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To: djane who wrote (3982)	4/21/1999 3:39:00 AM
From: djane	Respond to of 29987

WorldlyInvestor on China Telecom breakup worldlyinvestor.com Apr 21, 1999 Calling All Investors: This Huge Telecom Might Break Up April 20, 1999 6:19 AM EDT By Lucy Weldon Special to worldlyinvestor.com Click here to post a message about this story Click here to read stories like this one China Telecom (quote, chart, profile) will split into four separate businesses (fixed line, mobile, satellite and paging), said China's Ministry of Information Industry last week. The announcement, however, did not include a timetable for this break up. Says Joe Locke, telecom analyst at ABN Amro Bank (Asia) in Hong Kong, "The announcement is very significant and means that China Telecom will become more of a company. That means much more management control and focus on the telecommunications sector which is a critical strategic industry for China." Although China may have failed in its bid to join the World Trade Organization (WTO), the breaking up of China Telecom should be considered an important step forward to eventual WTO entry. That's because the telecommunications sector has been one of the key areas of negotiation in the WTO talks and will continue to be pivotal as China tries to secure entry. There has also been a report that Chinese Premier Zhu Rhongji will allow foreigners to take up to 30% stakes in telecommunications companies. This too is an important step, as foreign companies currently are not allowed to own outright stakes. "The WTO draft agreement specifies a limit of 49% for foreigners. Whether it's 30% or 49%, it's more a question of the principle than the figures at this stage. Either way, the concession is respectable but it's not a done deal yet," says Locke. But foreigners are already participating in China's telecommunications market. To circumvent the ban, foreign companies have operated through a model called Chinese-Chinese-Foreign (CCF) which effectively is a joint venture. Share of profits has come from consultancy, leasing and management fees. However, this CCF model has been cracked down on in recent months. But don't expect any overnight changes in China's telecom market. China Telecom is by far the most dominant player in China and at this stage there is no danger of it being toppled from its current position by either local or foreign competitors. We're talking David and Goliath here. China Telecom has an estimated 95% of the telecom market versus China's other operator, China Unicom, which has 5%. But, mobile telecommunications will continue to be one of the key market opportunities as current penetration in China is an estimated 1.4%. Compare that with Hong Kong where 36.4% of the population have mobile phones. Recognizing this, foreign companies continue to jockey for position and cluster on the doorstep in neighboring Hong Kong. The UK's British Telecommunications (quote, chart, profile) recently acquired a 20% stake in Hong Kong's cell phone company SmarTone Telecommunications and is openly setting its sights on China. BT's acquisition, together with the recent announcements coming from China, have led to market speculation and share price movements across telecom stocks in Hong Kong. But analysts say that speculating on the telecom market and individual companies in relation to China opening up is somewhat premature. The announcements have also brought China Telecom itself considerable attention. There are two schools of thoughts regarding China Telecom in the wake of these intended changes. Some will say that the opening up of the China market is a threat to the company and some current investors are not happy that China Telecom's near monopoly in the market place will disappear. Others say that China Telecom represents an improved investment opportunity. Says Locke, "Competition in general is a much more healthy state of play and must be more attractive for investors and shareholders. Competition will stimulate the market and be a positive force for China Telecom." Certainly, given its head start in the market and its backers, it could be an increasingly good buy. Lucy Weldon is a journalist based in Kuala Lumpur, Malaysia. She is the author of Private Banking - a Global Perspective. © 1999 Worldly Information Network, Inc. Disclaimer Created by