Boston, MA 05/09/2014 (wallstreetpr) – It is now official that China Unicom (Hong Kong) Limited (ADR) (NYSE:CHU) and rivals China Mobile Ltd. (ADR) (NYSE:CHL) and China Telecom Corporation Limited (ADR) (NYSE:CHA) are in talks that are expected to result in the creation of a joint venture by the three telecom carriers. The Chinese government through the ministry of Information Technology also confirmed the ongoing talks.
However, the talks seem to be forced on the carriers especially considering the case of China Mobile that is on the verge of losing its dominance in the Chinese telecom mobile if the talks result in a deal. The latest report issued to investors reveals that the companies have not yet reached a deal although the talks are still ongoing.
Government intervention
The Chinese government is urging the operators to form a joint venture company that will manage their network infrastructure. Therefore, the companies will relinquish their assets such as telecom towers and base stations to the joint venture and then lease back the same from the venture.
The move is aimed at enhancing network infrastructure sharing, protect the environment and lower network construction costs among other benefits. However, for the smaller operators such as China Unicom (Hong Kong) Limited (ADR) (NYSE:CHU) and China Telecom, the move will be a great deal for their operations in that they will gain almost overnight expanded network coverage by taking advantage of China Mobile’s huge infrastructure.
Taking advantage of China Mobile’s infrastructure will not only help China Unicom and China Telecom to cut their infrastructure development costs, but also enhance their customer experience, a deal that could lead to subscriber exodus from China Mobile given that the smaller operators provide more incentives.
A profitable quarter
China Unicom (Hong Kong) Limited (ADR) (NYSE:CHU) reported significant profit increase in 1Q2014. Profit in the quarter was up 74 percent to RMB 3.3 billion or $536 million. The quarter gained support from subscriber growth and reduced interconnection fee to China Mobile network, thanks to recent adjustments in the interconnection fees in China.
