China plans three telecom giants


BEIJING (AFP) — China plans to create three telecom giants to bring balance back to an industry where mobile operators have prospered and fixed-line players lagged behind, the government and state press said Tuesday.

Under the plan, the world's biggest mobile operator China Mobile will acquire fixed-line operator China Tietong Telecommunications Corp, the information industry ministry said in a statement over the weekend.

China Telecom, an operator of fixed lines, will take over a mobile network of China Unicom, the smaller of the nation's two key mobile phone operators, and most business of smaller player China Satellite Communications Corp.

The remainder of China Unicom will be encouraged to merge with fixed line operator China Netcom, according to the ministry.

Tuesday's Beijing Youth Daily cited a research note by Guotai Jun'an Securities, which has close contact with the operators, as saying the revamp will probably take five months to complete.

The objective of the restructuring is to bring about three competitors of roughly comparable strength, the government statement said.

It is also aimed at redressing the imbalance between rapidly growing mobile phone operations and the fixed line business, which is actually seeing declines in subscriber numbers, it said.

"The monopoly of China Mobile will definitely be affected in the short term," Steven Liu, a Hong Kong-based analyst with DBS Vickers, told AFP.

"For China Telecom, tapping mobile business will significantly boost their growth potential," he said.

One of the benefits of integrating fixed line and mobile operations would be to bring about scale effects, for instance through bundling of sales, he said.

However, other analysts said it would take several years for the sound market position of China Mobile to be really challenged.

"The strength of the three operators will become more balanced only after several years once China Telecom and China Netcom have fully developed their mobile business," said Dai Chunrong, a Beijing-based analyst with CITIC Securities.

The government said in the statement that it would issue three licences for third generation (3G) mobile services once the restructuring is finalised.

The arrival of the 3G licences, which allows various more advanced functions such as the use of broadband wireless data via mobile devices, is set to usher in a buying spree of new network equipment, state media reported Tuesday.

"The launch of 3G service will certainly lead to a surge in investment by operators in the short run," said CITIC Securities' Dai.

She expected the investment, which now stayed at around 200 billion yuan (29 billion dollars) a year, would increase by 30 billion to 40 billion yuan annually after the 3G licences are issued.

In a sign of how lopsided the market is, official figures showed that by the end of last year China's fixed line users fell by 2.3 million to 365.4 million while mobile phone subscribers surged by 86.2 million to 547.3 million.

China Mobile, the world's biggest mobile network operator by subscriber numbers, raked in 87.1 billion yuan in net profits in 2007, twice as much as China Unicom, China Telecom and China Netcom combined.
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China: Bank of America Raising Its Stake
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By THE ASSOCIATED PRESS
Published: May 28, 2008
Bank of America plans to raise its stake in China Construction Bank to nearly 11 percent, by exercising an option it has to buy more common shares of the Beijing-based bank. Bank of America first invested in the China bank in June 2005, when it bought a 9 percent stake in a $3 billion deal. Bank of America said it intends to purchase 6 billion more shares for nearly $1.9 billion, or 2.42 Hong Kong dollars a share, on or about June 5, which would raise its total stake to 25.1 billion shares, or 10.75 percent of China Construction Bank’s issued common shares. The 6 billion new shares may not be sold until Aug. 29, 2011. Since 2005, the two banks have started nearly two dozen partnership projects.

Telecoms in China
Rewired

May 29th 2008 | HONG KONG
From The Economist print edition
The long-awaited reorganisation of China's vast telecoms industry begins

BY ANY measure—revenues, employees, customers—it is the largest industrial reorganisation ever. And, reflecting how business is done in China, it was announced in the most modest way, with a posting on a government website on May 24th. The country's telecoms industry, with nearly 600m mobile subscribers, 360m fixed-line customers and $244 billion in revenue, will be reconfigured. Six companies will be collapsed into three, each spanning mobile, fixed and broadband services.

China Mobile, the world's largest mobile operator by subscribers, will merge with China TieTong, the smallest fixed-line operator. China Telecom, the country's biggest fixed-line operator, will acquire one of the mobile networks run by China Unicom, which will merge its remaining mobile operations with China Netcom, another fixed-line operator. A sixth operator, China Satcom, will be taken over by China Telecom.

The reorganisation had been expected for years, but rumours of an imminent decision swept the Hong Kong and Shanghai markets on May 23rd, provoking a panic that continued until May 27th. The shares of China Telecom, China Unicom and China Netcom were suspended, and those of China Mobile fell in value by 10%, or $31 billion. (The other two operators are unlisted.)

