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Tuesday 10 December 2002
Hong Kong General Chamber of Commerce Luncheon
With Telstra Corporation Chairman Robert Mansfield

Thank you and good afternoon Ladies and Gentlemen.

It gives me great pleasure to be here and I would particularly like to thank the Hong Kong General Chamber of Commerce for their generous invitation to address this lunch.

Telstra International set up its headquarters here in Hong Kong in April 2000. However, we started operations in Hong Kong some 13 years ago, under the name of OTC Ltd.

So, we have been linked with Hong Kong for a long time but probably gained more attention two years ago when we created 2 Joint Ventures from businesses within the former HK Telecom and Telstra.

I always enjoy coming to Hong Kong as I find it one of the most dynamic cities in the world.

I particularly marvel at the entrepreneurship of the people of Hong Kong.

Like many places, Hong Kong is currently experiencing more demanding economic times but I am sure things will improve.

Your fundamentals are strong, you have an excellent infrastructure and a competitive edge in geographical location, being the doorway to the China market.

I was delighted to read in the newspapers a couple of weeks ago that your economy is showing early signs of recovery with quarterly growth figures which were up 3.3 per cent year-on-year.

I hope this progress continues and that Hong Kong will emerge from its more difficult time, to continue to achieve further success.

Today I am going to discuss with you an important subject that concerns every one of us here - growing business in Asia.

Obviously growth is very important to any Company and any Industry, and Telstra is no exception.

The telecommunications industry requires significant ongoing investments, in infrastructure enhancement, and technology deployment, in order to better serve the customers.

It is only through growth that we can generate increased returns that enable us to reinvest in our business so that we can ensure our customers are able to enjoy the latest and most innovative products and services in telecommunications.

At Telstra we aim to deliver growth both domestically and internationally.

Domestically, we are looking at delivering growth through the provision of better services, better products to our customers whether they are in Fixed, Mobiles, Broadband, Entertainment, or services in regional areas.

The recent reorganisation of our top management team is a further sign of our commitment to being market focused and customer driven.

Outside Australia we are looking at building value through investing in quality assets in attractive Asian markets with the potential for long term growth.

We are targeting the Asian region because we believe this is the place where most of the growth opportunities are.

In addition, we are also looking to grow our business by connecting multinational corporations throughout the world, via our established quality infrastructure networks.

Potential in Asia

If we look at the Asian region as a whole, it accounts for over half of the world’s population (more, if only people under 30 are considered), and there are countries like China and India which are the world’s two biggest single markets, each with over 1 billion people.

Asia’s economy is diversified. It not only encompasses some of the world's biggest economies and some of its smallest, it also encompasses a mixture of mature, developing and underdeveloped economies.

Its high degree of difference in culture, languages, religions, legal and regulatory circumstances, all add to the complexity and challenge of doing business here.

This dynamism and diversity in the Asian region is creating significant business challenges as well as opportunities.

As the WTO agreements continue to influence and integrate the world into a globalised economy, it is creating a unique set of opportunities and challenges for its member nations, particularly in Asia.

It is perfectly understandable that the socio-economic environment in different nations will evolve as markets open up.

We will be witnessing changes in key aspects such as taxation, regulation and policies, and hopefully, as a result, experiencing increased international investments in local markets.

Telecommunications will inevitably play a crucial role in the process of these developments.

It not only helps to bring people and countries closer together, but it is transforming the way people and businesses interact with each other.

It is significantly impacting our daily lives whether it’s for business or personal matters – this is guaranteed to continue to be the case in the future.

Telecommunications Opportunities in Asia

If we take a look at the telecommunications industry in Asia, we have seen phenomenal development over the last decade.

According to a recent report (Asia Pacific Telecommunication Indicators) published by the ITU, the region is now the world’s largest telecommunications market (36%) when compared to 10 years ago, it only accounted for 22%.

This growth has added more than one user every second for the last decade!!

