China Telecom looks for network purchase funding
Updated: 2011-05-21 07:50
By Carmen Zhang(HK Edition)
A China Telecom SIM card. The company announced its plan in March to buy the CDMA networks it has leased from its parent company, China Telecommunication Group, driven by the fast development of 3G technology. Nelson Ching / Bloomberg
China Telecom would consider Hong Kong as a first priority for issuing overseas bonds to raise funds for the acquisition of its parent company's CDMA (code division multiple access) network, Chairman and CEO Wang Xiaochu said on Friday after a shareholders' meeting.
The shareholders approved bond issues of up to 90 billion yuan ($13.86 billion), including 60 billion yuan overseas and 30 billion yuan domestically.
"From what we see now, we'll need money to acquire our parent's CDMA network. Other than that, we won't need to issue a huge amount of bonds in the short term, but we maintain the flexibility of bond issuance," said Wang, adding the company would prioritize Hong Kong for issuing overseas bonds.
The company announced its plan in March to buy the CDMA networks it has leased from the parent company, China Telecommunication Group, driven by the fast development of 3G technology.
In 2010, the company saw their 3G subscribers swell from 4.1 million to 12.3 million, a 202 percent increase year-on-year.
In March, with new CDMA subscribers up 58 percent to 3.8 million from 2.4 million in February, this meant the company's CDMA users broke 100 million for the first time and became the largest CDMA mobile operator in the world, according to the company.
Under this backdrop, the wireless carrier now is looking for saving more costs and boosting profits by acquiring the network.
"The reason China Telecom is to buy this network is that the rental fee they paid is higher than the depreciation of assets and other related costs (related to the acquisition)," said Kelvin Ho, a Shanghai-based analyst at Yuanta Securities.
According to the company, 13.3 million yuan was paid to its parent for leasing the CDMA network last year, an increase of 59 percent year-on-year.
Victor Yip, UOB Kay Hian's telecom analyst, said that the acquisition is in line with the company's development strategy. And issuing bonds may be the most suitable form of fund raising, considering the company's current conditions.
The CEO also admitted that China Telecom is in talks with Apple Inc to introduce iPhone 4 based on CDMA technology to the mainland market. China Unicom is the only operator on the mainland to offer the iPhone so far.
But the executive didn't reveal the progress to the press due to a confidentiality agreement between the parties.
The company's mobile subscribers increased by 2.85 million in April, of which 44 percent are 3G users, 4 percentage points higher than the ratio in the first quarter. The monthly average revenue per user for 3G users stayed above 90 yuan, according to Wang.
He also said the company will stick to its strategy of service differentiation and further accelerate their 3G operations and services.
Regarding China Mobile's reduction of service fees for its GSM subscribers which took effect from May 17, Wang said the impact of the move to the market has been limited, especially now that the data traffic is the core area of competition instead of the voice service.
(HK Edition 05/21/2011 page3)