UPDATE 2-Telstra, SingTel take flight in Asian digital cloud

Thu Feb 13, 2014 4:04am EST

* Telstra H1 profit up 9.7 pct to A$1.74 bln

* Network applications business posts record growth

* Talks ongoing with potential partners in Asia

* SingTel Q3 profit up 6 pct $688.62 million

* SingTel also sees huge growth around cloud services

By Maggie Lu Yueyang and Rujun Shen

SYDNEY/SINGAPORE, Feb 13 (Reuters) - Australia's Telstra Corp Ltd and Singapore Telecommunications Ltd are separately trying to expand their cloud and network businesses, in a rapidly growing new field of competition between the regional telecom heavyweights.

Releasing profit results on Thursday both companies said they saw huge potential in Asia for network applications and services (NAS), a market that is expected to grow 7 percent to $44 billion in the Asia-Pacific excluding Japan this year, according to research by International Data Corporation (IDC).

Telstra chief executive David Thodey said Australia's largest telecom provider was in talks with several firms in Asia following its recent acquisition of two Australian network services providers and its deal last month with Telekom Indonesia to form a network applications joint venture.

He said Telstra was looking at partnerships in Asia rather than acquisitions at this stage, although he declined to provide details.

"What we are trying to do is find areas where it doesn't take enormous risk. Let's take the JV with Telekom Indonesia ... there will be some capital required but it's not like going in and acquiring an enormous business," he said.

The talks come after revenue from the company's network division leapt a record 29 percent to A$821 million ($741.65 million) in the first half, or 6.4 percent of total revenue, thanks mainly to a contract signed with Australia's defence department last year.

SingTel, Southeast Asia's largest telecommunications operator, saw a 26 percent jump in network services revenue in Australia in the last quarter, and said it was excited about network services opportunities in Singapore, Hong Kong and China - the second biggest NAS market in the region after Australia.

"In Singapore, we see huge growth opportunities in areas around cloud," SingTel's Group Enterprise chief executive officer, Bill Chang, said at a press conference after the company posted a 6 percent rise in third-quarter net profit. .

"We see Hong Kong and China also as priority market for us."

Morningstar research firm analyst Scott Carroll said Telstra, which dominates the NAS market in Australia, could find it tougher to compete in a crowded field in Asia. As well as SingTel, other companies vying for network business in the region include Alcatel Lucent, AT&T Inc, BT Group and Verizon Communications Inc.

"I would anticipate there is certainly very good opportunity there in Asia, but I would also suggest it will be more competitive. You will see large global players also trying to move to that market," Carroll said.

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Network applications and services are things like remote or "cloud" data processing, security and system analytics that help corporations and government agencies process vast amounts of digital information and make global connections.

IT intelligence provider IDC expects the regional managed and cloud services market excluding Japan to grow from $44 billion this year to almost $60 billion in 2018.

Australia is the biggest market in the region at more than $12 billion, followed by China at more than $10 billion, according to IDC. In emerging markets like Indonesia, Southeast Asia's biggest economy, the market is worth less than $2 billion.

"It's telcos trying to expand and get out of the telco business. They are going into a services market that is traditionally dominated by your IBMs and HPs," said Dustin Kehoe, IDC's Asia-Pacific telecommunications programme director.

"Given the money in pipes or data is drying up, same as voice, there is no differentiation between one carrier and the next. When you are just selling network services, it's a commodity business and the companies are trying to move up from a provider that sells you a commodity to a solution partner. "

The network division was Telstra's fastest-growing unit in the first half. In addition to its recent acquisitions, Telstra last month announced an investment to upgrade submarine cables in the Asia-Pacific region to lift capacity and allow clients to handle greater amounts of data.

Its acquisitions warchest will receive a boost of about A$2.5 billion when it completes the sales of its Hong Kong mobile phone business and 70 percent of its Australian directories unit, announced in the past two months.

Telstra announced its first interim dividend rise in eight years after posting net profit after tax of A$1.74 billion for the six months ending December 2013, compared with A$1.59 billion a year earlier.

Michael Heffernan, economist at Lonsec, said Telstra was taking a relatively low-risk approach to Asia compared with its previous regional investments.

"I think they're much more prudent now," Heffernan said, "As long as they don't overdo it, they're looking great."

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