China Netcom announces IPO plans

China Netcom, the third incumbent in China''s telecommunications industry, is considering listing its shares abroad next year.
China Netcom, the third and newest entrant to China's state-run telecommunications industry, said it is considering listing its shares abroad next year as it seeks to speed the expansion of its broadband optical fibre communications network and develop its range of telecommunications and internet services.

The company, which was formed last June, is building an 8,000kmáhigh-speed network which it says will cover 17 Chinese cities by the end of this year. China Netcom will lease bandwidth - space on the pipes that deliver telecom services - and provide access to data service centre to other telecoms, cable television companies and internet service and content providers. It is also the first Chinese state-owned company to have almost all of its executives hired from the private sector. In many ways it resembles a huge state-sponsored start-up.

The company is now funding itself through equity provided by its four shareholders - the Academy of Sciences, the Ministry of Railways, the Shanghai municipal government and the Radio, Film and TV Administration. In addition it relies on commercial debt and bank loans. That could change next year.

"Our first step is to use private equity, second is to use commercial debt for two to five years, and thirdly, use the equity markets,' says Edward Tian, the company's chief executive. "Therefore, we are considering using the capital markets maybe from next year." Tian was CEO of Asia Info until joining China Netcom late last year and reports state that he is working for equity in China Netcom. At the moment there is no indication of how big any potential equity offer might be, although telecom bankers in Hong Kong predict that the IPO could be in the $500 million to $1billion range.

China is one of the fastest-growing telecommunications markets in the world, with roughly 50 million mobile phone users. By 2004, that figure is projected to rise to 250 million, according to David Alstrom of Stockholm-based Ericsson, the world's third-largest cellular phone maker.

Marketing campaign

Tian says the first phase of the company's network will be completed by China Netcom partner CE-Infocom Network Technology by the end of August, 2000, at which time Netcom will begin operating four data service centres. It also plans to launch a marketing campaign to spell out the benefits of optical fibre for those seeking access to high-speed bandwidth. Eventually, it will begin forming partnerships with other companies, both domestically and overseas.

"China Netcom will co-operate with foreign counterparts,' Tian says. "This year, we are mainly building our infrastructure but in future we will provide various services so we will need to co-operate with various companies.'

That includes domestic competitors China Telecom, the erstwhile monopoly and dominant player in the market, and China Unicom, the number two company formed by the government to compete with China Telecom. China Unicom is also seeking to raiseábetween US$2 billion and US$5 billion by listing on markets in Hong Kong and the US in June. As is Ji Tong, a Chinese telecommunications company that aims to provide long-distance calls over the internet. The company wants to list in the US and Hong Kong, according to the Wen Wei Po newspaper in Hong Kong.

"We would like to have more co-operation with China Telecom than competition,' Tian says.

Partnerships between Chinese and foreign-owned telecoms companiesáwon't necessarily be easy. China Unicom has only just finished a painful unravelling of some 40 joint venturesáafter Chinese regulatorsáruled that foreignácompanies had invested illegally. Chinaáhas refused to allow foreign companies direct or indirect ownership of the country's telecommunications companies. Although itáwilláeventually allow foreign investment to a certain extent, that won't happen until the country succeeds in joining the World Trade Organization.

China's ability to realize its telecommunications potential is predicated on building a high-speed, sophisticated infrastructure, Tian says.

Becoming competitive

"China's accession to the WTO not only requires opening up to foreigners, but requires China to be ready to be competitive,'áTian says. "Optical fibre is an important precondition for an e-commerce infrastructure.'

China is making moves to shakeup its telecommunications infrastructure. On April 20, the government said it would split China Telecom and China Mobile Communications, it's mobile phone unit, into two separate companies, according to the Xinhua News Agency.

China Telecom, with reported registered capital of RMB222 billion ($26.8 billion), will provide fixed-line services,á while China Mobile, with capital of RMB51.8 billion, aims to become the country's biggest mobile-phone provider. China Mobile plans to launch its wireless internet access service on April 25, and start charging fees June 1. Last year China Telecom's pager business was incorporated into China Unicom.

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