China Mobile Goes Shopping Abroad

China Mobile Communications Corp. , the parent company of carrier China Mobile Ltd. (NYSE: CHL), is making its first foray abroad with the acquisition of an 88.86 percent stake in Paktel Ltd. , the fifth largest mobile operator in Pakistan. (See China Mobile Buys Paktel.)

The company has agreed to pay $284 million to emerging markets operator Millicom International Cellular SA (Nasdaq: MICC) , which put Paktel up for sale last November. (See Millicom Plans Pakistan Exit.)

China Mobile has been trying to gain a foothold into emerging markets for more than a year, and tried unsuccessfully to buy Millicom itself last summer. (See Millicom Abandons Sale, Stock Plunges.) It also lost a bid for Pakistan Telecommunication Co. Ltd. to Etisalat .

Chinese telecom companies are looking to expand abroad as competitors enter the market from abroad and growth slows at home, although China Mobile Ltd. is still expanding at a steady clip. The unit reported Friday that its total subscriber base surpassed the 300 million mark in December, reaching 301.23 million. That compares with 250.72 million in January and 291.74 million in November.

The latest figures from the Pakistan Telecommunication Authority show Pakistan is behind only China and India in the addition of new mobile subscribers in Asia, adding 28.9 million in 2006 for an increase of 147 percent over the end of 2005. The country’s six operators had a total of 48.5 million subscribers at the end of the year, accounting for around 31 percent of Pakistan's 169 million population.

China Mobile will need to invest some cash in reviving the fortunes of Paktel, which is the only operator of the six that's losing subscribers. Paktel's customer base fell from 1.38 million in November to 1.33 million in December.

According to a statement from Millicom in November, it had planned "significant investments" to build Paktel’s market share, but was derailed by "challenging business conditions" and a dispute with the Pakistan Telecommunications Authority over frequency interference issues. Millicom indicated that if it didn't find a buyer for Paktel, it would close the operator.

Millicom's shares were up $1.00 (1.48%) to $68.65 in noon trading on the Nasdaq. News of the sale prompted Standard & Poor’s to place its B+ long-term corporate credit rating for Millicom on CreditWatch with positive implications, noting that "the removal of Paktel from Millicom's diverse 16-country emerging-market portfolio will eliminate the subsidiary's negative impact on the company's consolidated results, in addition to removing funding requirements of a currently cash-consuming business."

The Chinese company has the cash to spare: Its profits for the nine-month period to September 30 were 46.13 billion yuan renminbi ($5.92 billion). It also enters the market at an opportune time, as Pakistan is set to introduce mobile number portability -- which enables subscribers to change their service provider but still keep the same phone number -- in the next few weeks. That will allow operators to pick up customers that might be dissatisfied with a competing service but had stuck it out to avoid the inconvenience of changing their phone numbers.

— Nicole Willing, Reporter, Light Reading