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Carriers Telefonica, Vodafone Positioned For Growth In China

Updated:2008/3/7 10:55

As China nears a long-awaited restructuring of its telecom industry, two of Europe''s big phone companies, Spain''s Telefonica (TEF) and U.K.-based Vodafone (VOD), have stakes in the outcome.

Vodafone and, more recently, Telefonica have been angling for a bigger presence in China, which is generally cool to foreign investment.

Telefonica raised its stake in China Netcom Group, (CN) a landline and broadband service provider, from 5% to 7.2% in January. Vodafone has owned a 3.3% stake in China Mobile (CHL) since 2002. China Mobile is the country''s No. 1 wireless firm by far, with 376 million subscribers.

China''s telecom restructuring is expected to impact wireless firms, mainly China Mobile and China Unicom, (CHU) as well as landline phone companies such as China Telecom, (CHA) China Netcom and smaller China Tietong.

The upshot: Landline phone companies will move into the booming wireless market, giving dominant China Mobile more competition. And the restructuring should pave the way for China''s government to issue operating licenses for next-generation, or 3G, services.

For Telefonica and Vodafone, the question is whether the industry restructuring gives them moneymaking opportunities in China.

"It all depends on how the restructuring goes," said Gavin Patterson, an analyst at market research firm Informa. "The important thing for Vodafone and Telefonica is that they have a foot, albeit small, in the door."

Telefonica bought its 5% stake in China Netcom for about $600 million in 2005. In January, it paid $300 million to boost that stake to 7.2%. Telefonica''s chairman, Cesar Alierta, has said the carrier plans to increase its stake in China Netcom to 10%.

"It looks like a reasonable bet on growth," said Wally Swain, a Yankee Group analyst.

As part of the industry restructuring, analysts expect China Netcom to merge with China Unicom''s biggest wireless unit, which operates a GSM-type network. China Unicom''s smaller wireless business, which operates a CDMA network, would merge with China Telecom. And China Mobile is expected to be combined with China Tietong.

China Unicom has about 122 million GSM phone users and 42 million CDMA customers.

Telefonica uses GSM wireless technology in all its markets. Its GSM expertise could help China Netcom expand wireless services, analysts say. Telefonica has 169 million cell phone customers worldwide, including more than 100 million in Latin America.

Technology alliances have played a role in a few Chinese investments. South Korea''s biggest wireless firm, SK Telekom, (SKM) invested $1 billion in China Unicom in 2006.

SK Telecom holds 6.8% of China Unicom''s shares. It operates CDMA wireless networks. The Korean firm had aimed to help China Unicom expand its CDMA business, which has struggled.

If China Telecom takes over China Unicom''s CDMA unit as expected, SK Telecom''s role isn''t clear, says a Lehman Bros. report. SK Telecom might exit the Chinese market or become a strategic investor in China Telecom, says Lehman Bros. analyst Danny Chu.

Vodafone, meanwhile, has yet to reap big strategic rewards in China.

In 2000, Vodafone invested $2.5 billion for a 3% stake in China Mobile. Vodafone upped its China Mobile stake to 3.3% in 2002.

China Mobile''s market valuation has jumped over the past five years, giving Vodafone some financial rewards. But Vodafone hasn''t been able to expand its relationship with China Mobile into new areas, analysts say.

Asked about the restructuring of China telecom industry at a recent investor conference, Vodafone Chief Executive Arun Sarin said, "You can look in the newspapers and see what our 3.3% is worth every day, but what you can''t value is the goodwill we''ve created with China Mobile and the government. We are working to see if we can improve our economic position for our shareholders in 2008."


Source:investors
By:c114  Source:C114中国通信网
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