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Wang Xiangwei

China Unicom, the mainland's second-largest telecommunications operator, has given investors an ultimatum to back out of their controversial China-China-Foreign (CCF) joint venture contracts by the end of next month.

 The threat comes as the company seeks to quicken the pace of its preparations for planned dual listings in Hong Kong and the United States.

 Reports indicate China Unicom has been cleared to come to the market in October in a listing aimed at raising up to US$1 billion.

 The company's share offering is a key step forward in its efforts to compete with China Telecom, which controls more than 95 per cent of the mainland's telecommunications market.

 Before that happens, however, the firm needs to overcome its biggest obstacle - refusal by some mainland and foreign investors to accept China Unicom's compensation offers to back out of the CCF joint venture contracts.

 'They must accept Unicom's compensation offers by the end of August or they will get nothing,' one source said.

 He said both foreign and mainland investors had been notified of the ultimatum and more than half of them had agreed in principle to settlement offers.

 In recent years, foreign companies, including many foreign telecoms giants such as Sprint, Deutsche Telekom and France Telecom, invested more than $1.4 billion in more than 40 joint ventures with mainland partners which then set up joint ventures with China Unicom to operate mostly mobile-phone networks across the country.

 It remains unclear how much the mainland companies have invested in those ventures.

 Foreign investors are paid profits in the form of consultation and installation fees.

 The CCF formula was conceived to sidestep government regulations that ban foreign investors' direct involvement in the telecoms market.

 China Unicom, launched in 1994, has needed foreign investment and technology to set up its network.

 Now Beijing has ruled those contracts 'irregular and improper', and has said China Unicom will pay compensation to investors.

 Resistance to settlement offers had come mainly from investors that were smaller and often not involved in the telecoms business, sources said.

 'Big companies are more willing to co-operate with China Unicom than the smaller ones and telecoms companies are more willing than non-telecom companies,' one source said.

 He said China Unicom would reward companies that agreed to back out with future investment or business opportunities.

 But he declined to say whether the company would further sweeten its offers to settle the remaining outstanding contracts.

 The source said the government had good reasons to revoke the CCF formula: the ventures never had legal status and the formula was not in line with international practices.

 'Such a formula has not allowed proper utilisation of funds and has made it difficult to manage the network as a whole,' he said.



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