Just six months away from a general election, Australian prime minister John Howard is contemplating the collateral damage inflicted by two of the most important initiatives of his government - creating competition among the airlines and deregulating the telecommunication industry. In a curious twist, the big winner looks like being Singapore.
Australia's freedom of the skies policy has brought cut-throat price tickets for domestic airline passengers, but also blood on the runways, with one new entrant, Impulse Airlines, landing belly up, and Ansett in a nose-dive, putting its parent, Air New Zealand, in deep trouble.
These problems have handed Singapore Airlines the opportunity to expand into Australasia on a plate, by raising its stake in Air NZ from 24.9% to 49% and effectively grabbing Ansett. That would put more pressure on the Australian national carrier, Qantas, which is reacting by creating a cut-price subsidiary out of the ashes of Impulse.
It has been a similar story in the Australian telecommunication market, where rampant competition has led to a 13% cut in local telephone call charges and a drop of up to 53% in the price of international calls. What consumers gained with one hand they often lost with the other. Nearly two million mum and dad investors hold shares in the 51% government-controlled Telstra, whose near monopoly position has been shattered and its home business placed under the scrutiny of the Australian Competition & Consumer Commission. The offshore foray involvement with Richard Li's Pacific Century Cyberworks concern in Hong Kong is now regarded as a disaster.
Telstra shares have crashed from a high of A$8.70 to A$5.16 and earnings growth downgraded to a paltry 5%. Smaller stocks like Hutchison Telecommunications, Davnet and Macquarie Corporate have lost up to 85% of their value. The recent collapse of the One-Tel phone group, which was backed by James Packer and Lachlan Murdoch on behalf of their billionaire fathers, underlines the crisis in the overcrowded industry. Australia has 4.7 telecommunications carriers for every 100,000 people compared with 1.2 in Britain.
Enter 78% government owned Singapore Telecommunications with its A$14 billion (US$7.28 billion) takeover bid for Australia's second largest carrier, Cable and Wireless Optus. Initially, it was thought that the Optus' control of Australia's military satellite and other communications could mean the bid would not meet the foreign investment national interest test. That potential stumbling block was removed when the Australian Department of Defence said it had accepted contractually binding conditions from Singtel and Optus to protect the sensitive telecommunications infrastructure. That includes a US$260 million joint venture between Optus and Defence to launch the new C1 satellite next year which will transmit classified military and intelligence communications to allies worldwide.
With Prime Minister Howard swanning around in the background describing Singapore as "a good friend" the remaining regulatory approvals needed for the Singtel offer are a formality.
Singapore Airlines has a tougher task in achieving a decade-long ambition of becoming a top dog carrier on both sides of the Tasman sea. But the odds are shifting in its favour. Cheong Choon Kong, the nuggety chief executive must be a good poker player. His opening bet was to inform Howard and a gaggle of politicians that unless SIA was allowed to come to the aid of Ansett it could go broke with the loss of 13,000 jobs.
Cheong's ace in the hole is an offer to buy up to 24% more shares in Air NZ and provide the muscle to rescue its stricken Ansett unit, whose entire fleet of Boeing 767's was grounded over Easter by air safety regulators. Ansett needs A$5 million immediately just to upgrade its aircraft. Ironically, in 1999, Singapore Airlines tried to buy the 50% of Ansett then owned by Rupert Murdoch's News Ltd, but was thwarted by Air NZ.
Qantas boss Geoff Dixon holds a very weak hand. His predecessor, James Strong, dealt him out of the game by unwisely selling 20% of Air NZ in 1997.
The dilemma for Howard is that, if Ansett went under, Australia would be back to a duopoly on the domestic market consisting of Qantas and Richard Branson's Brisbane-based Virgin Blue. If the prize goes to Singapore, Ansett would be used to channel more Australian passengers through the hub in the City Republic.
However, the final say rests with the coalition government of New Zealand Prime Minister Helen Clark, which has to decide whether to make an exception to its foreign ownership rules to allow Singapore Airlines to hold as much as 49% of Air NZ.
The 20-member cabinet that meets in the "Beehive" government buildings in Wellington traditionally reaches its decision by Japanese-style consensus rather than majority vote, and that is naturally taking time.
Much as it would hurt New Zealanders national pride to have its flagship airline half owned by Asian interests, they probably dislike Australians more - as exemplified by the ferocious contests between the All Blacks and the Australian Rugby team. Hence Air NZ chief executive Gary Toomey has endorsed the SIA proposal.
Recent developments reveal a degree of inconsistency in Australia over foreign investment. Last year, South African De Beers was warned off from buying the Ashton diamond mine. A few months ago, the Anglo-Dutch Shell concern was barred from getting control of the Woodside oil and gas group because it was held not to be in the public interest.
Meanwhile, the red carpet is being rolled out for Singapore. Temasek Holdings, the investment arm of the Singapore government has already acquired a slice of the Victorian electricity grid when Singapore Power participated in the privatisation process. Changi Airport is a potential bidder in the upcoming sale of Sydney Airport and there are rumours that Singapore's port authority, PSA Corp, might fancy a bid for the Lang Corporation docks and transport group. None of these represent control of key national assets. But the incursion into telecommunications and airlines has been enough to get a few Australians wrapping themselves in the flag and indulging in Singaphobia.
Some of the adverse comments come from those with a deep commercial interest in the outcome. Media mogul Kerry Stokes, who owns the Channel Seven TV network, has charged that Singapore makes a habit of snooping on phone calls - Stokes has close links with Optus and would like to see the bid scuppered. Qantas chief Dixon has muttered darkly that Singapore Airlines was showing "imperialistic tendencies". That's a bit rich, coming from an outfit that was built on close links with the Old Country.