The chiefs of Cable & Wireless (C&W) and British Telecommunications (BT) have held top-level talks for the first time, in a move widely interpreted as an encouraging sign that the proposed GBP34 billion (about HK$396.44 billion) merger between the two companies will go ahead. The news emerged as it became apparent that China was studying the deal closely, with BT officials privately confident that Beijing would give its stamp of approval. Sources close to the talks confirmed that C&W chairman Brian Smith, and acting chief executive Rod Olsen, had met BT chairman Sir Iain Vallance, and Sir Peter Bonfield, the group's recently appointed chief executive at separate meetings. It is thought that the development shows the talks are coming together satisfactorily. 'Not everything has been ironed out, and there is still a lot of areas that need to be finally discussed, but I would say that we could have a deal in a matter of weeks,' one source said. The structure of the deal would be through a reverse takeover, with every three BT shares, plus cash thought likely to be about 50 pence, for every two C&W shares. Areas that still need to be resolved include China and the clash of operations between the two companies in Germany. Approval from Beijing of the deal is not necessary for the London takeover code, but BT is understood to be keen that China provides a blessing, given the uniquely strong foothold Hongkong Telecom has on the mainland. Hongkong Telecom has two important contracts in China, which BT would be eager to capitalise on. In addition, Hongkong Telecom would act as a useful vehicle for BT's expansion ambitions in the region. A report by Andrew Harrington, telecommunications analyst at Salomon Brothers, said China would be persuaded to approve the deal if BT stressed that Hongkong Telecom needed to be part of a global consortium if the territory wanted to retain its position as one of the region's premier financial centres. 'The latter is a goal that China has publicly endorsed in the past,' the report said. 'Given the likely acceleration of the breakdown of the current structure of international telecommunications, in the medium term HKT (Hongkong Telecom) will only be able to sustain its pre-eminent position in the market for Asian multinational telecommunications hubs if it has full pricing flexibility and can achieve the lowest possible costs of carriage. 'This can only occur if it is part of a global consortium.' In Germany, further problems lie in the fact that both BT and C&W have strong alliances with different partners, aimed at developing a presence in the German market. BT has allied with the industrial groups, Viag and RWE, while C&W is partially owned by Veba, and has formed the Vebacom joint venture.