Not only has there been impressive telephony growth, but in the areas of advanced technologies like broadband internet access and wireless data, Asia is also leading the world.

All these aspects together, are making Asia the most exciting region for Telecommunications and the challenge, is to anticipate how this growth will impact on development going forward.

One of the most dramatic changes has been in the wireless sector and we have witnessed remarkable development in Asia.

The more developed or "mature phase" countries are focusing on advancing into the wireless data and mobile internet arena.

Countries like Japan and Korea are now the world’s pioneers in mobile internet usage, as Japan now has the world’s largest number of mobile internet users and Korea has the most high-speed (3G) mobile internet users.

On the other hand, for the less developed countries where telephony penetration has been slow, the mobile growth has been very rapid.

Many countries have mobile penetration well above fixed line penetration. Take Cambodia, its wireless penetration is now 8 times more than that of fixed lines.

The opportunities are huge – some examples are:

China has a population of over1.2 billion people , with wireless penetration of around 15%. The growth is still continuing and predictions are the market will add over 60 million customers year-on-year;

Vietnam, has 85 million people, with 2 % mobile penetration, and is at a very early stage of opening up their telecommunications market;

India, a country with 1 billion people, wireless penetration is below 1%;

Indonesia, with a population of 200 million people but the wireless penetration is only about 3 or 4 %.

Another area that is growing steadily has been the internet.

At the end of 2001 the region had some 160 million users, accounting for a third of the world’s total.

What’s more impressive is that out of the top 12 broadband internet economies worldwide, five of them are in Asia, with Korea and Hong Kong actually being on the top the league.

And in the area of global ADSL (Asymmetric Digital Subscriber Line) connections, as at June 2002 , Asia accounted for almost half.

We are witnessing the diversity of development in different areas in telecommunications which is creating a unique position in some countries where people who have never had fixed line telephony services and instead, start by going straight into the latest wireless and internet services.

The mindset of these consumers is very different to those of neighbouring countries which have been brought up with fixed line services.

It isn’t hard to picture, that as the markets integrate it is creating many unique challenges as well as significant opportunities.

Current Market Environment In Asia

But while the Asia telecommunications market is an exciting one, the investor sentiment around the world for this sector is still negative.

Asia is not exempt from this.

In many places we see companies manoeuvring to recover or survive from the after-effects of significant capacity over-build, falling prices and high licence costs.

Coupled with the financial difficulties and collapses of corporate governance in some big name corporations in the USA, the general sentiment is cautious towards further investments.

However, it was encouraging to note an announcement by the ITU at a conference last week that " the Asia-Pacific region is leading the global telecommunications sector out of a 2 year recession and into an era of stable and universal growth". I sincerely hope that this prediction is correct.

Telstra’s International Strategy

Asia to us, is a set of markets that we have been in for a long time. We have pioneered expansion into areas like Vietnam, Cambodia, Laos as well as India.

We have learnt a lot from these experiences and now have large well-established ventures operating in Hong Kong and New Zealand.

In the future, when we do find an opportunity that allows us to increase our presence in Asia, enabling us to participate in the higher growth areas, (such as wireless, IP and internet), and where an investment is able to generate reliable returns like Directory or construction services, we are well positioned to consider such opportunities, with confidence.

As we have said consistently, International is an important component of our growth strategy and this is fully supported by the Board of Telstra.

Telstra is a big company in Australia and for that matter significant in Asia as well. We are proud of the fact that we are a very successful company domestically.

As the very competitive domestic market is maturing, we have to seek growth from other areas, including offshore.

When we go offshore, we are very focused and selective on the areas we pursue - particularly on the infrastructure side.

We target a mix of premium yield properties (such as CSL), and properties that are able to deliver growth and add value in the longer term.

On the services front, we offer end-to-end connectivity to major corporate customers.

In addition, we also supply construction and network services to carriers and utilities via NDC, our subsidiary Company that is currently active building infrastructure for third parties in a number of Asian countries.

