China Telecom: We’re in the Money, Maybe

Posted on June 6, 2008
Filed Under China Business, Mobile |

The State-owned Assets Supervision and Administration Commission may spend between RMB 30 billion and RMB 50 billion to subsidize China Telecom (NYSE: CHA, 728.HK) once the telecom operator takes over China Unicom’s (NYSE: CHU, 762.HK, 600050.SH) CDMA network, reports Sohu citing unofficial sources. China Telecom general manager Wang Xiaochu said the company will face challenges in the first two years after the takeover but expects the CDMA network to become profitable in 2012. China Telecom announced plans to buy the CDMA network for RMB 110 million on Monday.

One of the great things about being a big, strategic, Chinese company is that whenever things looks grim financially the sky opens up and it rains renminbi. 30-50 billon RMB (somewhere around US$4-7 billion) is a little extreme, however. Not even Sinopec and PetroChina, China’s big oil firms who have to sell their products at a loss to keep the economy greased, get that kind of dough. If it does happen, it’ll probably be significantly less.

But Beijing’s telecoms boffins may want to hold off on the manna from heaven, China Telecom is quite capable of making its own rain. The South China Morning Post:

China Telecom Corp (SEHK: 0728) yesterday confirmed it has been approached by several prospective strategic investors wishing to buy a stake in the firm.

It added that any such partnership agreement would have to wait until it completed the acquisition of China Unicom (SEHK: 0762, announcements, news) ’s code division multiple access (CDMA) assets.

…AFK Sistema, a Russian-based mobile operator, was forming a strategy either to buy a mobile licence or a stake in a mobile operator on the mainland, the company’s key shareholder, Vladimir Evtushenkov, told Russian media on Monday, adding it would start lobbying to get approval from mainland authorities.

South Korea’s SK Telecom yesterday denied market talk that it had submitted a proposal to China Telecom for a joint venture on CDMA operations.

United States-based Qualcomm declined to comment on talk that it might invest in China Telecom.

Sources said both firms could have several CDMA technology partnerships on the mainland eventually.

“China Telecom is the last mainland operator that doesn’t have a foreign partner in terms of both technical know-how and the amount of investment,” a source said.

The SK Telecom rumor has been around for a while. They’ve done both CDMA2000 and WCDMA, so they have the experience necessary to help China Telecom pull it off. However, they also have a 6.6% stake in China Unicom. How that relationship will work out, I have no idea.

Qualcomm is certainly willing to do just about anything to speed the adoption of CDMA2000 in China as soon as the government gives its blessing to deploy it.

I don’t know much about Sistema. It’s an oligarch-owned conglomerate that has a number of different telecoms subsidiaries, but I don’t know how much experience they have running a 3G network.

China Tech News reports that Singapore Telecom is another suitor for China Telecom’s favors. They run a WCDMA network in Singapore.

China Telecom needs some cash to splurge on 3G infrastructure after agreeing to blow RMB110 billion to buy China Unicom’s CDMA network. A little help from an experienced 3G mobile operator wouldn’t hurt either.

This is the best opportunity in a while to jump into the China telecoms market. China Telecom should be able shake the money tree from a potential partner rather than relying on a subsidy. Besides, I can’t imagine the Chinese government wants to give too much help to standards that rival home-grown TD-SCDMA.