Parent Singtel never takes responsibility for failures of its troubled child Optus

Optus chief executive officer Stephen Rue is under pressure as the telco faces a difficult task to rebuild its reputation. Picture: John Feder

The wildfire engulfing Optus hasn’t fully registered thousands of kilometres away in Singapore. There was only a modest fall in the share price of parent Singapore Telecommunications as it resumed trading after the weekend.

However some offshore investors in the $80bn telco have started to twig that Optus could be very problematic for Singapore’s hero telco, pushing its shares 1.6 per cent lower against a broadly flat market.

Singtel has mastered keeping its distance from its accident-prone Australian offshoot, with the reputational firewalls most apparent during 2022’s massive cyber breach.

That’s set to be the situation yet again, even after what is shaping up as one of the nation’s worst corporate failures of recent decades. Queries to Singtel are directed back to Optus, as though the two companies operate in parallel universes. The Singapore telco claims 100 per cent ownership but zero accountability.

This time, however, long-serving chief executive Yuen Kuan Moon may have trapped himself. Following Optus’ last network outage, Singtel established a local board to demonstrate increased oversight. Moon sits on this board alongside Optus chief Stephen Rue and local chairman John Arthur, who also sits on Singtel’s main board. Moon plans to attend Monday’s scheduled meeting with other directors including Optus chief financial officer Michael Venture, former long-serving Singtel director Nicky Tan, and ex-trade commissioner Andrew Parker.

Kuan Moon Yuen the group chief executive officer at Singtel.

The problem? This Optus board is largely toothless. The most basic authority – hiring and firing executives – rests with Moon and Singtel’s main board. It has no remuneration powers either; again, Singtel’s board holds final say on executive pay, including Moon’s own. Under-pressure Optus boss Rue reports directly to Moon.

While the oversight board can ask what went wrong, consequences remain Singapore’s domain. Based on previous Optus scandals, a cyber attack and network outage, Singtel’s board has been unwilling to hold those at the top accountable. Moon has not had any of his bonuses cut and no executives have been held responsible. Former Optus boss Kelly Bayer Rosmarin resigned in 2023, following the nationwide network outage.

This failure of accountability now has consequences. The network outage has been linked to at least three deaths and has traumatised hundreds of others unable to call the emergency services line across three states and the Northern Territory. There were two deaths in Western Australia and one in South Australia over the 13-hour outage. Optus was unaware its customers couldn’t connect to triple-0, even when people complained.

If Optus was a real company, this scandal would have triggered a wholesale executive and boardroom clean-outs. It would take a board with real teeth to acknowledge there’s a cultural problem and to begin long-term reform. So too shareholders would be loudly pushing it to do better.

Singtel is 51 per cent owned by Singapore’s Temesek, the $S434bn ($512bn) fund that has controlling stakes in Singapore Airlines, Singapore Power, bank DBS and real estate major Keppel.

Think of Rio Tinto following its Juukan Gorge scandal, or the shake-out that followed Commonwealth Bank and Westpac’s respective money-laundering blow ups. Even Qantas faced a long period of introspection. In each case it took the company years to recover. Singtel is hoping it can sail on but it will need to do more than run a local board.

However, the financial pressure might be finally catching up with Singtel and Moon.

Singapore had been banking on a turnaround in Optus, its second biggest operating unit, to underpin its Singtel28 strategy to boost earnings and dividends in coming years. This is now all up in the air.

Even if Optus survives intact from last week’s catastrophic network failure, the amount of regulatory scrutiny and political heat it has attracted is intense.

For the third time in as many years, Singapore faces the prospect of having to spend up big to fix the problems – if it has the patience for it.

Optus already faces a class action from the 2022 cyberattack as well as ongoing regulatory pressure from the incident. Just in June it was hit with a $100m fine following heavy-handed sales tactics to hundreds of customers. While earnings came in at $2.1bn last year, the bottom line profit was less impressive after depreciation charges. No dividends were sent back to the parent.

Optus can expect another landmark class action for hundreds of people affected by last week’s outage. Optus will also face a separate federal government probe from the communications regulator and angry state premiers are threatening to run their own investigations. The direct financial hit will be hard to quantify.

The broader impact on Optus will be profound. The reputational damage will be more far reaching than the cyberattack when as many as 10 million customers had data stolen. New and existing customers will think twice around whether the network service will be reliable enough when it really counts. All efforts of brand and reputation repair since then have now been thrown out the window.

This undermines its ability to push through price rises which had been a major part of boosting return on invested capital, a key measure of returns across the industry. Optus pushed through rises of up to $6 a month in June, among the highest of the Australians telcos in the current round.

The Australian government said on September 20 that Optus ‘let Australians down’ after three people died during a network outage that prevented calls to emergency services. Picture: AFP

The economics of the telco industry have improved over the past two years with Telstra taking the lead in hiking prices. Competition between the big three – Telstra, Optus and TPG – has been increasingly rational with the focus shifting to returns over market share.

However the bulk of the gains from rises appear over with more consumers shifting to so-called tier 2 operators. Now 28 per cent of the Australian market is with a tier 2 provider, such as under the Woolworths or Coles brand.

Optus has been aggressively cutting headcount. Last year it axed 12 per cent of its 6300-plus staff with Gladys Berejiklian’s enterprise division hit hard. Rue was planning another 4 to 5 per cent headcount cut this year, and was eyeing AI for productivity gains.

Now there’s expected to be a big political push for Optus to bring some call centre staff back onshore and rebuild depleted technical expertise. This will be the very least.

Singtel has spent between $1.6bn and $1.5bn on Optus capex in recent years. It had hoped to start pulling back on this level of investment as the big commitments on rolling out the 5G network had starting to come to an end.

Last week exposed catastrophic process failures. First, established procedures weren’t followed during routine triple-0 emergency network software updates. Second, there was inadequate traffic monitoring despite sophisticated real-time tracking tools designed to alert when triple-0 call volumes drop unusually. Optus remained unaware for 13 hours that calls weren’t connecting. Finally, information flow within the organisation failed after call centres received five alerts that triple-0 calls weren’t getting through.

The other telcos, Telstra and TPG/Vodafone, were also fuming about Optus’ failure. Both telcos know more there’s even more scrutiny to come on the way the triple-0 network operates and the outcome of the official Australian Communications and Media Authority investigation invariably means more costs and process for the entire industry.

All could have been avoided if Optus’ parent had owned up to its responsibility.

[e-mail]