PCCW (PCW) and China Netcom (CN) - real estate partners?

Includes: CN-OLD, PCW
by: Ezra Marbach

According to the Wall Street Journal (subscription required), Hong Kong telecom service provider, PCCW (ticker: PCW), and Chinese fixed line operator, China Netcom (ticker: CN), are considering cooperating on Internet-television, wireless-phone, and real estate ventures. Real estate?

Here are the key points:

  • China Netcom has agreed to take a 20% equity stake in PCCW for about $1 billion
  • An announcement of specific business plans will likely
    come this week

On Internet television plans:

  • A deal through which China Netcom would use
    PCCW's expertise to offer Internet television in Mainland China makes sense
  • PCCW now offers an innovative broadband-TV service
    in Hong Kong to more than 400,000 subscribers
  • PCCW could use Netcom's existing Internet network in northern China to transmit
    the service
  • Such a
    service might take about a year to roll out and could involve PCCW
    partnering with a Chinese content or media company
  • One analyst believes that northeast China could be a tough market in which
    to peddle new broadband services. Southern China, where rival China
    Telecom (ticker: CHA) has its main fixed-line and Internet network,
    is considered to be more lucrative turf

On wireless phone plans:

  • China Netcom doesn't yet have a
    government license to offer wireless services
  • It is unclear how a
    partnership with PCCW might help it sell mobile-phone services on the Mainland
  • Netcom and PCCW are "jointly
    studying mobile strategy" in anticipation of China Netcom's getting a
    wireless license

On property plans:

  • China Netcom has a large
    real-estate portfolio, including many buildings in China that were
    built to house phone-network infrastructure. Netcom thinks PCCW could help it redevelop those properties
  • PCCW, through a subsidiary, has extensive property holdings

Quick thought: Do you get the feeling that Netcom and PCCW havent really figured out how to capitalize on their partnership? This week should be particularly telling.