016

Telstra's newer diversification businesses

The following are key examples of Telstra diversification in Asia and domestically and give a good picture of where Telstra stands in its strategy to counterbalance a weakening position in Australia due to NBN Co and the recovery of Vodafone Hutchison Australia.

Cooperation with PT Telkom in Indonesia

After more than a year of talks, in September 2014 Telstra Global and Telkom Indonesa, the partly state-owned incumbent telco with revenue of $8 billon and a 60% share of the Indonesian enterprise sector, agreed to a 51/49 joint venture (PT TelkomTelstra) to start operations in 2015, which would enable Telstra's NAS activities to be bundled with Telkom's network and data centre capabilities and sold through their enterprise sales teams to Indonesian enterprises, multinationals and Australian companies in Indonesia. A year later in an interview with the Australian Financial Review prior to his departure, Phil Sporton, president/director of PT TelkomTelstra said the JV had been very successful so far, that Telstra had built its managed services operation with PT Telkom 'unusually fast' and that he believed the pattern of this particular cooperation could be used as a cookie-cutter for similar agreements throughout the Asian region with the right partners.

Management control of Autohome of China

Autohome is an NYSE-quoted company based in Beijing with sales of around $531 million in 2015 and currently capitalised at $3.0 billion. Autohome, through its websites, offers automobile buyers and owners car-related articles and reviews, pricing trends in various markets and a library that includes specifications. Formerly known as Sequel Media, Telstra bought the business in 2008 when former Telstra CEO Sol Trujillo paid $76m for a 55% stake. In 2012, Telstra paid a further $37 million to lift its stake in Autohometo over 66%. In December 2013 Autohome launched a successful IPO on the NYSE with shares offered at $17 and rising at to over $30. At the time of the IPO Telstra still held 66.2% of the company. However, the way Autohome's equity was structured it was possible at that time for Telstra to maintain 51% voting control of Autohome even if its economic interest in the company fell as low as 39.3%.

In November 2014 Telstra announced in an SEC fling that it was planning to sell a 6.2% stake in Autohome, reducing its ownership to 56.7%. At the time independent sources quoted by the Sydney Morning Herald estimated that Telstra might be able to get somewhere in the range A$346-450 million for the shares. As of December 2015 Telstra's half year interim report appeared to show it owned 49% of Autohome. Despite the sell off Telstra management says that maintaining a controlling share of Autohome is part of the company's diversification strategy.

Telstra ready to spend A$1bn to enter Philippines mobile sector

In April San Miguel (SMC), a Philippines conglomerate said that it planned via its subsidiary Vega Telecom by January 2016 to become the country's fourth mobile operator competing with the PLDT Group (Smart and Sun Cellular), Globe Telecom and digital wireless trunking operator NOW Telecom (formerly Next Mobile), as well as one MVNO.

More specifically, San Miguel, through its subsidiary Bell Telecommunications Philippines (Belltel), was reported to have rolled out its mobile telecommunications network ahead of commercial operation targeted for 2016 and had told the Philippines regulator, the National Telecommunications Commission, that it had concluded agreements with contractors and suppliers for the supply of services, operation, and maintenance of its mobile infrastructure.

Since about 2009 SMC had been gradually building a passive position in the telecommunications sector under its holding vehicle for the sector Vega Telecom. In 2010 SMC acquired a 75% share in BellTel, whose licences at that time entitled it to provide LEC, IXC, VSAT and international gateways services and which offered an integrated package of services including local and long distance telephone services, high speed data connectivity, Internet, cable TV and videoconferencing. BellTel also acquired a mobile licence which originally gave it a two-year window from 2007 to roll out its mobile service, but could not in the absence of frequencies, which the NTC assigned in 2011. Subsequently, BellTel has been forced to ask the regulator for extensions to its licenses. BellTel has rights to access to frequencies in the 2300MHz band.

In 2009 SMC and Qatar Telecom each acquired large minority shares adding to around 75% of Liberty Telecom Holdings, a holding company for the Philippine unit of Wi-Tribe, a provider of broadband Internet services using WiMAX and other assets. Subsequently in July 2015 San Miguel increased its stake in Liberty to 100% by purchasing the outstanding shares from its partners Qtel West Bay (part of Ooredoo Group), Wi-Tribe Asia and White Dawn Solution. Although Wi-Tribe only served about 59,000 customers it also holds the valuable resources with 100 MHz of 700 MHz spectrum in the Philippines - 90% of all frequencies in that band licensed by the regulator. In 2010, SMC acquired a 77.7% share of Eastern Communications, a provider of telecom services to businesses of all sizes. In 2015 it acquired Express Telecom for an undisclosed amount.

In early November 2015 PLDT and Globe Telecom complained to the NTC that SMC currently had an unfair allocation of 700 MHz spectrum as a result of its acquisitions and asked the NTC to share those frequencies more fairly, which would
give them a chance to provide a better mobile broadband service. Reportedly the regulator has not been very responsive to that plea saying that SMC and its subsidiaries were fulfilling all of their obligations.

In August 2015 Telstra formally announced that it was in talks with San Miguel on the possibilities of partnering in the mobile business, but said there was no guarantee an agreement would be reached. On October 28th the Australian said that Telstra CEO Andy Penn had told it was ready to spend A$1 billion on its share of the partnership with SMC, with banks picking up the rest of the estimated $2.0-3.5 billion expenditure over four years. At the same time Telstra put out another statement confirming that talks were still in progress. In late December the Sydney Morning Herald reported that PLDT was considering taking SMC and Telstra to court on the issue and was also planning to approach the Philippines president Benigno Aquino on the subject.