China’s Telecommunications Network Shake-Up Should Yield Positive Results

One of China’s two main fixed-line operators, China Telecom (listed on New York Stock Exchange and Hong Kong Stock Exchange), has entered into an agreement for the acquisition of China Unicom Ltd’s CDMA wireless business, including its 43 million mobile subscriber customer base, for an amount of 43.8 billion yuan. Moreover, China Telecom’s parent company, China Telecommunications Corp, will acquire the CDMA wireless network from China Unicom Ltd’s parent company, China United Telecommunications Corp, for an amount of 66.2 billion yuan.

These transactions are an integral part of the plan that China Telecommunications Corp is working on to expand and upgrade the mobile network, with an amount of 80 billion yuan being allocated for this purpose. The CDMA (Code Division Multiple Access) network, which is being acquired from China Unicom Ltd, has been an under-performer for some time now, although it was at one time regarded as a cheaper alternative to China Mobile’s Global System for Mobile Communications.

The deal was initially announced in June 2008 as part of an initiative by China’s government to encourage more competition in the country’s telecommunications industry, and is expected to be concluded before the end of 2008. China Telecom will be leasing the new wireless network from its parent company for an amount equivalent to 28 percent of earnings from the new business. It is estimated that revenue from the new business would be 4 billion from date of acquisition to the end of 2008, with 2009 generating 20 billion yuan and 35 billion yuan in 2010.

Other transactions generated by this agreement are the sale of 100 percent of China Unicom Macao to a China Unicom unit, as well as the sale by China Unicom Co Ltd of 99.5 percent of mobile phone distribution unit, China Unicom Vsens Co Ltd to China Telecom. In its ongoing pursuit to shake up of the telecommunications industry in China, it has been reported that China Telecom will be starting negotiations for the acquisition of the fixed line assets of minor mainland telecommunications industry player, China Satellite Communications Corp.

Certainly, an efficient telecommunications system is the lifeblood of any country, especially in the commercial and business world. In a country as vast and fast-moving as China, the telecommunications sector offers many opportunities for investment.