Investments Line Up for Chinese 3G
Fixed-line operator China Netcom Corp. Ltd. (NYSE: CN; Hong Kong: 0906), for one, is looking to 3G as part of its strategy to offset declining wireline growth in the face of China's mobile boom. The carrier's first-half revenues, announced yesterday, increased just 0.4 percent from the previous year, to 40.7 billion yuan renminbi (US$5.36 billion), while fixed-line subscribers grew by 1.1 million over the end of 2006. (See China Netcom Reports 1H07.)
Overall, Chinese operators added 4.9 million fixed-line subscribers in the first six months of the year, compared with 40.6 million mobile subscribers.
China Netcom's parent company is one of three operators given the go-ahead by the Chinese government to build trial networks for Time Division Synchronous Code Division Multiple Access (TD-SCDMA), the country's home-grown 3G standard. Deployments began during the first quarter.
Chinese news agency Interfax reports the carrier is set to begin testing TD-SCDMA handsets in the city of Qingdao this month, and Netcom CEO Zuo Xunsheng told reporters yesterday that commercial use of the network is slated to begin by the first quarter of 2008 -- although there's still no word from the government on when licenses will finally be issued.
China's 3G licenses have been repeatedly delayed over the past couple of years as the government pushed the development of TD-SCDMA over wideband CDMA and CDMA2000. (See China's 3G Gets Green Light.) While the government has promised to have 3G services up and running in time for the summer Olympic Games in Beijing, some analysts remain skeptical that the operators will see licenses before 2009.
According to a new report from Beijing-based research firm Analysys International , the TD-SCDMA equipment market reached RMB 7.2 billion ($947.4 million) during the second quarter as Netcom, China Telecom Corp. Ltd. (NYSE: CHA), and China Mobile Communications Corp. expanded their deployments. (See TD-SCDMA Approaches $1B.)
ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) leads the market with a 45.8 percent share; Datang Mobile Communications Equipment Co. Ltd. comes in second with 27.2 percent; and 14.9 percent goes to TD-Tech, a joint venture between Huawei Technologies Co. Ltd. and Nokia Networks . The rest of the market is split into small shares for Ericsson AB (Nasdaq: ERIC), FiberHome Mobile Communications, and others.
Meanwhile, China Daily reports that PICC Asset Management Co. Ltd., a subsidiary of People's Insurance Company (Group) of China (PICC), is set to take a 15 percent stake in Datang Mobile this week for RMB1.5 billion ($197.4 million) in anticipation of high returns once the 3G market gets going. Datang Mobile and partner Alcatel Shanghai Bell Co. Ltd. scored a large chunk of China Mobile's $3 billion 3G equipment order during the first quarter. (See China Mobile 3G Contracts Awarded.)
Service providers from the greater Asia/Pacific region are also looking to get in on the action, and China Unicom Ltd. (NYSE: CHU) announced Tuesday that South Korea's largest operator SK Telecom (Nasdaq: SKM) exercised an option to convert $1 billion worth of bonds it held in the carrier into shares, giving it a 6.61 percent stake. SK is now the second largest shareholder in the company and gets a seat on the board. A statement from Unicom said the move "will further consolidate the strategic alliance between the two parties. It also deepens the cooperation of the Company and SKT in mobile communications." (See SK Buys Unicom Shares.)
SK Telecom has been looking to expand abroad in the face of market saturation at home and is keen to become a player in the larger Chinese market. The stake will give it a foothold before the shakeup expected to come with 3G. It has long been speculated that China Unicom, the country's smaller mobile operator behind China Mobile, will be broken up as part of a government restructuring once 3G licenses are awarded, likely becoming absorbed by China Netcom or China Telecom.
Hong Kong-based Hutchison Telecommunications International Ltd. (NYSE: HTX), too, is expressing interest in partnering with carriers on the mainland to develop 3G. The company, which reported first-half earnings on Tuesday, is flush with cash following the sale of its Indian operations to Vodafone Group plc (NYSE: VOD) in February. HTIL's net profit soared from HK$2 million ($255,991) in the first half of last year to HK$70 billion ($8.96 billion), which includes a one-time gain of HK$69.3 billion ($8.87 billion) and gives it an extra HK$40 billion ($5.12 billion) in cash. (See HTIL Reports Q2 KPIs.)
According to the South China Morning Post, HTIL CEO Dennis Lui Pok-man said after the earnings announcement that the company "will definitely consider" investing in China when it becomes clear who will get a license. He added that HTIL would want to be involved in management and operations rather than just plowing in cash. Hong Kong-based PCCW Ltd. (NYSE: PCW; Hong Kong: 0008) has said it intends to partner with China Netcom's parent if the latter receives a license.
— Nicole Willing, Reporter, Light Reading