China Unicom Joins Hands with Telefonica

China Unicom (Hong Kong) Ltd. (NYSE: CHU, SEHK: 0762, and SHSE: 600050) lately disclosed that it had completed a mutual share subscription with Telefonica (NYSE: TEF), in which it acquired a 0.87% stake in the Spanish telecommunications carrier.

Insiders believe that their cooperation will benefit both sides in terms of fixed-line network, WCDMA, and network convergence. Most important of all, it will support China Unicom's foray into the Latin American market.

Undoubtedly, Telefonica is eyeing the bullish prospects of China Unicom's 3G business, which will help it set foot in China's lucrative wireless communications market.

Actually, their cooperation is originated from the partnership between former China Netcom Group Corporation (Hong Kong) Ltd. and Telefonica. On September 15, 2008, Telefonica bought 663 million shares in China Netcom and became the latter's strategic partner.

In October 2008, the financial crisis broke out. Telefonica sold down 28.09 million shares in China Netcom. However, on February 5, 2009, China Unicom and Telefonica inked a framework agreement on business cooperation.

Citigroup believes that Telefonica will help China Unicom in the latter's promotion of WCDMA services in China and improve the latter's competitiveness in the field.

Goldman Sachs Group (NYSE: GS) lately released a report, saying that the USD 1 billion share swap agreement between China Unicom and Telefonica is aimed to deepen bilateral relationship.

Fu Liang, a telecoms expert, points out that although Telefonica has not reached its goal to take a 10% stake in China Unicom, both sides have formed strategic partnership. Other potential investors are likely to follow Telefonica and hold out olive branch to China Unicom.

China Unicom's WCDMA technology is widely used in more than 370 3G networks built in hundreds of countries and territories around the world and 70% of the global 3G users enjoy WCDMA services.

Meanwhile, Telefonica is the world's third largest telecoms carrier and has rich experience in globalization. As early as 15 years ago, the company marched into the Latin American market.

Latin America and Spain are similar in terms of language and culture. Its penetration of mobile communications hits about 40% and countries and territories in the region hope to raise the proportion to 70% in 2010. To reach the goal, they need inputs of USD 600 billion.

Among 26 brokers that issued analysis reports on China Unicom, nine set "buy" rating on the leading Chinese mobile carrier, ten "add", and seven "neutral".

(USD 1 = CNY 6.83)

Source: www.hexun.com (November 03, 2009)

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