Cable & Wireless plc, the United Kingdom’s second-largest telecom group, has agreed to sell the Chinese government a minority interest in Hongkong Telecom. In return, the Chinese will offer Cable & Wireless the opportunity to be a major foreign investor in China Telecom-an agreement that should provide Cable & Wireless a lucrative foothold in China’s high-growth telecommunications market.
China has experienced unprecedented expansion in mobile telecommunications since its first analog network launched in 1987. According to the Ministry of Posts and Telecommunications, since the country’s Global System for Mobile network became operational in 1985, mobile phone subscribers in China today have ballooned to nearly 9 million, a number forecasters predict will double by 2000.
Under terms of the agreement, China Telecom, China’s government-run telecommunications operator-overseen by the Ministry of Posts and Telecommunications-will acquire a 5.5 percent stake in Hongkong Telecom from Cable & Wireless.
The Chinese will pay C&W approximately HK$14.25 per share of Hongkong Telecom stock. At current exchange rates, the deal is valued at US$1.18 billion.
Under conditions of the agreement, which is subject to governmental and regulatory approval, China Telecom also will have the right to nominate a board member of Hongkong Telecom.
The agreement was signed by Cable & Wireless Chief Executive Officer Robert H. Brown and Minister Wu Jichuan of China’s Ministry of Posts and Telecommunications.
“Hongkong Telecom has a lot to offer China Telecom in terms of technology and personnel expertise,” said Jichuan, “and China Telecom in turn has vast opportunities in China’s telecommunications market to offer Hongkong Telecom and Cable & Wireless.”
Cable & Wireless’ CEO Brown said his company’s deal with the Chinese did not give Cable & Wireless exclusive rights to the Chinese market “but it is as close to exclusive as you can get,” Brown added.
According to analysts, who note that only six in 100 Chinese households have telephone lines, the deal may be just the first phase in a C&W/China partnership that could eventually lead C&W to continue to reduce its stake in Hongkong Telecom in exchange for further expansion opportunities in mainland China.
C&W remains the majority owner of Hongkong Telecom-which provides more than 60 percent of C&W’s profits-and although Brown has said that he will not sell more of the company unless shareholder value is enhanced, a recent C&W press release states: “To further strengthen its relationship with China and to enhance shareholder value, Cable & Wireless is prepared to transfer to China Telecom, in a subsequent phase, further shares in Hongkong Telecom in expectation of Cable & Wireless and China Telecom becoming equal shareholders in Hongkong Telecom.”
Said C&W’s Brown: “With this alliance, we now have in place a new platform for substantial and sustained shareholder value creation into the 21st century. The new ownership arrangements give Cable & Wireless, Hongkong Telecom and China Telecom an enduring stake in each other’s prosperity.”
“I very much welcome China Telecom as our new shareholder,” said Linus Cheung, CEO of Hongkong Telecom. “This further cements our long standing relationship with China and demonstrates China’s strong confidence in Hongkong Telecom and its future.”
