Asian telecom sector to remain under stain

By SONIA KOLESNIKOV, UPI Business Correspondent

SINGAPORE, Oct. 18 (UPI) -- The strain on the Asian telecommunications sector is expected to remain in place for the next few years, as ongoing competitive pressures, combined with regulatory uncertainties, and advances in wireless technology force continued rapid change in the industry, a new report on telecommunications in the Asia-Pacific region said.

The report by rating agency Standard & Poor's highlighted that the current challenging environment in the telecommunications sector will result in some market shakeout.


Consolidation has already begun to emerge in the region, as some of the smaller carriers try to share risks in the face of large development costs and the larger regional operators intensify their efforts to expand beyond their home markets.

Singapore Telecommunication Ltd. has just acquired Optus Telecommunications of Australia for $9 billion, while Telstra Corp. Ltd. invested in Hong Kong Telecom's mobile and IP backbone businesses.

The inability to find sufficient and timely financing in the wake of the Sept. 11 terror attacks is also putting pressure on regional telecommunications companies to consolidate.

The report warned, that despite, attractive growth prospects, companies in the sector now face increased business risk on various fronts.


On hand hand, regulatory uncertainty is set to continue, as regional telecommunications regulators continue to experiment with policies relating to licensing, open access, number portability, and other market issues.

A particularly good example of this can be seen in mainland China, where predicting the role of politics and government policy is by far the biggest issue facing investors today, it said.

"Although the timing of deregulation remains uncertain, we believe that it is inevitable that the government will continue to push tariffs down" said John Bailey, director of Standard & Poor's Corporate Ratings in Hong Kong.

"The upcoming listing of China Telecom will also lead to further restructuring of the telecommunications sector and open the market up to more competition."

Meanwhile, competition will continue to intensify. The liberalization of the industry in most countries has led to the entry of many competitive operators in virtually all segments of the market such as local exchange, mobile, international long distance and Internet access.

Finally, the quest for more content at faster access speeds is pushing the technological frontier forward and is also adding to market risk.

The introduction of third-generation (3G) mobile data services is the next big development in the telecommunications sector. Such services are in their initial stages in Asia, but the licensing process has started to accelerate. The costs of purchasing spectrum for developing 3G services are not as expensive as in Europe, however, for some of the smaller operators they could still be significant and have an impact on their financial profiles.


But the resulting financial burden, as well as the uncertain business outlook for 3G services could force these companies to consider mergers or alliances. For the larger telecom companies, 3G services could open up the market to further competition, with foreign players likely to see opportunities to enter the market in collaboration with existing operators.

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