Investing in Asia - Telstra’s Experience

One interesting but very important difference for us operating internationally, is that we are then the challenger not the incumbent.

We have to learn to fight for success from the other side of the fence so to speak!

This means we have to be very focused and able to move quickly, so we can genuinely create value and leverage our skills and expertise.

One of the most important lessons we have learned from our expansion into Asia is that our involvement at the operational level, is absolutely critical.

This is the layer where we can add real value to the investment. At the same time this allows us to identify opportunities where we can generate additional benefits.

We consistently engage ourselves with the local operational management, as this is the only way to genuinely influence the operations and create value.

The other rewarding experience from our focus on Asia is how Telstra is perceived in Asia. We believe we are seen, and certainly aspire to be seen, as providing good value in all environments that Telstra operates in.

Our abilities and experience are well regarded. We are known to be a good operator with good regulatory experience, strong customer systems and our expertise in marketing and technology capabilities are recognised.

Take Vietnam as an example, where we operated our first and highly successful BCC (Business Co-operation Contract).

We have been in Vietnam for nearly 14 years providing network management, operation management and IT support.

We are very proud to have helped Vietnam build up a successful international network. Our engagement has been highly regarded by the Vietnamese people as well as a profitable one for us.

More recently we picked Hong Kong as our international headquarters, a landing point for our expansion internationally.

We have placed our bets here on CSL by investing over A$4 billion for the company. CSL is a good investment. It is a leading premium mobile operator in Hong Kong, it is profitable and debt free, and it has a strong reputation in the Asian region as being innovative in both technology deployment, and marketing.

I hope you are all CSL customers and that we are looking after you well.

We have been heavily involved and by influencing the operation of CSL, we are creating value through such involvement.

This approach, together with the talented local Management headed up by Hubert Ng, has resulted in excellent progress – benefiting both CSL and our Australian mobile operations.

For example, we have been able to generate significant savings in our 3G vendor selection, we have been able to share experiences in the areas of mobile data and Multimedia Messaging Services (MMS), and we are able to leverage on CSL’s China relationships.

Going forward, we believe CSL is well positioned to take advantage of further market consolidation and to spearhead our wireless strategy in the region.

Our other major investment here in Hong Kong – REACH , the 50/50 joint venture with PCCW – is the leading international connectivity supplier in the region.

REACH is currently operating in a very distressed market, characterized by significant industry restructure and over capacity.

REACH is in a strong position compared to most of its competitors and we are committed to the international connectivity business.

Our other key International investment is TelstraClear – currently a strong number 2 challenger brand to the incumbent, TNZ, in the New Zealand market.

When we set up TelstraClear at the end of last year, we very quickly established an integration team and set clear goals and milestones.

The integration involved a very detailed process which encompassed all areas of operations, such as;

the networks,

the switches,

the IP systems,

the brand,

the sales force, etc.

This progressed very successfully and resulted in tremendous savings and operational efficiency for the combined entity.

In summary, our international expansion is all about value creation, we think the best way to create value is through operational interaction and influence, and then to grow your market position over time.

If we are able to create value from our properties we are then able to further leverage on our assets and relationships to create further opportunities. We have successful examples of doing just that.

We are very focused on capturing the right opportunities that allow us to be able to make a satisfactory return.

Conclusion

Expanding into Asia is not easy. Anyone who says it is, obviously does not know the environment well.

Having said that, Asia offers tremendous returns, as well as growth opportunities.

One should not expect that this can be achieved quickly. Most good things take time .

Despite current market sentiment, we intend to carefully execute our strategy.

We have the financial and intellectual resources to do this. This will involve partnerships and different approaches than we take in Australia.

We hope to then take these skills and experiences back into the domestic operations for further value improvement.

Let there be no misunderstanding, we are committed to this region. If you are our customer here, the good news is we are here to stay. We will strive to grow and improve consistently.

Again, let me say what an honour it is to be here and I thank you for your attendance and the opportunity to address you today.

Thank you.