Developments in Chinese telecom

by: Ezra Marbach

Details on a new upgrade on China Unicom (ticker: CHU), the issuance of 3G licenses, and a Hong Kong technology journalist's opinion on the China telecom landscape:

China Unicom Upgrade;
Bear Stearns upgraded China Unicom (ticker: CHU). In a research note published yesterday, the analysts claim that China Unicom is well positioned to benefit not only from a potential industry restructuring, but also from an improvement in the competitive scenario in China's wireless telecom market going forward. The company is likely to witness a strong upturn in its core CDMA business in the near term.

3G License Update:
China may issue fewer licenses for high-speed mobile-phone services than planned, and the permits may cover regions instead of the entire nation. This according to a government official. The official did not say how many 3G licenses will be issued or provide a timetable for the introduction of the service.

Ericsson (ticker: ERICY), Motorola (ticker: MOT) and other telecommunications equipment vendors are awaiting China's introduction of 3G services, expected to spur billions of dollars of spending by operators such as China Mobile (ticker: CHL). The Ministry of Information Industry will submit a final proposal on the introduction of 3G services sometime this year to the State Council, the country's highest governing body.

Robert Clark, a Hong Kong-based technology journalist, discusses the telecom landscape. Here are the key points:

  • Fixed line operators China Telecom (ticker: CHA) and China Netcom (ticker: CN) would like mobile networks. But neither have had any success. Recently, China Unicom publicly rebuffed China Telecom's overtures to acquire one of its mobile networks.
  • Restructuring proposals floated in the past few months have suggested the merging of all of China's telecom assets into two companies, or three, or four.
  • The number and diversity of restructuring plans, and the fact of their leaking, underlines the intensity of the lobbying.
  • But the problems for Chinese telecom companies remain the same as their counterparts elsewhere - the value of wireline voice is diminishing, and cellular operators voice minutes are increasing.
  • The options for carriers are fairly simple. For fixed-line operators, it's pay-TV, broadband, fixed-line phone service, and IPTV. PCCW (ticker: PCW) has shown how that can reduce churn. The task is to make it profitable. For full-service operators it's pay-TV, broadband, fixed-line phone service, and a mobile convergence package.
  • Fixed line operators that don't aggressively pursue these options should start talking to the M&A guys at their local investment bank.