bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

paywallTypes

createdDate

publishedDate

urlAlias

moreOnThisArticles

sponsorType

commentCount

authorLocations

authors

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

articleSpeeches

socialHeadline

headline

images

flag

firstTopic

glossary

flattenTypeIds

image

relatedLinks

relatedNewsletters

__typename

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

Georgina Lee

Spanish giant has inside track after building 5pc stake in China Netcom

China Netcom Group is in talks with suitors including Spanish telecommunications giant Telefonica to sell a strategic stake in its undersea cable carrier, Asia Netcom.

Sources close to the talks identified Telefonica as having the inside track and said the Spanish firm had also discussed taking a controlling stake in Asia Netcom. 'China Netcom is very focused on Telefonica,' one source said.

'Asia Netcom has never been a big part of the group,' another source said. 'Plus, it is losing money and is a burden.'

Telefonica paid Euro240 million ($2.1 billion) for a 3 per cent stake in China Netcom's Hong Kong and United States-listed arm in July, and has since increased the  stake to about 5 per cent.

However, the Spanish carrier's apparent interest in Asia Netcom has been complicated by its GBP17.7 billion ($239.6 billion) all-cash bid for British mobile operator O2.

Having extended its bid for O2 only last week, Telefonica is expected to publish its offer document in the next two weeks. If completed, it will be Europe's largest takeover deal in five years.

China Netcom's talks  with Telefonica are therefore expected to drag on, presenting potential  opportunities for rival bidders.

China Netcom is understood to have also held talks about an Asia Netcom stake sale with an  Indian company and Singapore Technologies Telemedia, which owns 61.5 per cent of  Asia Netcom's former parent, Global Crossing.

China Netcom bought  51 per cent of Asia Netcom in 2002, and the remaining 49 per cent a year later. Asia Netcom was later transferred to China Netcom's listing vehicle, which raised US$1.14 billion in a dual listing in Hong Kong and the US late last year.

It would also underline Telefonica's keen interest in the China market, where international bandwidth consumption  surged 170 per cent between 2003 and 2004. Market research suggests that between now and 2008, an additional  21 million users will get on the internet  in China. There are  about 94 million internet users, with  34 million  using broadband connections.

'With growth in Asian markets like China and India exploding, it will multiply any company's stock price if it can get Asia assets in its portfolio,' one source  said.

In fact, Asia Netcom could just be a start, as  possible future co-operation between Telefonica  and China Netcom group could result in benefits similar to those received by PCCW when Netcom  invested in a 20 per cent stake earlier this year.

Netcom has started work with PCCW on four investment areas spanning property, broadband and internet protocol television,  as well as mobile and international business in southern China.

Analysts and industry players said putting a valuation on Asia Netcom was difficult as its main undersea cable asset  was not owned directly by Asia Netcom but another overseas-registered vehicle under the parent.

For Asia's wholesale bandwidth sector,  Asia Netcom and Global Crossing executives last month said  that a recovery  in wholesale pricing could be expected in 2007.

Suitable suitors

Telefonica interest complicated by recent bid for Britain's O2

Indian and Singaporean firms may also be in the running

China expected to add a further 21 million internet users by 2008



Telefonica closes in on Asia Netcom