3 articles on China Telecom/China Unicom
April 8, 1999
Heard in Asia
China Telecom May Offer
Best Telecom Sector Play
By ERIK GUYOT
Staff Reporter of THE WALL STREET JOURNAL
HONG KONG -- Investors are stampeding into telecom stocks with high
hopes for the opening of China's mobile-phone market. But they may be
overlooking one of the smartest buys: China Telecom (Hong Kong).
Beijing took a big step Wednesday,
announcing it would split the all-powerful
government-owned parent of that company
into four lines of business: fixed-line, mobile,
paging and satellite. While that move is aimed
at engendering competition, it isn't likely to immediately affect the Hong
Kong-listed company, which already focuses on mobile services. China's
cellular-phone market is a big growth area, with subscriptions rising by
20% or more annually in recent years.
To tap that market, investors have bid up mobile telecom stocks. Indeed,
earlier this week, British Telecommunications said it was buying a 20%
stake in Hong Kong cell-phone company SmarTone Telecommunications
to profit from Hong Kong and China's markets. Investors on Wednesday
pushed up SmarTone shares 3.8% to 23.35 Hong Kong dollars
(US$3.01), a rise of 85 Hong Kong cents, while shares in Hong Kong
Telecommunications jumped 5.3% to HK$16, a gain of 80 cents. Star
Telecom International's shares surged 22% to 46.5 Hong Kong cents, up
8.5 cents, on the belief that the small company could be an acquisition
target of a large telecom company.
Yet China Telecom (Hong Kong) remains one of the purest China
mobile-phone plays, and hasn't attracted as many investors. Its shares rose
3.1% to HK$13.45, a gain of 40 cents, but are off their high earlier this
year of HK$15.80.
A few pros are saying that if investors are bullish on China's
telecommunications market, it makes more sense to buy China Telecom
than those other stocks. The company is owned by the Ministry of
Information Industry, which controls more than 90% of the cellular-phone
market in China. China Telecom owns cellular businesses in three of
China's richest provinces: Guangzhou, Zhejiang, and Jiangsu. And as it
grows, China Telecom has the potential to buy lucrative cellular
businesses from its parent ministry in other provinces.
Worries as Market Opens Up
Many investors, however, figure that with China opening up its telecom
industry as part of its efforts to join the World Trade Organization, foreign
competitors will grab business and profits from China Telecom. Despite
the company's commanding market share, its stock has been hurt by those
fears.
"We think the worries are overdone," says Caesar Luk, a fund manager at
Grand Generale Asset Management Ltd. who is buying shares of China
Telecom. Earlier this year, Mr. Luk sold his shares in SmarTone on
concerns that the company faces increasing competition in Hong Kong,
where about a dozen companies provide mobile services.
Mr. Luk and others point to a number of reasons why they expect China
Telecom to continue ringing up profits even if foreign rivals enter the
China market. Earlier this week, Premier Zhu Rongji told The Asian Wall
Street Journal that China would initially allow 25% to 30% foreign
ownership in Chinese telecom companies, a level that could rise in later
years, but he ruled out 100% foreign ownership. That means foreign
investors will have to find a local partner, says NiQ Lai, a telecom analyst
at Credit Suisse First Boston. "We don't expect China to completely open
up," says Mr. Lai.
Moreover, some observers predict that if BT and SmarTone do enter the
China market, they will likely partner with China Telecom, rather than its
far-smaller mainland rival Unicom. BT already has strong ties to China
Telecom; early last year BT signed a memorandum of understanding with
it to share knowledge and training. Richard Slogrove, Asian Pacific
managing director at BT, calls the agreement "a building block in a
longer-term relationship."
Room for Many Players
However, Mr. Slogrove stresses that the agreement doesn't necessarily
mean BT and SmarTone would choose China Telecom as a partner. "I
don't think you necessarily go with someone in your business," says Mr.
Slogrove, noting that in Singapore, BT is in business with Singapore
Power.
Mr. Lai of Credit Suisse contends that even if foreign competitors make
significant inroads in China, the market is potentially big enough for several
operators to thrive. About 2% of China's population currently subscribe to
a mobile-phone operator. That is below levels elsewhere in the region.
And some analysts argue that foreign competition might actually be good
for China Telecom. "One shouldn't view new entrants as a negative," says
Gautam Kapoor, a veteran telecom analyst. Mr. Kapoor points to the
case of Singapore. In that country, the entry of new competitors in early
1997 initially caused subscription fees to dip, but over the longer term the
total number of cellular subscribers more than doubled as companies
increased their marketing efforts and developed new products.
Healthy Subscriber Base
What is more, while the profits for foreign competitors are a distant prize,
China Telecom has a proven track record of in creasing its subscriber
base and profits, say some fund managers. In the first two months of this
year, the company's total number of subscribers rose to 7.25 million from
6.5 million, an annualized growth rate of about 70%. James Soutar, a fund
manager at Lombard Odier (Asia), predicts the com pany will be able to
see its subscriber base grow 20% annually over the next few years. China
Telecom reported net profit of 3.47 billion yuan ($419.2 million) for the
first six months of 1998, a 40% increase over the first half of 1997.
"The thing about China is that you can't quantify what SmarTone's
business potential is," says Mr. Soutar. He adds that buying SmarTone's
shares based on the company's China potential "is completely shooting in
the dark."
Shares of China Telecom are trading at a premium to those of SmarTone
in terms of their "enterprise" value. The term is a fancy way of measuring
how efficiently a company uses its capital, and equals a company's
stock-market capitalization plus its debt divided by its earnings before
taxes and interest expenses. China Telecom has an enterprise value of 9.5
times per share for 1999, while SmarTone has an enterprise value of seven
times. Telecom stocks in Asia trade at enterprise values of between five
and 12.
