When Singapore's state-run investment arm Temasek Holdings bought Thailand's
Shin Corp telecommunications conglomerate in 2006, its 73 billion baht (US$2.2
billion) acquisition of Shin Satellite was a strategic afterthought.
Temasek was known to have purchased Shin Corp from company founder and then
Thai premier Thaksin Shinawatra for its exposure to Thailand's fast-growing
mobile telecom market.
The politically charged transaction came just months before Thaksin was ousted
in a military coup. After Temasek's purchase, a military appointed government
de facto nationalized Shin Corp's iTV on charges the television subsidiary had
violated its state operating concession. Now, Shin Satellite is indirectly
embroiled in a closely watched court case that threatens to seize
permanently US$2.3 billion of the now exiled Thaksin's frozen assets on
corruption charges.
The charges include allegations that Thaksin's government illegally granted
Shin Satellite a preferential eight-year tax holiday on its foreign operations,
a policy that prosecutors have claimed cost the state over 16 billion baht in
lost revenues. The decision in the case is due on February 26, and according to
analysts it's unclear what legal implications a guilty verdict would have on
the Temasek-owned company's finances and state concession agreement.
Temasek's investment in Shin Corp's mobile telecom arm, Advanced Info Services,
has been profitable and promises new revenue streams with the belated launch of
third-generation, or 3G, services in Thailand. Yet as political risks rise,
there have been reports in the Thai media suggesting that Temasek may try to
unload its 41% majority stake in Shin Satellite, which it recently re-branded
as Thaicom, apparently to disassociate the company from its past links to
Thaksin. Market analysts have suggested that Thailand's Samart might be
interested in the stake, but there is no indication that a transaction is
either feasible or imminent.
While revenues have grown, Thaicom has not turned a profit in years and its
regional outlook dimmed substantially amid the global economic downturn.
According to Thomson Reuters, the sale of bonds worth 7 billion baht in
November will help Thaicom repay debts and issue a dividend to shareholders
this year - the first paid out since 2004. While official figures have not been
released, analysts estimate the company's net loss was around 349 million baht
in 2009.
Thaicom executives remain bullish about the company's 2010 prospects despite
the fact its older satellites, Thaicom 1 and Thaicom 2, are coming to the end
of their service lifetimes and it is not clear the company has a coherent plan
to deal with the lost capacity. Meanwhile, sales for its $300 million Asia-wide
iPStar broadband satellite remain sluggish, with only 10% to 15% of its total
capacity leased.
According to Paris-based Euroconsult, a telecommunications consulting firm,
Thaicom's "fixed satellite service-based revenues are expected to have
stagnated or slightly decreased in 2009". It said that because both the Thaicom
1 and Thaicom 2 satellites are set to be phased out, the company will soon be
unable to serve all of its existing customers.
Last year "Thaicom management proposed launching a new satellite to its board
and shareholders, a request which was rejected," said Euroconsult. "Thaicom was
asked to maximize the capacity of existing satellites while pursuing other
options. The company is negotiating with the Thai government to have a better
concession in order to buy a new satellite. Otherwise the company will have to
rent a satellite for three to four years."
With the court case against Thaksin, it seems unlikely negotiations with the
government will yield a better concession deal. Many had hoped that Singapore's
takeover would have given the Thai-founded company a more global outlook and
approach. According to Peter Evans, senior analyst for Southeast Asia at
Australia-based BuddeComm, "Thaicom still seems to be a very 'Thai' company,
with no indication that Temasek has put any special stamp - Singaporean or
otherwise - on it."
Since the 2006 coup, political considerations have substantially raised
Thaicom's risk profile. While the company's alleged preferential tax treatment
is at the center of the latest corruption charges being heard against the
exiled former premier, another future court case is expected to be filed over a
loan by the government-owned Export-Import Bank of Thailand to Myanmar's
government to purchase Shin Satellite services.
According to analyst Evans, a further political complication for Thaicom
involves its mobile phone and satellite businesses in Cambodia. A simmering
border dispute between Thailand and Cambodia has been a growing concern for
Thai businesses in Cambodia, including Thaicom's subsidiary, Cambodia
Shinawatra Co, which still bears Thaksin's family's name despite Temasek's
ownership. It's unclear if Thaksin's recent controversial appointment as an
advisor to the Cambodian government will mitigate those risks.
