Fitch: News positive for Chinese telecoms

Fitch Ratings said there is still significant uncertainty regarding the third generation (3G) licensing framework and widely expected industry restructuring in China, despite recent sector developments as reported in the media.

Fitch said it considers that the expeditious issuance of 3G licenses and completion of industry restructuring would be positive developments as they will remove uncertainties for the Chinese telecom operators, allowing them to focus on the key challenges of network rollout and migration, competitive positioning and capital expenditure management for the existing and new networks.

China Mobile Communications Corp. , the ultimate parent of China Mobile Ltd. (Hong Kong), rated A with stable outlook, is reportedly inviting bids from major international and local telecom equipment makers to build a 3G network based on the locally developed time division synchronous code division multiple access (TD-SCDMA) technology standard. According to media reports, the contract is estimated to be worth Y20 billion and is to be completed by October 2007 for a commercial trial in 10 Chinese cities, including Beijing and Shanghai, the agency said.

With this latest development, the possibility of a technology-neutral 3G licensing framework, whereby telecom operators are free to select their technology platform, is increased, Fitch said. Allowing the use of all 3G technology standards will help meet several government objectives, such as sustaining competition via product differentiation, promoting growth for local hardware and equipment suppliers and providing full international roaming for foreign visitors, the agency added.

There are several possible scenarios, such as issuing 3G licenses to the two fixed-line operators, pairing each fixed-line operator with one of the two mobile operators to create two fully integrated telecom companies, or allocating to each fixed-line operator one of the two mobile networks that China Unicom Ltd. operates. The two fixed-line operators are China Telecom Corp. Ltd. (A- with stable outlook) and China Netcom Group Corp. (Hong Kong) Ltd. (BBB+ with stable outlook).

Fitch said the credit implications of potential restructuring would be generally positive for the Chinese telecom operators.

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