China Telecom Corporation, the Hong Kong listed arm of the state-owned China Telecom Group, has set an aggressive target of doubling the subscriber base of the country’s CDMA network following the acquisition of the assets from China Unicom.
Under the terms of the deal announced earlier, China Telecom Group is buying the CDMA network assets from China Unicom for 66.2 billion yuan, while the listed unit will pay 43.8 billion yuan for the CDMA business and operations.
Following the completion of the deal - expected before the end of this year - the listed unit will leased network capacity from the parent company.
Wang Xiaochu, the chairman and CEO of China Telecom Corp., says an agreement has been reached between the listed unit and the parent, and that the network will be leased to the listed arm for an annual fee equal to 28 per cent of the audited revenues from the CDMA business. The leasing agreement thus represents a 3 per cent discount compared to the existing leasing model between China Unicom’s listed unit and the Unicom state-owned parent, that receives 31 per cent of the audited revenue.
The leasing agreement also includes an option for the listing arm to purchase the assets from the parent if conditions "prove beneficial to shareholders". The price of such a purchase will be limited to the total investment made by the parent plus a return of no more than 8 per cent.
As an integral part of its takeover of the CDMA business, China Telecom says it will enhance the quality of the network and introduce new services with the intent over the next 2 to 3 years to more than double the existing subscriber base of 43 million to 100 million users. If achieved, this would represent a 15 per cent market share.
To put this aggressive target in perspective, Unicom registered 1.3 million new subscribers in the first half of this year and had a total net subscriber gain of 5.4 million for the whole of 2007.
Also indicative of the remarkably aggressive targets that it is setting itself is the provision for leasing fees. China Telecom has capped the maximum leasing payment to the parent for 2009 at 20 billion yuan, rising to 35 billion yuan in 2010.
If the company is to achieve anywhere near these maximum leasing payment caps, it would have to more than double the 2007 revenues of the CDMA business to 70 billion yuan in 2009, and 125 billion yuan for 2010.
For 2007, Unicom reported total revenues of 27.7 billion yuan, which was slightly down from 27.9 billion yuan in 2006.
The parent company also announced a three year CAPEX plan of up to 80 billion yuan for the enhancement of CDMA infrastructure, including a first phase investment of 27.9 billion yaun.
The network investment projects will include enhancing CDMA 1x systems in urban areas, and capacity expansion to support up to 200 million subscribers.
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