China Mobile to buy CM TieTong’s fixed business for $5 billion

China Mobile has explained why it plans to acquire its sister company’s fixed-line telecom business in a deal valued at $4.99 billion.

Under the terms of the deal the mobile operator will acquire over 10 million fixed broadband and fixed line customers across China from its wholly-owned subsidiary CM TieTong. The payment will be funded through China Mobile’s own internal resources, it said. The acquisition of TieTong’s fixed-line business also gives the mobile operator access to an extensive nationwide backbone network, metro fibre and land assets.

In a stock exchange filing explaining the deal, the mobile operator outlined its reasons and the benefits it expected from the acquisition. The first priority, it says, is a strategy to become a fully integrated fixed-mobile operator ‘in order to compete against integrated peers in the data heavy and bundled services age’.

In addition, it is seeking to exploit the growth potential of the smart home and benefit from the expected growth of the fixed broadband market in the Chinese domestic market. By buying its sister company’s customer base it will speed up the process of creating bundled services to a mass market, which in turn will reduce churn rates by improving user loyalty, with a resulting positive impact on revenue, it said. The acquisition of new infrastructure means the company can instantly ramp up capacity and create complementary network assets from its new extensive metro fibre network, backbone network and IPv4 addresses, it said.

The merger of the mobile telco with its fixed line sister company will create greater economy for both companies, concluded that company statement. “The Acquisition will greatly reduce the continuing connected transactions between the Company and CMCC (via TieTong) and simplify its management and operating structure,” said the China Mobile statement.