China telecoms operators see plenty to gain in sharing infrastructure

China's three main telecommunications service providers have started talks on setting up a joint venture to allow for infrastructure-sharing, which could lower the cost of developing mobile networks across the country.

The proposed venture would be responsible for the operation and maintenance of as many as 465 existing telecommunications towers across the mainland, according to data from the three firms and estimates by Barclays Research.

China Mobile, China Unicom and China Telecom plan to lease the towers, mobile base stations and transmission assets from the venture instead of constructing these facilities on their own.

This arrangement could be worth 50 billion yuan (HK$63 billion) in annual savings for the operators, according to market estimates.

The combined number of 2G, 3G and 4G mobile base stations installed on those towers and on top of various buildings across the country was about 2.5 million, according to available data from the three operators.

China Mobile, the world's largest wireless network operator by number of subscribers, has budgeted 225.2 billion yuan in capital expenditure this year, a third of which will be spent on 4G network services expansion.

Analysts said Unicom and China Telecom would benefit more from the new infrastructure setup as they close the gap with China Mobile, which had 781 million subscribers at the end of March, in terms of network coverage.

"If one takes a longer-term view of this potential tower company eventually being listed and … being crystallised for the three [telecommunications network operators], there could be upside value potential for the companies," Anand Ramachandran, Barclays' head of telecommunications, internet and media equity research for Asia, excluding Japan, said in a report.

The total valuation of the towers could reach as high as US$46.5 billion, according to Barclays. Its calculation was based on the comparable value of the towers owned by other operators in the Asia-Pacific, excluding Japan.

But Huang Meng, an analyst at research firm Analysys International, said it was difficult to estimate the exact valuation of the towers. "It won't be a small [valuation]," he said.

ZTE, the world's fifth-largest supplier of telecommunications equipment, is expected to benefit from the infrastructure-sharing venture. ZTE spokesman David Dai Shue said the initiative could help accelerate 4G rollout on the mainland.

While there is much optimism over their planned venture, the three operators said they face "substantial negative impacts on profitability in the short term" as a value-added tax (VAT) reform scheme in their industry is implemented from June 1. The VAT rate for basic telecommunications services will be 11 per cent, while a 6 per cent rate will be imposed on so-called value-added services.