China Telecom: French tie-up coming?

The latest small move in China by France Telecom indicates a major new tie-up could be coming with China Telecom within the next six months.

PUBLISHED : Wednesday, 26 September, 2012, 12:18pm
UPDATED : Wednesday, 26 September, 2012, 11:40pm

Beijing has been sending a steady stream of signals this year indicating it will soon open up its telecoms services market to foreign operators, and it's looking more and more look like the first big tie-up that will come from this new openness could well be between China Telecom (0728.HK; NYSE: CHA) and France Telecom (Paris: FTE). I should be clear here that I don't have any insider news about such a tie-up, but a growing number of low-key signals indicate a close relationship is fast developing between France's leading telco and the smallest of China's three major wireless carriers that could soon result in a major announcement.

In the latest development of this fast-evolving relationship, France Telecom has announced that Orange, its main wireless unit, is opening a solutions centre in Beijing as part of its broader push to develop services in the Asia Pacific region. Orange already has a small R&D centre in Beijing employing around 120; but its China chief said the company is actively exploring other opportunities around the region, including in China and India, as part of a company plan to generate one billion euros in annual revenues from such emerging markets by 2015.

China Telecom's name is notably absent from this latest announcement, but has been featured prominently in two earlier reports that saw the pair of companies discuss working together. In the earlier of those, the two companies signed a strategic framework agreement a year ago in Beijing. That deal saw the pair promise to work more closely together by making some of their networks available to each other to better serve their international customers.

Back in May, the two companies launched another tie-up that saw China Telecom offer its own branded wireless service in Britain by leasing capacity on the network of an operator called Everything Everywhere, which just happens to be a joint venture in which France Telecom is a major partner. That move marked the first major own-branded service offering outside its home market by China Telecom, which said it could expand the service to other European countries including France and Germany.

This growing relationship comes as Beijing sends out strong signals that it will soon open its telecoms services sector to foreign investment, ending years of isolation that has left the market a relative laggard dominated by three massive state-run telcos. Beijing has already permitted Microsoft (Nasdaq: MSFT) and IBM (NYSE: IBM) to set up major new cloud computing centres together with Chinese partners, and has said several times it is drafting plans to open up other major areas to foreign investment as well.

For its part, France Telecom has been sniffing around for opportunities in China for years, becoming one of the earliest foreign telcos to show an interest in a homegrown Chinese wireless standard known as TD-SCDMA nearly a decade ago. As this new relationship quickly blossoms, I wouldn't be surprised to see a major announcement coming from this pair in the next six months. Such a deal could involve a major equity tie-up as well as a landmark deal for France Telecom to offer its Orange-brand service in China, making it the first foreign telco to offer a mass consumer product under its own brand name in the world's largest mobile market.

Bottom line: The latest small move in China by France Telecom indicates a major new tie-up could be coming with China Telecom within the next six months.

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