China mobile operators get state support for towers venture

China Mobile, which has the most telecommunications towers on the mainland, contributed assets totaling 116.4 billion yuan.

China Tower will be 28.1-percent owned by China Unicom on completion of the integration of tower assets, while China Mobile will hold 38 percent, and China Telecom 27.9 percent.

China reorganized its wireless industry yesterday by injecting 231.4 billion yuan (HK$282.58 billion) worth of network assets, such as base stations, into a new company controlled by the nation’s three carriers.

All three operators are to sell their assets at appraised values “which represent premiums to book values of 20 per cent for China Mobile, 18.1 per cent for Unicom and 17.6 per cent for China Telecom”, Anand Ramachandran, the head of Barclays’ telecommunications, internet and media equity research for Asia, excluding Japan, said in a report. China Tower will operate, manage and maintain the collective towers assets of the three operators, who will lease back access rights for the towers.

The carriers have come under pressure as customers increasingly switch to using mobile messaging tools, such as the WeChat service of Tencent Holdings (0700), prompting a pooling of their resources. The two may even get more subscribers as their capabilities increases, according to Cynthia Meng, an analyst from Jefferies. Within a month of the deal, at least $700 billion (about 5 billion yuan) will be paid as first payment.

China Tower, which is jointly owned by the three carriers, will also issue new shares to China Reform, a wholly-owned subsidiary of China’s State-owned Assets Supervision and Administration Commission which controls the country’s biggest state companies.

Our $15 price estimate for China Unicom is nearly in line with the current market price.

China Telecom Corp Ltd said it would put 34.34 billion yuan worth tower and related assets into China Tower, adding it expected to see a 5.13-billion yuan gain. More change is likely on the way for China’s telecom sector.

In exchange for the towers, the carriers will gain a combination of shares in China Tower and cash.