Is it merely a hard nut to crack, or mission impossible?

Regardless of the pros and cons, Chinese telecoms operators, eager to expand overseas, are attracting greater attention worldwide. Many have sped up their efforts to test overseas telecoms markets.

The fast development of China's telecoms industry may partly explain their bold actions. Analysts however suggest the international market is a must for domestic telecoms operators to ensure their long-term growth in the rapid economic globalization and fierce market competition.

The move may have been China Netcom's partnership with PCCW Ltd, Hong Kong's largest fixed-line operator, in January.

China Netcom purchased a 20-per-cent stake of PCCW Ltd for US$1 billion in cash.

It was the largest investment made by a Chinese mainland State-owned enterprise in a Hong Kong telecommunications company.

Analysts believe that transaction will lay the foundation for China Netcom to expand its business in Hong Kong, and for PCCW to participate in the fast-growing telecommunications market in the Chinese mainland.

"It is a win-win deal for China Netcom and PCCW," says Zhang Chunjiang, China Netcom's general manager.

"We will synergize our distinct characteristics with PCCW to form joint marketing, sales, management and network monitoring," he says.

It is widely believed the partnership will help China Netcom enhance its performance in southern China, which has been dominated by rival China Telecom.

Jack So, PCCW's deputy chairman and group managing director, says PCCW has a very competitive edge in fixed-line networks, broadband TV services and property development.

For example, PCCW has received good market response for its broadband TV service, which has attracted more than 400,000 subscribers. The service currently offers more than 40 channels.

"Development of broadband services in the Chinese mainland remains in its infancy," Dai Churong, a telecommunications analyst with China Securities, tells China Business Weekly.

"The strong potential for increased applications, based on broadband, could be a very effective revenue generator for China Netcom in the coming years."

Since announcing their partnership, the companies have discussed three major areas for co-operation, all domestically focused, involving real estate development, pay TV and mobile phone services.

In February, Netcom said it would sell commercial properties to PCCW's listed real estate arm, Pacific Century Premium Developments (PCPD), as part of the co-operation.

PCCW agreed to earmark more than 60 per cent of the proceeds, or HK$5 billion (US$641.03 million), for China-related investments, and to set up a China Business Development Committee.

Dai believes the purchase, at least for China Netcom, is more likely to be a springboard for the company to realize its dream of overseas expansion.

She says by teaming with PCCW, China Netcom is likely to form a telecoms business belt that includes Hong Kong, southeastern China's coastal communities and Taiwan, which is one of Asia's hottest telecoms markets.

She adds any venture on the international stage will likely involve, to some extent, one or both of China Netcom's two international units, CNC International or Asia Netcom.

CNC International is Netcom's older international unit. It focuses on bilateral voice and data services. Asia Netcom was formed two years ago after China Netcom bought up most of the assets of then-insolvent Asia Global Crossing.

"The partnership with PCCW will enable China Netcom to gain more overseas practices, such as management and innovation, before largely commencing its international strategies," Dai says.

As part of China's commitment to the World Trade Organization (WTO), the Chinese Government must lift restrictions on basic telecoms operations this year.

As a result, enhanced management and business innovation have become increasingly important for China Netcom to compete in the more intense market, and to consolidate its business in North China's 10 provinces, Dai says.

China Netcom is not the only mainland teleco seeking overseas expansion.

China Unicom in March began its foray into Macao. The firm received the first CDMA inter-regional licence issued in Macao.

China Unicom (Macao) is bound by terms of the agreement to have the network up and running within six months in time for the East Asian Games, which will be held in October.

Analysts believe Unicom's extensive experience in operating CDMA networks in the Chinese mainland helped it win the bid.

"The deal was partly driven by the increasing business co-operation between the mainland and Macao," says Zeng Jianqiu, a professor with Beijing University of Post and Telecommunications.

He says he believes as more than 60 per cent of visitors to Macao are from the mainland, where Unicom is the sole CDMA service provider.

Rumours have been swirling that China Unicom has been discussing the possible purchase of Companhia de Telecomunicacoes de Macao (CTM), Macao's leading telecommunications service provider.

"The purchase, if occurs, would be a strategic move for China Unicom in carrying out its overseas expansion," Zeng says.

He says he believes the country has already reached the post-WTO era, a time in which domestic market operators are encouraged to explore overseas business.

China Mobile, the country's largest mobile carrier, is another prime example.

Pakistan's Privatization Commission announced in March that eight foreign firms, including China Mobile, had been short-listed to compete in the second round of bidding for a 26-per-cent stake in the State-owned PTCL.

The deal could be worth US$1.9 billion, and the buyer would be granted management control.

Analysts believe similar overseas expansions are likely as domestic telecoms operators gather experience.

"Developing countries, which have enhanced communications with China, could be the first choices for domestic operators seeking overseas expansion in the early stage," says Chen Jinqiao, director of the China Academy of Telecommunication Research under the Ministry of Information Industry (MII).

Companies, such as China Mobile, are well placed to undertake overseas mergers and acquisitions in countries and regions that have stable economic environments, he says.

To help China's telecos and IT (information technology) firms expand overseas, MII Minister Wang Xudong announced, in early January, MII would work with other government departments to draft and implement relevant policies.

However, given the fact the telecoms industry is self-protected, it is difficult for domestic telecoms operators to expand overseas, suggests Samuel Chua, an analyst with KGI Asia Ltd.

"In fact, overseas expansion by Chinese telecoms operators is still very primitive," he tells China Business Weekly.

He says it is crucial that telecoms operators understand overseas markets and identify their own positions before implementing their overseas strategies.

Overseas expansion can be very risky, as witnessed by China's colour TV and computer makers.

"I don't think it is the right time for domestic operators to speed up their overseas expansions, as there are plenty of opportunities within the domestic market given the pending telecoms reshuffle and third-generation (3G) wireless telecommunications strategies," Chua says.

(China Daily 05/23/2005 page8)