The main purpose of the plan is to create a more competitive industry—which means, in practice, taking China Mobile down a peg or two. It will gain a fixed-line arm, but that is no recompense for what it will give up: its lock on the massive mobile market, encompassing two-thirds of Chinese customers and an even higher share of new subscribers. Under the new rules, which have yet to be spelled out, it will face regulatory pressure to allow rivals into its market.

China Mobile is also likely to be hobbled in another way. The reorganisation will at last allow the Chinese government to grant licences for “third generation” (3G) mobile services, after years of delay. 3G gives operators more capacity and makes possible whizzy mobile-data services. But the government has delayed issuing the licences so that China's home-grown but long overdue 3G technology, called TD-SCDMA, can be used for at least one of the country's three networks. (The other two networks will use foreign standards which are already widely deployed elsewhere.) It is expected that China Mobile will be forced to adopt TD-SCDMA, an immature standard for which there is only a limited selection of handsets and equipment.

The reorganisation is the fourth since China first opened its telecoms industry to limited, state-orchestrated competition. Each time the government has arranged things to mirror the outcome produced by market forces in the West. The process has worked well in many ways: fees are low, access is broad and growth is strong. But will China's pursuit of industrial-policy goals now hamper the industry's progress?

China Telecom to Pay $15.9 Billion for CDMA Business (Update1)

By Janet Ong and Mark Lee

June 2 (Bloomberg) -- China Telecommunications Corp., the country's biggest fixed-line phone company, will pay 110 billion yuan ($15.9 billion) for part of China United Telecommunications Corp.'s mobile-phone assets in a government industry revamp.

China Telecommunications will buy China United's code- division multiple access network for 66.2 billion yuan, and will pay 43.8 billion yuan for its subscribers, the fixed-line carrier said in a statement to the Hong Kong stock exchange today. Trading of the company's shares, suspended in Hong Kong since May 23, will resume tomorrow, the China Telecom said.

The price that China Telecommunications will pay for the CDMA business is in line with the $16 billion that Hutchison Essar Ltd., India's third-biggest mobile carrier, was valued at when it was acquired by Vodafone Group Plc last year. The fixed- line company, which is losing users to China Mobile Ltd., will enter the faster-growing wireless market as the government attempts to foster greater competition.

``The CDMA business is barely profitable, and should be priced at a discount to other emerging-market wireless operations,'' Francis Cheung, head of Asian telecommunications research at CLSA Ltd., said before the announcement. He expected China United's assets would sell for between 110 billion yuan and 120 billion yuan.

The deals are part of the government's planned reorganization of the $105 billion telecommunications industry announced on May 24, allowing fixed-line carriers to expand into wireless services and creating three operators offering phone and Internet connections to the nation's 1.3 billion people.

Newbury, England-based Vodafone, the world's biggest mobile- phone company, paid $10.7 billion to buy 67 percent of Hutchison Essar, now re-named Vodafone Essar, in May 2007. The Indian carrier had 45.8 million users at the end of April, according to government data. China Unicom had 43.1 million CDMA users at the end of April.

China Unicom's CDMA business had a pretax profit of 1.2 billion yuan last year, compared with 1.06 billion yuan in 2006.

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Thomson Financial News
China A-shares close higher led by power firms, telecoms - UPDATE

BEIJING (XFN-ASIA) - China A-shares closed higher led by power firms amid rumors that the government may allow an electricity tariff hike soon, dealers said.

Telecommunications stocks also rose sharply with the details of mergers within the industry expected to be disclosed later today.

China Unicom said it will announce the terms of its proposed merger with China Netcom Group Corp at a joint news conference in Hong Kong after market close today at 4:30 pm. It will also reveal details of the proposed disposal of its CDMA business to China Telecom.

The South China Morning Post reported that China Telecom will buy China Unicom's CDMA business for over 100 bln yuan.

The benchmark Shanghai Composite Index closed up 25.69 points or 0.75 pct at 3,459.04.

Turnover fell to 61.96 bln yuan from 64.90 bln in the previous session.

'The rise in power stocks was due to expectations that the government will ease price controls to help these companies counter high costs,' said Hua Xin, an analyst at Founder Securities.

Kong Linghua, a Shanghai-based analyst with TX Investment Consulting, said tariff hikes in power and other public utilities are possible as CPI growth for May is expected to fall below 8 pct.

