S&P says telecom dominance shifting to wireless - so why a "sell" rating?

Includes: CHA, CHL, CHU, CN-OLD
by: Ezra Marbach

Increasing wireless dominance? Thanks for the revelation! Yet the S&P has a "sell" recommendation on one of the Chinese wireless operators. Which one? Why? And what is the analyst missing?

According to S&P analyst Kenneth Leon, in recommending selling China Unicom (ticker: CHU):

....we see continuous high network costs in running
two separate networks by technology, and we see weak net subscriber
additions in recent quarters.

You can read the rest of the Business Week article here.

Quick thought: Of course just yesterday we pointed to a China Unicom upgrade from Bear Stearns. Why the upgrade? Bear believes that Unicom is well
positioned to benefit not only from a potential industry restructuring,
but also from an improvement in the competitive China
wireless telecom market going forward. The company is also likely to witness
a strong upturn in its core CDMA business in the near term.

So while the S&P analyst is correct that Unicom suffers from the costs of running both a GSM and CDMA network, and has shown slow subscriber growth of late, a much rumored restructuring is expected soon. And a restructuring is expected to lead to a breakup of Unicom. In such a scenario, investors might see a buyout premium, as some have suggested that the sum of the parts is worth more than the combined company. Also, a bidding war might ensue. Why? Both China Telecom (ticker: CHA) and China Netcom (ticker: CN) are craving a mobile network. See here.

China Unicom's stock market performance:


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