http://www.chinadaily.com.cn/china/2008-06/02/content_6729822.htm
(Xinhua)Updated: 2008-06-02 22:35
BEIJING - More details of the long-anticipated China telecoms industry reshuffle were revealed on Monday as China Unicom, the country's second largest mobile service provider, said it would acquire fixed-line operator China Netcom Group Corp. with a share swap deal.
The deal was valued at 439.17 billion Hong Kong dollars (US$ 56.34 billion), based on Monday's closing price of China Unicom at 18.48 Hong Kong dollars per share.
China Unicom said in a statement that each China Netcom share would be valued at 1.508 new China Unicom shares, while each American Depository Share of China Netcom would be valued at 3.016 American Depository shares of new China Unicom.
The merger is expected to introduce more competition into the telecoms industry, as part of the overhaul planned by the State-owned Assets Supervision and Administration Commission of the State Council and the Ministry of Industry and Information.
China Unicom also announced it signed a deal on Monday with China Telecom, the country's largest fixed-line operator, to sell its code-division multiple access (CDMA) operations and network for 100 billion yuan (US$ 14.49 billion).
The new China Unicom, by incorporating China Netcom, would focus on its global system for mobile communications (GSM). China Unicom originally operated both mobile networks.
China Unicom said following the CDMA sale, the company would be able to concentrate on development of its GSM technologies for the third-generation high-speed wireless services (3G).
China Mobile Communications Corp. (CMCC), the first to reveal the broader plan for the whole industry, released on May 23 plans for its acquisition of fixed-line operator China Tietong Telecommunications Corp. (China Tietong).
Analysts believe that the five state-owned companies in the telecom sector, namely China Mobile, China Telecom, China Unicom, China Netcom and China Tietong, will be restructured into three groups, each able to provide both mobile and fixed-line services.
They had also expected the restructuring to give impetus to the country's preparation for the long-awaited 3G technologies, which require huge investment.
Reflection
As mentioned in the article, China Netcom provides fixed-line operators while China Unicom is a Mobile service provider, so the products of these two firms are not exactly subsitutes of each other. and therefore the cross elasticity of demand is low. Fixed-line carriers are now struggling to attract new businesses as customers are passing up traditional service in favor of mobile phones, hence in order to secure market share and remain competitive, China Netcom and China Unicom chose to merge.
The type of merger between these two giant chinese telecom is lateral integration, as these two firms provide differentiated service in the same industry. The merger brings about much benefits for the two firms; Firstly, their market share would increase overnight as their targeted customers are two different groups.
The merger would also allow the new firm to have more fund to pour into R & D, specifically 3G technology, which requires a lot effort and money to support. If 3G technology is successfully developed and widely used,
The two firms' decision to merge would trigger responses from the other 3 telecoms, China Tietong, China Mobile and China Telecom, because the chinese telecom industry is an oligopoly, and there are interdependence among these five firms.
To be editted later...
Tuesday, June 17, 2008
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