CurrentAffiars
China telecomseyeing less-developed market
By Christian Wade,
UPI Business Correspondent
SHANGHAI, China, (UPI) -- Nearly one outof every two residents in this bustling city of 17 million ownsa mobile phone, twice the number of fixed telephone line users,officials said.
Once feigned as a symbol of bourgeois wastefulness,mobile phones have become a necessity for millions of Chinese,as incomes have risen and prices on handsets and services havefallen.
In Shanghai, where less than 10 years agomost people had to walk to the nearest store to use a pay phone,the expansion of the mobile phone market has been nothing shortof astonishing.
Nowadays, almost every street corner hasa mobile phone vendor authorized to sell top foreign brands suchas Motorola and Nokia, driving the competition up while keepingthe prices down.
Some users purchase two or more phones,upgrading to new versions that offer e-mailing, text messagingand other services provided by local carriers campaigning forcontrol of the market.
Booming sales in the larger cities has helpedChina develop into the world's largest mobile phone market, outpacingthe United States and Japan with roughly 167 million users atthe end of April.
But with markets along China's affluenteastern coast becoming more saturated, rival domestic mobile carriersare positioning themselves to expand their subscriber base toother regions.
China Mobile, the country's largest wirelesscarrier, has set its sights on less-developed regions in the countryand has secured a series of deals over the past week in orderto gain a foothold.
Last week, Vodafone Group PLC, Europe'slargest cellular-phone company, announced it would pay $750 millionto increase its stake in China Mobile (Hong Kong) Ltd. -- makingChina Mobile a contender for the role of world's largest contiguousmobile network with about 100 million users.
Vodafone, which operates networks in 28different countries, currently holds the top position with morethan 101 million users. China Mobile operates completely withinthe Chinese mainland and has only acquired a small percentageof subscribers among the nation's 1.3 billion inhabitants.
The deal, which is pending approval fromthe Chinese government as the firm's shareholders, will allowChina Mobile to buy eight more networks from its state-owned parentfor $10.2 billion.
The networks - in Anhui, Hunan, Hubei, Jiangxi,Sichuan, Chongqing, Shanxi and Shaanxi - have 20.93 million subscribersand are in China's less affluent northern and central areas, incontrast to the company's existing 13 networks located in denselypopulated eastern coastal regions.
"These provinces are in a state ofrapid economic growth," Wang Xiaochu, chairman of China Mobilesaid in a statement faxed to foreign news organizations. "Theacquisitions will enhance shareholder value. They will be accretiveto our 2002 earnings per share."
China Mobile, which is listed in New Yorkand Hong Kong, agreed to pay $8.57 billion in equity and $1.62billion in debts to state-owned parent China Mobile CommunicationsCorp., he said.
Analysts estimate net profit for the eightoperations this year is $677 million (RMB 5.6 billion) and saythe $8.57 billion in equity represents a price-earnings ratioof 12.7 times.
On Monday, French telecommunications-equipmentmanufacturer Alcatel SA signed a deal worth $114 million withChinese mobile operator Jiangsu Mobile Communication Co., a subsidiaryof China Mobile Ltd., to expand its Global System for Mobile Communications(GSM) network.
Still, China Mobile's foray into less-developedregions of the country could prove to be a difficult task andthe Vodafone deal is unlikely to provide a big near-term profitboost, analysts said.
"In the short term, China Mobile isnot likely to see profits from this deal, but their expansioninto regional networks will translate into huge profits in thelong term," said Qi Wei, a telecom market analyst for HaitongSecurities in Shanghai. "It's an important strategic movefor the company."
The analyst estimated the average revenueper user in these central and northern provinces was about $14(RMB 120), far lower than the average of China's wealthier easterncities.
"Breaking into the provincial marketswill be a major challenge for China Mobile, as low incomes inthese areas means that many people just won't be able to afforda mobile phone," he said.
The analyst said China Mobile will struggleto turn a profit in Anhui, Jiangxi and other poor, rural provinceswhere revenue is low and providing universal service is costlyand often unprofitable.
China Mobile is not the only big fish inthe telecom market. It's chief competitor, the state-owned behemothChina Telecom, is also positioning itself to gain a firm footingin the regional networks.
Last Thursday, Chinese officials announcedthe break-up of China Telecom into two companies as part of amuch-anticipated shake-up in the state's monopoly over the telecomindustry.
One company keeps the China Telecom nameand take over its networks in 21 provinces in the south and west.
The other, China Netcom Group, will takethem over in 10 provinces in the north, while acquiring two othernew operators, China Netcom and Jitong Communications.
Officials say the break-up, which fell shortof the expectations of many analysts, will infuse more competitioninto the industry as the country's economy is gradually openedto foreign rivals.
"The guiding policy of the telecomsystem reform is the breakup of monopolies," Chinese Ministerof Information Industry Wu Jichuan said in a statement releasedlast Friday.
The two new companies, which are expectedto apply for mobile licenses, stand to inherit one of the world'smost advanced fiber-optic networks and one of the largest Internetservice markets.
"In three to five years' time, we willbuild China Netcom Group into a world-class, internationally-competitivetelecom operator," Xi Guohua, president of China Netcom,said in a statement.
According to Gartner Dataquest, a U.S.-basedmarket research firm, China remains a bright spot in Asia's telecommarkets, and by 2006, the country's telecom industry could beworth $27 billion.
Overall, the Asia-Pacific region's telecomsectors will experience single-digit growth rates through 2006,when the market is projected to total $136.8 billion, a recentGartner Dataquest report said.
However, it said, developed markets suchas Japan, Australia, Korea, Hong Kong and Singapore will experienceslowing growth rates due to increasing market maturity and morecompetition.
In addition, China's telecom giants arefacing increasing competition as more foreign companies enterthe nascent market, as part of the nation's commitments to theWorld Trade Organization.
China has said it will allow foreign firmsto own up to 50 percent of fixed-line phone ventures two yearsafter joining the WTO, and no more than 49 percent of mobile-phonefirms after five years.
Foreign companies seeking to crack intothe domestic market by investing in a nationwide service or aregional carrier must also have a registered capital of $240 million(RMB 2 billion).
Foreign rivals such as Ericsson, Alcatel,Motorola, Qualcomm and Nortel have signed contracts to supplywireless carriers in China with technology. Nokia, with more than5,500 employees in China, is currently involved in at least eightjoint ventures with Chinese telecom companies.
"China's telecom giants are gettingwell-positioned for the anticipated foreign competition,"said Li Feng, a market analyst for Shanghai Securities. "It'sa big scramble for the regional networks."