British telecommunications group Cable and Wireless (C&W), which owns 57.5 per cent of Hongkong Telecom, late last night announced a new link-up with giant German energy utility group RWE, boosting C&W's presence in Germany. It already has a 45 per cent stake in Vebacom, a joint venture with telecoms group Veba, and this will be combined with RWE into two new companies, of which C&W will have 22.5 per cent control. RWE will contribute 2.5 billion deutschemarks (about HK$12.65 billion) plus existing assets, which will be combined with 4.8 billion deutchemarks worth of assets in Vebacom. As the companies will be overcapitalised, cash of two billion deutscehmarks will be returned to the partners. The move, which will take C&W one step closer to becoming a global player, also will help reduce the company's reliance on Hongkong Telecom, which contributes the lion's share of C&W's profits. News of a potential deal helped C&W shares gain 4.5 pence before levelling off one pence down at GBP4.33 (about HK$52.30). Salomon Brothers analyst Andrew Harrington said the move would help cement C&W's plan to become a global telecommunications group. 'Cable and Wireless has been trying to diversify its revenue balance away from Hong Kong for years,' he said. 'But C&W also wants to be in the big game, and it needs to invest in areas where it does not own assets.' An alliance with RWE is regarded as valuable because it owns a large private internal network which will act as a significant base from which C&W can offer alternative telecommunications services. Analysts said C&W would need to divest a portion of its holdings in Hongkong Telecom, preferably to a strong Chinese shareholder, if it was to assure Hongkong Telecom's future in China. The lack of income from such a divestment would represent to C&W means the group would have to develop earnings streams elsewhere. HSBC James Capel analyst Martin Mabbutt said such a move might not yield immediate benefits.