China Prosperity draws state agencies into Net venture

China Prosperity Holdings is expected to announce soon an Internet and multimedia joint venture that will count among its investors the mainland's Telecommunications Bureau and State Administration of Radio, Film and Television (SARFT).

The venture, Century Vision Network, is to deliver interactive video, entertainment information and electronic-commerce services to households in the mainland and Hong Kong.

China Prosperity executive director Gareth Tang Yau-sing said a 33 per cent-owned unit - Win's Prosperity Group - had entered into a non-binding agreement to operate the venture with the Ministry of Information Industry's Telecommunications Bureau, a SARFT subsidiary and other unnamed partners.

Under the agreement, Win's Prosperity will hold 33 per cent of the venture, while the Telecommunications Bureau - which controls China Telecom - and the SARFT subsidiary each will have 10 per cent interests. The remainder will be owned by the other partners.

Mr Tang said the venture's broadband Internet services would be provided through fixed-telecommunication networks provided by China Telecom. Its content would be provided by China Prosperity and SARFT.

Mr Tang said the venture would be able to circumvent Beijing's restrictions on investment in the Internet sector by foreign companies.

The venture would not be making any investment in the sector, as it planned to lease telephone networks from China Telecom.

Also, the mainland's broadcasting contents are screened by SARFT. Therefore, Mr Tang said, SARFT would be responsible for obtaining relevant approval for the contents of the venture's services.

China Prosperity expected a final agreement to be reached on the venture by the end of this month, Mr Tang said. However, he admitted there was no assurance of government approval.

If the venture goes ahead, it could begin operating by early next year, Mr Tang said.

An initial two-year investment by all the partners would amount to about $780 million, he said.

Mr Tang said the partners might consider raising cash to finance the project through a listing on the Nasdaq market in the United States.

The venture could challenge Richard Li Tzar-kai's information technology flagship, Pacific Century CyberWorks, which also plans to provide broadband Internet services to the mainland.

China Prosperity forecasts its joint venture to have 200,000 subscribers in the first year of operation and to have revenue of $1.38 billion.

The venture's valuer, American Appraisal Hongkong, estimated its total value at $20 billion, based on earnings projections.

However, analysts said the earnings projections were 'too aggressive'.

'Even if we assume that the project can secure 200,000 subscribers in the first year of operation, to achieve $1.38 billion profit would mean each subscriber would have to pay $557 per month,' an analyst noted.

'That's impossible.' Analysts also said they were concerned the project might not get approval.

China Prosperity's shares have been suspended from trading since September 27, pending an announcement on the project.

The counter surged 70 per cent in the week before the suspension on rumours about the project. The stock last traded at $3.825.