Unrealized ambition
Most significantly, Thaicom's iPStar broadband satellite has failed to achieve
its full commercial promise. Company executives said before its launch that the
newfangled bird would revolutionize the regional satellite business by bringing
cheap broadband services to the consumer level in remote rural areas.
"Shin Satellite is in a unique position," said former company chairman Dumrong
Kasemset in late 2002. "We are now the world's pioneer in creating a truly
integrated solution for satellite broadband.'
It hasn't exactly played out that way. The company earlier estimated that it
needed 250,000 broadband subscribers, or to sell 15% of iPStar's total 45
gigabit capacity to customers other than broadband subscribers, to break even.
According to Euroconsult, the last publicly available iPStar subscriber figure
was 184,000 at the end of last year's second quarter, the majority of which
were in Australia, New Zealand and Thailand. Customers other than broadband
users represented only 2% of iPStar total revenues.
As of last year, iPStar accounted for roughly half of Thaicom's total satellite
revenue. Nevertheless, iPStar's business is not profitable, according to
Euroconsult, and resulted in an operating loss in last year's third quarter due
to high costs associated with gateway and user terminal expenses. According to
Evans, iPStar has yet to turn the commercial corner, and while Thaicom
executives continue to talk up the satellite's progress "it is doubtful that
they have achieved widespread acceptance of the iPStar service in the
marketplace".
That said, the company has achieved progress in selling capacity in a few
developed regional markets, including Australia and New Zealand, where
under-serviced rural customers have seemed to embrace iPStar's broadband
services. But iPStar's two main regional targets, China and India, have seen
slower than anticipated uptake, primarily because of regulatory issues.
"Penetration in these two huge markets was delayed by complex regulatory
issues, though it seems this hurdle will soon be cleared," said Euroconsult.
"However, market acceptance of iPStar in China has so far been very low, as
terrestrial telecommunication infrastructure has been much improved in recent
years."
"The company in its 2009 quarterly reports makes an effort to feature its
market expansion activities and the positive financials such as the increasing
revenue for its iPStar services, but it is not clear from the quarterly reports
that it is on a path to achieving overall profitability," said Evans.
Analysts say Temasek's apparent efforts to sell its Thaicom controlling stake
is not a sign that Singapore Inc has soured on the regional satellite market.
To the contrary, Singapore has kept relative pace with the region's two prime
movers, China and Japan. Apart from its ownership of Thaicom,
Temasek-controlled SingTel operates the successful Optus satellite fleet in
Australia and enjoys a long-running joint venture with Chunghwa Telecom in
Taiwan. (Thaicom intends to launch a new ST-2 satellite with Chunghwa early
next year with an aim to serve the entire Asia Pacific region.)
SingTel has also developed a budding relationship with Bermuda-based Asia
Broadcast Satellite (ABS), which offers satellite services in Asia, Africa and
the Middle East. Last year, SingTel spent $80 million to lease capacity on the
company's new ABS-2 satellite.
According to Patrick French, senior analyst and head of the Singapore office of
NSR, a US-based telecom consulting group, it is not yet possible to quantify
iPStar as a ringing success, but the company continues to see steady
improvements.
"2010 should be interesting for iPStar and possibly telling when it can finally
go full force into the Indian market," said French. "All of the regulatory
hurdles have been overcome - at least as far as can be expected for India - and
the services should start soon actually. Indian iPStar gateways are still being
built and iPStar has been working to sign capacity clients, too."
According to satellite industry consultant Roger Rusch, president of
California-based TelAstra, iPStar has always been an ambitious initiative given
the sheer scale of the project. He ventures that the company has struggled to
find the right business model for the technology as the market it has targeted
- rural Asia - still has an extremely low per capita gross domestic product.
Combined with the global economic downturn, that's made for a volatile product
mix. Rusch estimates that Thaicom is still on a somewhat stronger financial
footing than the global satellite radio service WorldSpace and Asia-based
satellite service provider Protostar, which both recently declared bankruptcy.
Even so "I suspect that iPStar will continue to struggle for some time to
become profitable," said Rusch.
Peter J Brown is a satellite journalist from the US state of Maine.
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