The Asian currency crisis has created hidden opportunities for providers of cellular equipment and for global carriers and vendors to invest in under-capitalized regional carriers and distributors at enticing rates, said Herschel Shosteck Associates Ltd. in a recent report.
The firm said the current fiscal crisis-primarily affecting Indonesia, Thailand, Malaysia, the Philippines and South Korea-offers big opportunities for investors with cash because companies in the affected regions are becoming more receptive to foreign investors due to credit problems in their own markets. Fear of bankruptcies also is encouraging governments to accept more foreign ownership.
“The depreciation of local currencies has reduced prices by one-third or more for those who can pay in U.S. or European currencies,” said the report. “Opportunities are ripe for global carriers seeking positions in the Asian market and for infrastructure vendors willing to take equity positions in the carriers to whom they sell.”
In addition, Shosteck sees even greater investment appeal in those countries that have postponed or reduced awards of additional wireless licenses because it means fewer and stronger competing carriers.
The currency crisis, however, will mean slower sales for infrastructure providers, said the report. “A one-third depreciation in local currencies means a 50-percent increase in the cost of dollar denominated imports. This will reduce the sales of imported infrastructure and terminals. In addition, the fiscal crisis is precipitating economic slow down. Higher-priced handsets and less local money ensure a slow down in subscriber growth as well.”
The Jakarta Post recently reported that the Indonesian mobile phone market has fallen by about 40 percent during the last three months. Handset providers there say mobile phone sales have dropped by as much as 30 percent because consumers’ purchasing power is weakening, while mobile phones prices are increasing. They expect slower sales next year as well.
On the infrastructure side, Shosteck, using the 1994 Mexican economic crisis as a model, forecasts infrastructure sales to fall by 50 percent for at least a year. But this can be positive for vendors willing to take equity positions in place of cash. Additionally, handset vendors can invest in cash-strapped distributors, which could pay off well when sales recover.
In terms of the entire Asia-Pacific region, growth there is so strong that the declines in sales in the troubled regions will have little affect on growth, said the report. Seven Asian countries are likely to be affected by the crisis. Combined, they have about 12 million out of 52.9 million regional subscribers or 22.7 percent of the total. “This indicates that more than three out of four regional subscribers are unaffected by the crisis and are likely to remain so,” said Shosteck.
Assuming that the crisis reduces subscriber gains and handset sales by 50 percent for two years-from third quarter 1997 to second quarter 1999-the currency problem should not affect subscriber growth by more than 11.3 percent. Two of the region’s largest markets-Japan and China-will not be affected at all by the crisis, said the Wheaton, Md., firm.
The report is titled, “Impact of the Asian Fiscal Crisis on Cellular Markets: 1997-2000.”
