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The project objective is to investigate the practices of privatization in traditional market economies and the evaluation of their performances, by examining the telecommunication industry, more specifically SingTel.

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Introduction

1 Project Objective The project objective is to investigate the practices of privatization in traditional market economies and the evaluation of their performances, by examining the telecommunication industry, more specifically SingTel. 2 Market Economy and Government's Role 2.1 Market Economy A market economy is an economy that operates by the "invisible hand". Producers and consumers are left to make their own choices regarding production and purchase of product quantity, variety and price. i.e. The economy operates by supply and demand forces, without intervention. This economy is in direct opposite of a Command Economy, where government committees determine the quantity, variety, and prices of production of goods. As perfect information do not exist in any economies, these central decisions will cause the maximum social benefits to decrease, causing a deadweight loss, because the decisions may not match supply to demand. Following such arguments, it seems that government intervention causes economy to function less efficiently. However, government has a role to play even in a market economy. 2.2 The Role of Government Governments in market economies play critical roles in providing the economic conditions in which the marketplace of private enterprise can function most effectively. To name a few, firstly, basic infrastructure for any industries which no producers would willingly create for public use has to be established before the industry can pick up and allow market economy to operate. Secondly, government needs to establish laws to ensure competitive market for any industries, such as Anti-trust laws to prohibit collusive behaviour, where few firms collude and set price high, maintaining a more effective degree of competition in the economic system. 3 Privatization A broad definition of privatization is all reductions in the regulatory or intervention and spending activities in a particular industry or firm. 4 Conditions of Being Not Government Owned or Privatized Business 4.1 Economy Specific Conditions When an economy is still developing, less mature, a market economy with private firms may not achieve efficiency. ...read more.

Middle

The practical policies that Singapore Telecom undertook, according to the phases as mentioned above, will be discussed further. 7.1 Phase 1 Improvement of Operational Performance In line with phase 1's aim of improving operational performance, Singapore Telecom undertook practical polices that comprised of expansion of infrastructure and new policies, introduction of new services and collaborations with other telecommunications corporations. 7.1.1 New Infrastructure and New Policies Telephone Density Over the past two decades, Singapore Telecom expanded its infrastructure. In 1992, telephone density in Singapore increased to 45 per 1,000 population, ranking second after Japan among Asian countries. Low Tariff Telecom progressively reduced its tariff, making it among the cheapest in the world. The low tariffs encouraged more international calls by residents and businesses. In 1988 international telephone calls averaged 12 per person which was among the highest in the world. Modern and Efficient Telecommunication System Singapore places much importance in ensuring that it has one of the world's most modern and efficient telecommunication systems. In 1983, Singapore became the first nation in the world to have a 100 per cent push-button digital telephone system. There are now 10,000 kilometres of fibre optic cable in the 650-square kilometre island nation. INTELSAT Singapore also invests in INTELSAT, the 117-member International Telecommunication Satellite Organization and INMARSAT, the 55-member International Maritime Satellite Organization. Two satellite earth stations link Singapore directly to more than 50 countries and provide 1,900 circuits. International System In 1988, Singapore Telecom was the first organization in the world to install AT&T's new 5ESS digital switch as an international gateway switching system. It also introduced the region's first international teleconference service which is now available to France, Hong Kong, USA and Germany. Singapore was among the few countries to launch the Integrated Services Digital Network (ISDN) service and this has helped to place Singapore in the forefront of international telecommunications. [Tan, C.H. (1992)] Integrated Optical Fibre Submarine Cable System In 1990, Telecom invested US$70 million in Phase I of the proposed US$310 million Aspac-Kyushu-Taiwan integrated optical fibre submarine cable system. ...read more.

Conclusion

A possible explanation for this would be that there was a gradual decrease in sales figure of SingTel due to increased competition. The drop in receivables turnover signifies that SingTel's decreased efficiency with respect to the quality of receivables after converting to a private entity. Liquidity Liquidity analysis measures the adequacy of a firm's resources to meet its near term cash obligations. Current ratio is utilized to perform this task. The ratio is computed as follows: As observed from Figure 4, there was a significant dip in 1992/1993. This resulted from the massive restructuring of assets during that time period. The aim was to facilitate corporatisation in 1993/94, whereby focus of management shifted to maximizing profits for its shareholders. By 1993/94, there is a gradual upward movement following corporatisation and subsequent listing of SingTel. In general, SingTel was observed to be more efficient in the managing of its current assets while maintaining its desired level of current liabilities after being privatized. 8.3 Conclusion It follows that after privatization, Singapore Telecom has continued to deliver high returns. For the two-year period from 1995 to 1997, its return on average shareholders' funds has been 29 per cent, its ROTA was 19 per cent, and operating return on turnover was 48 per cent. In addition, its operating return per employee rose from S$177m to S$195m, and the turnover per employee from S$359m to S$414m (www.Singtel.com). Profits increased by 12 per cent to S$1.89bn for the year ended 31 March 1998, despite the introduction of competition in the mobile market during April 1997 and falling international call rates. Singtel's share price has generally outperformed the market, which is in line with research showing that the share price of privatized government-linked companies in Singapore significantly outperforms non-government linked companies after privatization. Henceforth, judging from the qualitative and quantitative aspects of SingTel after being converted to a private sector, it is evident that the privatization process had positive impacts on the company and the industry, as shown by the improved accounting figures as well as the non-financial areas. ...read more.

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