Citic Telecom Enters VNO Race 中信国际电讯加入虚拟运营商牌照争夺战
As China prepares to open its telecoms market to virtual network operators (VNOs) later this year, investors will inevitably be following the market closely to try to figure out who might become the first firms to enter the lucrative area. Many have speculated that Internet titan Tencent (HKEx: 700) could be one of the first 6 companies to enter the arena (previous post), and now the telecoms arm of investment giant Citic Group also looks like it may be jockeying for a position to enter the field with its purchase of a Macau wireless carrier.
That deal will see Citic Telecom International Holdings (HKEx: 1883) pay $1.16 billion to buy a combined 79 percent of Companhia de Telecomunicacoes de Macau from Portugal Telecom (Lisbon: PTC) and Britain’s Cable & Wireless (London: CWC), Citic Telecom said in a statement. (English article) The purchase will give the Chinese company 99 percent ownership of the carrier in the former Portuguese colony.
Some observers will inevitably talk about the significance of this deal for the 2 European carriers, which are most likely selling their stake to raise cash as many European firms struggle under heavy debt loads and lack of access to new financing due to lingering effects of the local debt crisis. Others will talk about the high valuation for Companhia de Telecomunicacoes de Macau in this deal, which reflects Macau’s rapid rise fueled by a boom in the local gambling industry.
But from my perspective, this sudden purchase by Citic Telecom looks at least partly designed to raise its profile as China gets set for one of its own biggest telecoms liberalizations since it starting building up its fixed-line and mobile networks nearly 2 decades ago. That liberalization will see Beijing start to license VNOs under a pilot program likely to launch in the first half of this year.
Under that program, each of China’s 3 major telcos will be required to sign contracts with 2 VNO partners, and those partners will then be allowed to offer their own brand of fixed-line and wireless telecoms services in China. The program will eventually be expanded to include other domestic and foreign VNOs, but clearly the first 6 companies will have a big advantage by becoming the first new names to enter China’s telecoms services field in years.
Citic Telecom shares shot up 18 percent after it announced its deal in Macau. Perhaps part of that enthusiasm is due to the fact that it probably purchased the Macau carrier for a good price, but I suspect a big part of the jump was fueled by investor expectation that the company could become one of the first 6 VNO licensees later this year.
I’ll admit that I’ve never really heard much about Citic Telecom, though its status as part of China’s biggest state-owned investment company means it probably enjoys strong government connections and access to lots of cash. With that kind of background, it would probably stand a very good chance for success if it decides to bid for one of China’s first VNO licenses later this year. Look for more moves like this by other potential VNOs in the months ahead, as interested parties all jockey for position in a bid to receive one of the first new licenses under this major opening of China’s telecoms market.
Bottom line: Citic Telecom’s purchase of a Macau wireless carrier is designed in part to raise its profile as it prepares to try to become one of China’s first virtual network operators.
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