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Strategies & Market Trends : China Telecom Ltd (CHL) -- Ignore unavailable to you. Want to Upgrade?

To: K.J.Devine who wrote (32)	12/3/1997 10:57:00 PM
From: K.J.Devine	Respond to of 149

Currently, there are only six million cellular subscribers in China. By the year 2000, ITC projects the number of cellular and wireless local loop subscribers in China to exceed 30 million subscribers! China represents the world's largest market for telecommunications services and telecommunications equipment sales. While there is an enormous demand for telephone service in China, only 2% of the population has telephone service. Wireless communications solutions are rapidly addressing and meeting the telephony development needs in many urban and rural areas. The rapid growth of the cellular, paging and wireless local loop communications sectors present and enormous opportunity for wireless equipment sales and operations in China. Wireless Communications Markets: China projects market demand and growth for cellular, paging and wireless local loop communications through the year 2000.

To: K.J.Devine who wrote (32)	12/3/1997 11:06:00 PM
From: K.J.Devine	Read Replies (3) \| Respond to of 149

From the China Telcom Report: China Telecom Acquires part of Hongkong Telecom On June 6, 1997 Cable & Wirleless (C&W) and China Telecom, the operating branch of the Ministry of Posts and Telecommunications announced an agreement under which C&W will sell 5.5% of its stake in Hongkong Telecommunications (HKT) to China Telecom for appoximateley US$1.2 billion. China Telecom will have the right to nominate a board member of HKT. This sale is subject to any necessary governmental and regulatory approvals. The arrangment also dictates/outlines that during the next six to eighteen months C&W half of its remaining 53.5% interest in HKT to China Telecom and in exchange will receive 25-30% in China Telecom (Hong Kong) (CTHK), a holding company that was founded earlier in 1997 This transaction si expected to occur in the next 6 to 18 months. CTHK is expected to be floated in fourth quarter 1997, with an IPO of appoximately US$8 billion. Up to 20 Chinese provincial Post and Telecommunications Administrations (PTA) may acquire or swap equity in CTHK. What each company recieves anbd gives in this transaction will not be known until the transactions progress from being on paper to being actualized. It appears the C&W was playing with the highest carc, HKT, but with the weakest hand. The benefits that C&WW will receive as a "significant minority parnter" in CTHK and access to the Chinese telecom market remian quite vague. What C&W has given up, however, is quite concrete and major. HKT has accounted for the majority of C&W's revnues. In addition, C&W has no successful telecom ventures in China to date, and its participation with Unicom in Beijing for a GSM netowrk appears to be in limbo. HKT also made C&W a very attractive to other telecom carriers as a partner in a global alliance that could provide the "Asian link". C&W's press release about the deal reflects the benefits it hopes to gain, "To further strengthen its relationship with China and to enahnce shareholder value, Cable & Wireless is prepared to transfer to China Telecom.... China Telecom is offering C&W the uniques opportunity to be the major telecom investor in China Telecom (Hong Kong) which will allow C&W to penetrate the China market." Alongside the benefits, C&W had reason to be concerned about China's reaction/attitude to the flagship telecom operator in Hong Kong mafority controlled by a foreign company. In addressing/analyzing the benefits for China Telecom it is necessary to also examine the benefits for the MPT and China as a whole. The situation also begs the question, are China and China Telecom one and the same? Regardless of the political background to the C&W-China Telecom deal, it will enrich different Chinese parties in different ways. Much speculation had arisen about the Chinese reaction to foregin majroity ownerhip of HKT. Despite China's preference, it was able to achieve a loss of foreign control of HKT by playing by global financial rules. This deal is reminiscent to that between ? and Cathay Pacific. Foreign companies are willing to cut a deal for Chinese partners to extract favors and to try and position themselves for the mainland Chinese domestic market. The MPT as a whole benefits from increased involvement in the Hong Kong telecom market through China Telecom. More importantly, however, This arrangement also helps MPT overcome capital constaints without questioning domestic ownership of teelcom operators and may, in effect,delay liberalization. As the operating branch of the MPT, China Telecom cannot be accurately described as an individual entity. However, as an operator, it benefits from a closer relationship with HKT through access to HKT's Hong Kong business and the technology and management know-how fo rthe company. Elsewhere in China, provincial and municipal PTAs may benefit from the fact that the deal sets a baseline for future valuation and borrowing ability of PTAs. Hongkong Telecomcenter of all this activity appears to be the one left out. C&W and China Telecom appear to have distinct, if not equal benefits, but HKT seems to have merely experienced a change of ownership. HKT's other shareholders, China Everbright, CITIC Pacific, and .....Major question is whether this change will affect HKT's monopoly on international calls. It is slated to last until 2006, however discussions between Hong Kong's Office of Telecommunications Authority and HKT to shorten the duration of their monoply have reportedly been held. This brings to question the effects of the deal on the Hong Kong telecom market and is inextirbciably linked to the affects of July 1, 1997. Currently, Hong Kong has one of the most liberal telecom markets in the world. China enters as Hong Kong as a regulator and political entity, but also as a customer and business partner. How China and Chinese companies are able to balance this role will be .......? Viewing China Telecom as a major telecom carrier, its partneship with HKT coudl be categorized as a new regional alliance. Additionally, the undefined role of the new "red chip" CTHK does not guarantee access to its investors in mainland markets.