Telstra-PCCW venture eyes Japan

The pressure is on for Telstra to chase more telecom opportunities in the region on its own

In this story: Flirting with a tough market Pressure on the relationship RELATED STORIES, SITES

By CNN's Kristie Lu Stout

SYDNEY, Australia (CNN) -- Telstra's joint venture with PCCW, an Internet protocol business called Reach, is in talks to link up with NTT DoCoMo, according to reports.

Meanwhile, Telstra's other PCCW venture, Regional Wireless, faces aggressive competition in its bid to buy Singapore's MobileOne from Malaysian mogul Ananda Krishnan, according to The Australian newspaper.

Telstra has been actively pursuing opportunities throughout the region to offset its waning market share in Australia. However, with the pressure on, analysts say Telstra is itching to chase more deals on its own.

Flirting with a tough market

The Telstra-PCCW talks with NTT DoCoMo could eventually see the Japanese telco taking an equity stake in Reach. The deal could also prompt Reach to buy a stake in NTT DoCoMo, The Australian reported.

Analysts are already reacting to news of a potential Reach-DoCoMo alliance with skepticism.

"I find it very difficult on how they want to both compete with DoCoMo and work with them," says Australian telco analyst Paul Budde.

"The Japanese market is so difficult to operate in for Japanese operators, let alone foreign operators."

The Telstra-PCCW IP venture faces difficulties in an additional market, Malaysia. Malaysian media entrepreneur Ananda Krishnan will compete with Reach to bid for the country's $2.4 billion number-two mobile operator, Mobile One.

The news follows Krishnan's purchase last week of a 46 percent stake in Malaysia's largest mobile operator, Maxis, from British Telecom and MediaOne.

Pressure on the relationship

Telstra, which formed its Hong Kong-based international unit in March, hopes to have 20 to 25 percent of the company's value from its Asian businesses in the next five years.

But Telstra International managing director Dick Simpson concedes that Reach, initially set for $2 billion in revenues by the end of its first operating year, has been hit hard by falling prices in the market.

Simpson also admitted that the intense media criticism over Telstra's alliances with PCCW was "putting a lot of pressure on the relationship."

"The whole thing is a total mismatch," Budde told CNN. "PCCW and Telstra has been a mismatch from the beginning. In the end, it will all collapse."

Though Simpson said Telstra would remain committed to its joint ventures, it would not prevent Telstra from pursuing regional opportunities on its own.

"But if Telstra is operating in the market, PCCW is operating in the market, and the JVs are operating in the market, it's confusing," said Budde.

"It's totally unfocused and difficult to see how Telstra can operate in such a way. Their whole Asia activity is in disarray."

In mid-day trading, Telstra was up 0.02 points to A$6.64. PCCW stayed steady at HK $2.83.

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