China Mobile makes landmark acquisition

China Mobile Communication Corp (CMCC) yesterday said it had agreed to take over Pakistan's mobile phone firm Paktel Ltd for $284 million, marking its first major overseas acquisition.

Under the deal, CMCC parent of Hong Kong-listed China Mobile Ltd agreed to acquire from Luxembourg-based Millicom International Cellular SA an 88.86 percent stake in Pakistan's fifth-largest mobile operator.

The acquisition followed CMCC's abortive bid last year for Millicom, which runs mobile networks in 16 countries in Latin America, Africa and Asia. The deal was estimated at $5.3 billion and would have been the largest overseas acquisition by a Chinese company.

Marc Beuls, president and chief executive officer of Millicom, said in a statement that Millicom chose to sell Paktel to CMCC after a number of parties showed "strong interest"; and the deal would enable Millicom to "focus on the 16 markets where we have already established strong market positions".

The deal, which is expected to be completed next month after regulatory approvals, marks a big step forward for CMCC, which has been increasingly aggressive in tapping into overseas emerging markets.

CMCC is regarded as the most capable Chinese operator to expand overseas through acquisitions.

Its Hong Kong-listed arm had 71.4 billion yuan ($9.1 billion) in cash and cash equivalent by June 30, 2006.

Lu Qijun, a researcher with the State-owned Asset Supervision and Administration Commission, said it's natural for CMCC to expand abroad to generate new revenue streams.

"The government has been encouraging telecom operators to expand overseas to grow stronger and bigger," said Lu, adding CMCC is well-positioned to tap into overseas markets thanks to its fat profits.

CMCC last year generated 285.3 billion yuan in revenues and 96.8 billion yuan ($12.4 billion) in pre-tax profits. The firm had 318 million mobile phone subscribers by the end of last year, up 20 percent year-on-year.

According to statistics released by the Ministry of Information Industry (MII) yesterday, China had a total of 461 million mobile phone users by the end of 2006.

With mobile phone penetration running high in big cities, CMCC has identified emerging markets including China's rural areas and developing countries as a major battlefield for new subscribers.

Pakistan has a population of more than 160 million but mobile phone penetration stood at only 12.8 percent in 2005, which promises much potential for subscriber growth.

Paktel had 1.56 million mobile phone subscribers by October 2006, an increase of 69 percent compared to December 2005.

Chinese operators' overseas expansion could benefit domestic telecoms equipment manufacturers such as Huawei Technologies and ZTE Corp.

CMCC is expected to upgrade Millicom's networks if it acquires the firm. Huawei is an equipment supplier to Millicom.

"We believe China Mobile's successful acquisition of Paktel would have a positive effect on our business in Pakistan," said a Huawei spokesman.

Source:China Daily