SingTel's OpenNet buyout deal draws flak amid public scrutiny

A proposal that will give indirectly SingTel total ownership of Singapore's fiber broadband network builder is slammed by rival telco M1, while some SingTel investors are disappointed in potentially missing out on special dividends.
Written by Ryan Huang, Contributor

The proposed transaction by SingTel-owned NetLink Trust to buy out Singapore's fiber broadband network builder, OpenNet, has come under fire from competition and some of its own investors.


Proposed deal:

Under the proposed buyout last Thursday, OpenNet's four shareholders will sell their stakes for S$126 million to NetLink Trust.

While NetLink Trust is owned by SingTel, it is managed by trustee-manager CityNet. This means SingTel's shares only give it economic benefits but no effective control to influence any major decisions.
Currently under a rule to ensure fair competition, SingTel is required to sell down its stake in NetLink Trust by April 2014 to under 25 percent.

Rival telco M1 said the deal would go against the government's intent for the next-generation broadband network (NGNBN) to bring about a competitive and vibrant broadband market "via an alternate ubiquitous network that can effectively compete with the only ubiquitous legacy network in Singapore.
"The proposed consolidation will result in SingTel having 100 percent indirect ownership of OpenNet, which would negate the government's initial goal and further entrench SingTel's incumbent position," the spokesperson told ZDNet.
M1's comments come despite the structural and operational separation of SingTel and OpenNet that is set to continue under the proposed deal. For example, SingTel's ownership will only give it economic benefits but not any effective control to make major decisions.

The M1 spokesperson added the proposed deal failed to address the underlying issues impacting customers that have persisted even after three years of OpenNet's operations, which has plagued by complaints over delays. "The competitive benefits are also not apparent in how it will improve the operational efficiency of OpenNet or lower costs for consumers [as promised in the proposal]."

For example, the spokeperson noted the proposed deal includes a delay in SingTel's mandatory divestment of NetLink Trust from 2014 to 2018 to integrate operations. "Clearly, there are concerns whether NGNBN's key role and strategic objectives can be achieved," said the M1 spokesperson.
The second largest telco StarHub has not taken a position yet, and is studying the public consultation launched on Thursday first.

"We are particularly interested in how this transaction could improve OpenNet's poor performance on service provisioning record for non-residential customers," said Jeannie Ong, StarHub's chief marketing officer, said the company.

Investors' special dividend hopes dashed

Within the SingTel camp, some of its own investors expressed disappointment as the delayed divestment of NetLink Trust dampened hopes of a special dividend further.
"We note the strategic review of the Optus satellite business was also called off recently. Net-net, the positive catalyst that we expected in special dividend hopes from asset divestments now likely stands eliminated," said Barclays Research.
Jonathan Choo, a SingTel shareholder, echoed the expectations: "Last month, SingTel's plans to call off its sale of its satellite assets was the first blow. Now there's an even lower chance of any extra cash flow."
In 2011, SingTel injected S$1.89 billion in assets into NetLink Trust as part of regulatory conditions to park key assets in an independent entity--required under its winning bid in 2008 as part of the OpenNet consortium. The assets included ducts, manholes and exchanges which were important in speeding up the NBN fiber rollout to open up market access for other compeititors.
Another condition requires SingTel to divest and sell down its stake in the trust to under 25 percent by April 2014, which the telco has requested to extend to 2018 under the proposed transaction.

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