PCCW is in talks with China Network Communications Group to form a strategic partnership that may result in the mainland's No 2 fixed-line player becoming a shareholder in its core telecommunications network. The Hong Kong company confirmed the talks with China Netcom, which has 220 billion yuan in assets, over cross-border business co-operation that could win PCCW access to the mainland market. 'Strategic and business co-operation opportunities include, but are not limited to, joint ventures relating to certain assets of the company, which may include [Netcom] taking an equity interest in PCCW-HKT,' it said in a statement to the stock exchange. A potential pooling of assets would win the growth-challenged operator access to the mainland's until now closed network services market, an ambition the firm has long pushed for but never realised. No details of the proposed deal structure were available last night as PCCW sought to contain a leak which emerged late last week on a mainland website. Industry sources said Netcom might introduce PCCW as a shareholder to its southern provinces start-up ventures, where it runs a distant second to China Telecom Corp. In return, the mainland company might take a stake in PCCW's core network PCCW-HKT, which generated 73 per cent of the listed firm's revenue last year. The announcement was made in response to market rumours that PCCW was preparing to sell its entire fixed-line network to a mainland carrier. PCCW said talks about a stake sale were continuing and no deal had been struck. Netcom plans to raise US$1.5 billion this year, but the recent collapse in mainland stock values and a souring appetite for new offerings could push back its plans or force a scaling down of the issue size. The introduction of a state-owned enterprise as a key shareholder in PCCW could prove controversial, against a backdrop of political tension and charges of mainland intervention in local affairs. Analysts said a joint-venture deal that centred on the southern provinces made sense since Netcom was in the formative stages of building its network. 'PCCW gets a chance to export its expertise in a bigger market place, while Netcom gains some expertise to run a broadband network,' CSFB analyst Edison Lee said. By the end of the year under China's World Trade Organisation entry commitments, telecommunications operators will be allowed to own up to 25 per cent of network operators selling domestic and international services in Beijing, Shanghai and Guangzhou. The liberalisation schedule allows that to be expanded to 35 per cent by the end of 2006 and 49 per cent a year after that.