The initial launch of third-generation (3G) mobile services by listing candidate China Telecom would not cost more than US$2 billion, fund managers were told yesterday. When the company would receive a wireless licence and the capital expenditure commitment for launching mobile services were among the issues the management was called on to address at the fixed-line carrier's Hong Kong roadshow. 'Considering China Telecom has a strong cash flow, US$2 billion is only a small amount,' a source said. According to China Telecom's listing prospectus, it generated 32.76 billion yuan (about HK$30.7 billion) cash flow from operating activities last year. In a bid to ease investor worries, management yesterday said the carrier was confident of receiving a mobile licence 'at the appropriate time'. But when asked when this might be, it said the timing would be decided by the Ministry of Information Industry. The future capital expenditure of the wireless network would be borne by the listing entity, instead of parent China Telecom Group. Market watchers are expecting the ministry to issue mobile licences to China Telecom and China Netcom Group in the second half of next year or in 2004 when 3G licences are granted. China Telecom has set aside US$1.49 billion, or half the initial public offering proceeds, to expand and upgrade its telecommunications network infrastructure. However, the projected capital expenditure does not include the spending requirement for building a 3G mobile network. Some fund managers have expressed concerns that heavy capital investment in building a wireless network would eat into the company's earnings. China Telecom told the fund managers yesterday it did not have subscriber and network capacity targets to achieve regarding its future mobile business. The company now offers limited wireless local area networks based on the personal handyphone system (PHS), but subscribers account for only about 5 per cent of its total users. China Telecom also indicated it would not abandon its PHS networks, but would develop the services for niche users. The firm also told fund managers that the ministry had committed not to alter local telephone tariffs for the next three to five years. China Telecom is selling 16.8 billion shares to overseas investors at a price range of HK$1.48 to HK$1.71 to raise HK$24.86 billion to HK$28.73 billion. The company will pay a pro-rata dividend of 1.1 HK cents this year and 6.5 HK cents next year. Shares, to be priced on October 30, are due to be listed in New York on November 6 and begin trading in Hong Kong on November 7.
