Telstra endorses move to create biggest mobile firm but leaves out vital details Telstra Corp will merge its Hong Kong mobile unit CSL with New World Mobility to create the city's largest mobile operator, according to the Australian telecommunications giant. The two parties signed a memorandum of understanding yesterday to discuss the merger on an exclusive basis until December 2. Under the terms of the deal, New World Mobile Holdings will transfer its entire shareholding to CSL and pay $244 million to the Telstra-owned firm for a 23.6 per cent stake in the merged entity. CSL will own the remainder. The merger will create Hong Kong's biggest mobile operator in both revenue and subscribers, with about 2.65 million of the city's eight million mobile-phone accounts. Current dominant player Hutchison Telecom has 1.9 million subscribers. Yesterday's announcement should have ended weeks of speculation about the final form of a deal between the two operators. But critical details, including the final valuation of the merged entity and the fate of New World Mobility's listing vehicle, were left unanswered by both sides. 'It appears likely that they tried to merge but when it came to it, [they] couldn't agree on something - most likely price - hence, the memorandum of understanding and the fact that many of the more significant details were not mentioned,' CLSA analyst Francis Cheung said. Other analysts yesterday said Telstra's decision to merge CSL with another operator, New World or otherwise, was probably a last resort following months of openly seeking a buyer without success. 'It was a case of merging or selling, and while they perhaps would have liked to have sold, that wasn't possible, so this is a much better option to what they had before,' said independent Australian analyst Paul Budde. 'CSL was supposed to spearhead bigger and better things but that hasn't happened and it's still sitting like a stranded asset out there because it doesn't make sense in terms of overall strategy.' There appears little doubt that Telstra's foray into the congested Hong Kong mobile scene is stronger with New World than without. Research by ABN Amro showed that a merged CSL-NWM would hold Hong Kong's largest subscriber and revenue shares at 34 per cent and 36 per cent, respectively, dwarfing even Hutchison Telecom. That kind of market clout is also likely to be music to the ears of New World. For while the company will hold only 23.6 per cent of the merged entity, despite contributing about 30 per cent of combined revenue, analysts have repeatedly warned the operator will struggle in the long term without a 3G licence. Last month, the company blamed fierce competition and the emergence of 3G in the market for a 43 per cent drop in net profit to $93.11 million for the year to June. What is less clear is Telstra's longer-term strategy. Chief executive Sol Trujillo may have added to speculation the merger is designed to enhance CSL's appeal to potential buyers when he told analysts: 'At this point in time, CSL is an important asset in the portfolio.' But ABN Amro's report pointed out that a merger would make CSL an unlikely acquisition target of the remaining big guns in Hong Kong's market - namely PCCW or China Mobile - as such a move would risk running afoul of anti-competitive concerns by the regulator. A takeover by either party will result in 40 per cent and 50 per cent subscriber and market shares, thanks to both operators' recent local acquisitions, namely, Sunday Communications and China Resources Peoples Telephone. Of course, reduced competition in the crowded sector is the key reason industry watchers welcomed news of the merger, which constitutes a long-awaited consolidation reducing the number of competing operators from six to five. New World Mobile shares fell 10.9 per cent to $2.45 yesterday.