China Mobile

Telecoms firms push links after stake deal collapses

China Mobile's bid for 12pc of Taiwan's Far EasTone may be off due to security concerns but they are still looking for ways to work together

PUBLISHED : Tuesday, 30 April, 2013, 12:00am
UPDATED : Tuesday, 30 April, 2013, 4:55am

China Mobile, the mainland's dominant carrier, and Far EasTone Telecommunications, Taiwan's No 3 operator, will share services and sales channels as part of a broad co-operation deal after a strategic stock investment accord collapsed, underlining how much they both need each other.

Far EasTone signed a "business co-operation framework agreement" with China Mobile after the mainland operator pulled out on April 18, citing "failure to satisfy certain conditions".

Taiwan saw its telecommunications sector as too sensitive for investment from the mainland, a long-time political rival, deterring the two companies from forging ahead, analysts said.

Since early 2009, state-run China Mobile had tried to buy a 12 per cent stake of 441.3 million shares worth US$545 million in the willing Taiwanese carrier. The co-operation deal reached on April 18 replaced the failed strategic one and went further, Far EasTone said in a statement.

The new agreement covered retail channels, cloud connectivity and digital services, it said, without adding specifics.

"Far EasTone and China Mobile intensely want to work together based on their past friendly relations, so we signed a 'business co-operation framework agreement' to replace the strategic co-operation deal," the statement said.

Taiwan has opened more than 400 products and services to mainland investment since 2008, when President Ma Ying-jeou set aside more than 60 years of deep political differences to discuss business deals designed to shore up the island's economy.

But because the mainland still claims sovereignty over Taiwan, the island has not opened up its most sensitive sectors to investment. Mainland interests invested US$10.9 billion in Taiwan last year.

"I'd say it's mostly politics from the Taiwan side and also national security," said Eric Harwit, a professor of Asian studies at the University of Hawaii. "The Taiwan government didn't feel comfortable with China Mobile taking a 12 per cent stake."

But China Mobile probably had its own business in mind rather than political motives, analysts say. Domestic competition has edged in on its market share, pushing the company - like state-owned enterprises in other sectors - to look for deals offshore.

China Mobile might find eager partners in developing countries but would struggle in Taiwan, the United States and other places that saw the mainland as a possible political or military threat, Harwit said.

But China Mobile had already helped build a US$34.5 million, 270-kilometre internet cable from Taiwan to the mainland to speed up voice and data communication. At a ceremony marking the cable's completion, China Mobile chief executive Li Yue said the company's income from Taiwan rose nearly 40 per cent in the first 11 months of last year while the number of roaming customers in Taiwan grew 15 per cent.

Taiwanese mobile operators do not expect to offer mobile services on the mainland, which also bars offshore companies from its communication networks. But they hoped to work with big-name mainland operators to sell other products, said Andy Ye, an analyst with market research firm IDC. They might offer dedicated lines to business clients on the mainland, for example, he said.

"Based on the visits we've received, that's what they're after," Ye said.

Taiwanese carriers already compete intensely for a relatively small population of 23 million by offering rate deals and unique services. Far EasTone vies mainly with the dominant Chunghwa Telecom and No 2 Taiwan Mobile. It has not dropped ambitions for an investment deal with China Mobile.

"Both sides hope that the items open to cross-strait investment keep increasing and that the government opens up primary telecommunications," the statement said. "The two sides have indicated that if such a rule is approved, we would continue to finish off plans for a stock investment."