You are the dominant player in the world's biggest and fastest-growing market. You are operating in the world's sexiest industry and the government acts as your guardian angel and majority shareholder. With a story like that it is little wonder China Telecom (Hong Kong)'s share price surged sixfold in less than a year to hit HK$79 on March 6. However, a couple of vipers have crept into China Telecom's Garden of Eden and put the skids under its share price. First came March's global exodus from high-flying telecommunications and technology plays. Now upstart China Unicom, China Telecom's only real competitor, is diverting investment dollars away with a US$4 billion flotation slated for next month. 'It (China Telecom) was dragged down by the overall tech sell-off on Nasdaq. Now with Unicom there's no longer such a scarcity premium,' said Michael Millar, an analyst at SG Securities. Unicom is attracting attention as its listing prospectus hints at a cheap valuation for its offering price. It is a younger company springing from a lower base. 'China Telecom is at 50 times earnings and it looks like Unicom is going to be half that,' said Alan Hutcheson, research head at Pacific Challenge Securities. 'At the same time, it (Unicom) has faster growth in profits and subscribers.' No wonder investors were selling down their China Telecom holdings to free up cash ahead of Unicom's share offering, knocking 11.68 per cent off China Telecom's share price last week. It closed on Friday at HK$51. Mr Hutcheson has a 'reduce' on the stock but he believes the rot might stop at $45. In fact, it is still hard to find a house which has hung a sell sign on China Telecom. The Unicom listing is generally seen as just a small pothole on a road to even greater riches. 'China Telecom has very good fundamentals. The outlook is very good,' said Mr Millar who has a $75 eight-month price target. The Unicom factor could even work in reverse as the listing whipped up interest in mainland mobile telephone plays, said Rohit Sobti, an analyst at Salomon Smith Barney. 'China Unicom will feed off China Telecom's valuation; that's the only thing it can be compared to,' he said. 'The market will realise that China Telecom is the same thing but substantially bigger and better and they will bootstrap each other up.' Mr Sobti has got an even punchier 12-month price target of $85. For a start, China Telecom still has bags of room for more hothouse growth in subscribers, the key factor in driving up its stock price earlier this year. The government is projecting that there will be 70 million mainland mobile telephone subscribers by the year's end, up from 42 million last year. That would leapfrog the country into the top slot from being No 3, behind the United States and Japan. However, the penetration rate in the mainland is still only 11 per cent of those who can afford mobile telephones, against 70 per cent in Hong Kong and 25 per cent in Malaysia. Mr Millar said China Telecom would this year expand its client base by 64 per cent to 25.6 million, after growth of 72 per cent last year. Pre-provision earnings per share were expected to go from 89 fen (about 83 HK cents) last year to 1.39 yuan this year and 1.62 yuan next year. China Telecom has said it is keen to acquire more networks and subscribers from its parent, adding to those made last year. Armed with the projected US$4 billion proceeds from its listing, China Unicom is expected to become a more formidable foe, developing state-of-the-art networks in the 12 provinces where it operates. That does not worry China Telecom bulls. Telecom and Unicom were not dividing up a static pie but a fast expanding one, said Francis Cheung, a vice-president at CSFB. 'Competition is quite healthy. Anybody who is pushed to perform does better.'