China Unicom, which received the go-ahead from the Chinese government earlier this year to deploy cdmaOne technology, will gain control of four experimental Code Division Multiple Access networks operated by China Telecom Great Wall.
Great Wall was a source of concern for the Chinese government since the People’s Liberation Army owns 50 percent of the company. As China is moving toward an economy shaped by market forces, it has been trying to push the PLA out of the commercial sector and get rid of the corruption the Chinese government says is associated with the PLA. For that reason, the four networks were never allowed to expand beyond the experimental stage.
Great Wall operates four cdmaOne networks in Beijing, Guangzhou, Shanghai and Xian, supporting about 4,000 subscribers at year-end 1998. Motorola Inc., Samsung Ltd., Nortel Networks and Lucent Technologies Inc. supply the equipment.
It’s unclear, however, whether the PLA will sell its ownership or retain a stake in China Unicom, said Perry LaForge, executive director of the CDMA Development Group. The PLA has been hard pressed to exit the lucrative telecom sector, and an equity stake may not sit well with government leaders.
In March, China Unicom received permission from the Chinese government to deploy cdmaOne technology. China is seeking endorsement to become part of the World Trade Organization, and the fact cdmaOne technology was not allowed to commercialize in China concerned U.S. officials.
The Chinese government also has been working harder to promote competition in the telecommunications sector. Unicom has struggled to compete with the state-run giant China Telecom, having only launched GSM service in a select number of markets. China Telecom’s subscribers number about 24 million, while Unicom supports about 1.2 million.
China Unicom plans to spend $843 million to build its cdmaOne network, constructing about 30 million lines by 2003. Analysts expect contracts to go to at least three vendors this year, which will likely include Lucent and Motorola.
Unicom could face severe financing problems since the Chinese government banned the Chinese-Chinese-foreign financing model last year. The CCF model, a method Unicom heavily relied on, was used as a way for operators to get around the Chinese government’s ban of direct foreign investment in telecommunications.
Conn Hsu, analyst with Pyramid Research in Hong Kong, said the government has opened several funding channels previously closed to the carrier by granting Unicom state-owned Guoxin Paging Co., allowing state banks to provide loans and signaling it will allow Unicom to issue an IPO. The government so far has only allowed China Telecom Hong Kong to list its assets abroad.
Published reports indicate China Unicom may issue an IPO as large as $1 billion.
