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Christine Chan

The purchase of a US$2.5 billion stake in China Mobile (Hong Kong) by Vodafone Group - the world's largest mobile-phone operator - is a sign of bigger deals to come, analysts said.

After years of frustration in China's rapidly growing but highly protected telecoms market, foreign firms were seeing the light at the end of the tunnel, they said.

After yesterday's deal, other telecoms companies will be taking an even closer interest in the mainland market. But the size of the deal suggests only the biggest international players may be able to see action in China's telecoms arena.

Vodafone will end up owning about 2 per cent of the Hong Kong-listed arm of China's biggest cellular carrier with the same name.

Credit Suisse First Boston senior regional economist Tao Dong said: 'People feel optimistic about the prospects of the mainland's mobile market.'

China's cellular subscribers reached 43 million last year. Their numbers are projected to rise to 100 million in two years, according to Merrill Lynch.

A cellular penetration rate of just 3.4 per cent at the end of last year is expected to more than double to 8 per cent by next year.

The progress of the deregulation of the telecoms sector in China was also encouraging, Mr Tao said.

'One year ago, there was only one company in China - China Mobile. Now you have two [operators, including China Unicom]. Tariffs have also come down, creating greater opportunities for telecoms operators to provide more affordable telecoms services.'

More players will be introduced to the cellular market and more licences will be granted gradually as China opens up its telecoms industry to foreigners in line with World Trade Organisation rules.

Under a bilateral agreement between the United States and China in November last year during WTO talks, foreigners will be allowed a 25 per cent stake in Chinese cellular firms upon WTO accession, rising to 49 per cent in three years.

'In the next few years, we will see a lot more participants in the telecoms sector from the private sector, as well as foreign firms,' Mr Tao said.

Bertrand Chui Kwok-hay, investment analyst at Worldsec International, said: 'As telecoms are one of the most important services sectors, China's move to allow greater foreign participation marks its willingness to open up the industry.'

Mr Chui said China Mobile (Hong Kong) would benefit from the Vodafone tie-up through technical support and customer service advice to help fend off competition from China Unicom.

'Personalised services may be introduced instead of price-cutting,' he said.

Vodafone has indicated its intention to raise its stake after China enters the WTO. A desirable level is 10-15 per cent, according to Vodafone.



Vodafone sets stage for rush into mainland