Mr. Soutar believes that China Telecom deserves a premium to
SmarTone. "Are BT and SmarTone going to go in and start offering
services on a street corner in Guangzhou? I don't see that as happening
right away," he says.
Neither does Mr. Slogrove of BT. "China is the ultimate market," says the
businessman, who indicates that BT and SmarTone are more likely to
make investments in Hong Kong before doing so in China.
Return to top of page | Format for printing
Copyright © 1999 Dow Jones & Company, Inc. All Rights Reserved.
_____________________________________
April 8, 1999
Business and Finance - Asia
China Telecom to Be Split Into Four Parts
In Long-Awaited Move to Break Monopoly
An INTERACTIVE JOURNAL News Roundup
BEIJING -- China Wednesday announced the breakup of the
government's powerful telecommunications monopoly into four companies
to try to inject competition into the rapidly growing industry.
The long-awaited decision on the
dismemberment of China Telecom comes as
U.S. and Chinese negotiators held
down-to-the-wire talks in Washington on
China's bid to join the World Trade
Organization. Access to the $28 billion
telecommunications sector, 95% of which is
controlled by China Telecom, has become a
deal breaker.
China Telecom will be divided into four companies each specializing in a
separate service: fixed telephone, mobile communications, paging and
satellite telecommunications, the Ministry of Information Industry, which
regulates the sector, said in a statement.
"The breaking up of China Telecom is aimed at smashing the
telecommunications monopoly in China and introducing competition to set
up a fair and orderly market," Minister of Information Industry Wu Jichuan
said in the statement, carried by the state-run Xinhua News Agency.
According to negotiators, China proposed lifting its ban on foreign
investment in telephone companies before Premier Zhu Rongji set out for
his U.S. visit this week. Foreigners would be allowed a 35% stake in
phone companies, although U.S. negotiators are still pushing for 51%.
Such a move would reverse a policy that largely excluded foreign
participation to equipment sales.
In the past, some companies such as Sprint Corp. evaded the ban on
foreign investment by setting up complicated joint ventures that allowed
them effective control, a gray-area investment that was technically illegal
but tolerated by investment-hungry officials.
China proposes that such deals wouldn't be allowed in the future but that
existing ventures would be protected, although foreign companies would
probably have to reduce their stakes to 35%. Mr. Zhu has also told
Western negotiators that "buy local" orders have been rescinded and that
China will adhere to the International Telecom Agreement by 2005,
which calls for ending import tariffs on telecom equipment.
On Wednesday, Xinhua quoted Mr. Wu as saying that China will
introduce foreign capital to the telecommunications sector, but "in an active
and steady manner."
The Xinhua report gave no time frame for the China Telecom breakup.
Mr. Wu said new regulations for the telecommunications sector would be
put in place in the first half of the year. He added that his ministry is drafting
a law that will replace the regulations.
However, Zhou Qiren, a professor at Peking University who tracks the
industry, said the break-up of China Telecom won't introduce immediate
competition to the sector since each of the four free-standing companies
dwarf all viable competitors.
But Mr. Zhou said the government may start permitting Chinese-foreign
joint ventures as part of efforts to liberalize the industry and gain entry into
the WTO.
"It could become the legal partnership structure," Mr. Zhou said.
Chinese Premier Zhu is in the U.S. trying to improve China's chances for
membership with market-opening concessions in agriculture, financial
services and also telecommunications. Mr. Zhu indicated last week that
China would open a new mobile phone technology, code digital multiple
access, to foreign investment, but no plans have been formally announced.
Return to top of page | Format for printing
Copyright © 1999 Dow Jones & Company, Inc. All Rights Reserved.
__________________________________________________
April 7, 1999
Dow Jones Newswires
China Unicom Aiming For 35M Mobile
Users By 2003 - Report
Dow Jones Newswires
BEIJING -- Telecommunications operator China Unicom plans to boost
the number of its mobile phone subscribers to 35 million by 2003 from
roughly 2 million currently, state media reported Thursday.
China Unicom aims to garner about 30% share of the market for mobile
phones by that time, the Economic Information Daily said.
Customers will include those who use GSM, or global system for mobile
telecommunications, and CDMA, or code division multiple access, mobile
systems, it said.
China Unicom currently operates only GSM networks, and in China,
CDMA is only being used on a trial basis in Shanghai, Beijing, Xian and
Guangzhou. But China has said it will soon allow nationwide use of
CDMA as part of a bid to enter the World Trade Organization. China
Unicom, which is the main competitor to telecommunications giant China
Telecom, is expected to be one of the primary providers of CDMA
services.
As reported, China Unicom plans to invest 23.8 billion yuan
($1=CNY8.28) to build GSM networks in 190 cities this year. It plans to
add about three million new mobile phone customers to bring the total
number of mobile phone customers to 4.5 million by year's end.
China Unicom, which had previously operated only mobile phone, paging
and limited local phone services, will launch long-distance phone services
by Oct. 1, the Economic Information Daily said.
It is spending CNY3.7 billion this year to build phone lines to provide
long-distance services to 67 cities by the end of the year, the newspaper
said.
China Unicom's stepped up investments and new services come amid a
wider revamp of China's telecommunications industry. In a bid to introduce
greater competition to the sector, China plans to break up the monopoly
held by China Telecom by dividing the operator into four companies
separately specializing in fixed-line phone, mobile, paging and satellite
services.
Return to top of page | Format for printing
Copyright © 1999 Dow Jones & Company, Inc. All Rights Reserved.
|
