China Mobile Eyes New Nat’l Cable Network 中国移动有望携手中国广播电视网络公司

By newsdoug on March 8, 2012

New China Mobile cable tie-up looks smart After writing far more negative than positive views about China Mobile (HKEx: 941; NYSE: CHL) I’m happy to say there’s finally a piece of news that I really like in the form of talk that the country’s cash-rich but uninspired dominant mobile carrier may soon take a stake in a national cable TV company now being assembled from a patchwork of regional operators. (English article) According to the reports, which cite a number of unnamed sources, China Mobile has already reached an agreement to partner with the new company, China Radio and Television Network, and the 2 sides are now in discussions about a potential equity investment by China Mobile. This kind of partnership looks like a great idea for both sides, as the new cable company will have a huge need for cash — something that China Mobile has plenty of — once the long-delayed consolidation of China’s cable TV networks into this single new company is complete. At the same time, the big piece missing in China Mobile’s portfolio of products is a good wire-based broadband service, something that rivals China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA) both have from the wired-line phone networks they inherited years ago from China’s former fixed-line phone monopoly. A big cash infusion from China Mobile could help China Radio and Television Network quickly upgrade its numerous regional cable networks, now mostly based on older analog technology, to digital capabilities for broadband and other services like high-definition television and video on demand. China’s regulators would also be likely to welcome this tie-up, as the entry of a strong new player to the broadband market would provide a real alternative to offerings from Unicom and China Telecom, which are now being investigated by the National Development and Reform Commission, China’s state planner, for monopolistic practices in the area. Investors have long complained that China Mobile — which controls two-thirds of the world’s biggest mobile market — has too much cash and should pay a higher dividend, even though the company has failed to raise its dividend pay-out ratio for years. I have always been skeptical of China Mobile’s overseas acquisition strategy, mostly because it has no experience operating outside its highly protected home market. But this kind of equity tie-up would make much more sense, as it would come in China Mobile’s home market and also be highly complementary to its existing business. Of course such a tie-up isn’t completely risk-free, as the new cable company is an untested entity that still has yet to be formally launched. But if things proceed smoothly, I could see this partnership developing rapidly and perhaps even contributing to China Mobile’s stagnant top and bottom lines as soon as the second half of next year.

Bottom line: A new tie-up between China Mobile and China’s new national cable TV operator looks like a smart move, potentially providing China Mobile with a strong cable and digital TV offering.

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