Telefonica raises interest in China

Spanish carrier Telefonica said Friday that it has raised its holding in Chinese fixed line operator, China Netcom, from 5 per cent to 7.22 per cent, at a cost of Eur309m.

Reports suggest that in the future, Telefonica intends to raise its stake to 10 per cent or more.

A number of overseas carriers, Telefonica and Vodafone included, are taking a strong interest in China – one of the world’s fastest growing mobile markets – ahead of the allocation of 3G licences in the country.

Last month, the Chinese government lifted geographic restrictions on foreign investment and increased the ceiling on asset ownership by overseas companies from 35 per cent to 49 per cent.

The opening up of China’s domestic and international basic telecoms service was part of the country’s commitment to the World Trade Organisation, but also comes ahead of an expected change in the Chinese telecoms landscape this year.

The Chinese government is planning to shake up the local telecoms market as part of the licensing of 3G in country. One of the most likely scenarios would see second placed mobile operator, China Unicom, split up and sold to fixed-line giants China Telecom and China Netcom.

Unicom’s operates a GSM and CDMA network and has dedicated engineering teams for each. So a separation of operations could make it easier for Unicom to find strategic investors for each of the businesses.

Speculation is rife that a merged Unicom CDMA and Netcom network will roll out CDMA2000, while China Telecom will launch WCDMA or TD-SCDMA using Unicom’s GSM network.

Leading carrier China Mobile is widely expected to commercially introduce the homegrown Chinese-air-interface TD-SCDMA, but analysts are not ruling out the possibility that China Mobile will also pursue WCDMA.

However, it is likely that the allocation of 3G licences in China, whenever that happens, will be the only thing to put an end to the rumours, as it will likely be the catalyst for restructuring. The Beijing Olympics in August of 2008 are seen to be an attractive event to launch 3G services around.