'However, the CPI remains high, leaving more investors riding on the fence as seen in the declining turnover,' Kong added.

'Although the IPO plan of China State Construction Engineering Corp weighed on the market, investor confidence is expected to recover as the impact of the Sichuan earthquake has not been as severe as initially thought. Also, fewer shares are coming out of lockup in the next two months,' Founder Securities' Hua noted.

The National Bureau of Statistics said yesterday that the earthquake will not hurt China's economic fundamentals, as the disaster region accounts for a small portion of the country's economy.

Huadian Power International (SHA 600027; HK 1071) jumped 9.49 pct to 6.81 yuan and Huaneng Power International (SHA 600011; HK 0902; NYSE HNP) added 4.02 pct to 10.86 yuan. Datang International Power Generation (SHA 601991; HK 0991) was up 7.07 pct at 13.32.

ZTE Corp (SZA 000063; HK 0763), a major telecom equipment maker, was up 1.47 pct at 70.35 yuan, off a high of 71.20.

Beijing Zhongchuang Telecom Test (SHA 600485), Fiberhome Telecommunication Technologies (SHA 600498) and China Satcom Guomai Communications (SHA 600640) all rose by the 10 pct daily limit to 17.99 yuan, 14.89 and 13.17, respectively.

China United Telecommunications (Unicom) (SHA 600050), the company likely to be most extensively reorganized, remains suspended.

Gold producers gained after Zijin Mining rose sharply on bargain-hunting.

Zijin Mining (SHA 601899; HK 2899), China's second largest gold miner, jumped 10 pct to 9.53 yuan, while Shandong Gold-Mining (SHA 600547) and Zhongjin Gold (SHA 600489) gained 3.16 pct and 2.81 pct, respectively, to 62.75 yuan and 67.22 yuan.

Yanzhou Coal Mining (SHA 600188; HK 1171; NYSE YZC) gained 1.75 pct to 23.84 yuan, while Daqin Railway (SHA 601006), a major coal transporter, was up 2.47 pct at 15.38.

UBS said it is maintaining its 'buy' recommendation and 21.20 yuan price target on Daqin Railway after the company announced a plan to issue up to 15 bln yuan worth of bonds within the next two years.

Oil refiners were up on hopes for more government aid for their refining operations.

China Petroleum & Chemical Corp (Sinopec) (SHA 600028; HK 0386; NYSE SNP) advanced 0.67 pct to 13.62 yuan, while Sinopec Shanghai (SHA 600688; HK 0338; NYSE SHI) rose 2.98 pct to 8.99 yuan.

Sinopec also reported a natural gas find with daily gas flows of 300,000 cubic meters in the Songliao basin in northeastern China's Heilongjiang province.

PetroChina (SHA 601857; HK 0857), the biggest index component, closed down 0.11 pct at 17.90 yuan.

Banks were mixed after shares coming out of lockup added to the sector's liquidity worries.

Huaxia Bank (SHA 600015) tumbled 3.65 pct to 11.35 yuan . It said 513.90 mln of its A-shares will come out of lockup from June 6.

Bank of Communications (SHA 601328; HK 3328) rose 2.38 pct to 9.02 and Bank of China (SHA 601988; HK 3988) added 1.26 pct to 4.82. Industrial and Commercial Bank of China (ICBC) (SHA 601398; HK 1398) advanced 0.85 pct to 5.93 yuan.

China Life Insurance (SHA 601628; HK 2628) was up 2.35 pct at 30.92 yuan, while Ping An Insurance (Group) Co of China (SHA 601318; HK 2318) rose 1.05 pct to 56.89.

Property developers and steel makers fell today.

Poly Real Estate Group (SHA 600048) declined 2.20 pct to 16.92 yuan and China Vanke (SZA 000002; SZB 200002), the country's top property developer by market value, lost 2.03 pct to 19.35 yuan.

Baoshan Iron & Steel (Baosteel) (SHA 600019) fell 1.54 pct to 12.17 yuan, while Wuhan Iron & Steel (SHA 600005) lost 1.19 pct to 14.89 yuan.

The Shanghai A-share Index rose 26.95 points or 0.75 pct to 3,629.61, while the Shenzhen A-share Index was up 2.80 points or 0.26 pct at 1,091.39.

The FTSE/Xinhua China A 50 Index was up 55.51 points at 13,211.38 and the FTSE/Xinhua China A 200 Index rose 49.53 points to 10,054.84.

(1 usd = 6.9 yuan)

allen.shu@xfn.com