Global Insight Perspective | |
Significance | China Netcom is selling its submarine cable unit to two investment funds. |
Implications | The fixed-line operator is to focus on the telecoms market in mainland China. |
Outlook | Any new ownership of Asia Netcom is not expected to last long; the telco is expected to go public after the purchase and be further sold to strategic investors. |
China Netcom, the smaller of China's two fixed-line operators, announced today that it would sell 100% of Asia Netcom to Ashmore Emerging Markets Liquid Investment Portfolio and Spinnaker Global Opportunity Fund for US$168.84 million.
Netcom said that it would maintain its business relationship with Asia Netcom in connection with its own international operations, and that such a relationship will include the purchase of capacity from Asia Netcom.
Asia Netcom owns and operates a submarine cable system and related network assets, mainly in the Asia-Pacific region. The company consists mostly of the entity formerly known as Asia Global Crossing, which Netcom bought out of insolvency for US$120 million in 2003.
Outlook and Implications
Sale Incentive: Since late last year, Netcom has been in talks with interested parties over the sale of its submarine cable unit (see Asia Pacific: 28 March 2006: China Netcom Considers Introducing Strategic Investor to Asia Netcom). The company anticipates fierce competition in the wholesale market over the next few years, and there has been much talk of consolidation in the data segment. Other than Asia Netcom, two other key submarine networks in the region appear open to investors - SingTel's pan-Asian C2C unit and Reach, the troubled submarine cable joint venture between Telstra and PCCW (see Asia Regional: 17 October 2005: Receivers Place C2C Up for Auction). The sale is, as Netcom says, in line with its strategy of concentrating on mainland China. The fixed-line operator has indeed been committed to growing its broadband and value-added services, such as IP TV (see China: 22 March 2006: China Netcom Posts Modest Revenue Rise for 2005). It is also eyeing the opportunity to enter the massive mobile market, and is currently conducting pre-commercial TD-SCDMA network trials ahead of 3G licensing in the country (see China: 16 February 2006: China Mobile, Telecom, Netcom to Build TD-SCDMA Pre-Commercial Networks and 13 March 2006: Mobile Operators Expand TD-SCDMA Trials in Three More Chinese Cities).
Outlook for Asia Netcom: Industry sources have previously said that Ashmore and Spinnaker will take Asia Netcom public within 12 to 18 months after purchasing it. In addition, several international operators, including Spain's Telefónica and India's VSNL, had previously expressed interest in acquiring the telco in order to establish their market presence in the region (see Asia Regional: 8 November 2005: Telefónica Reportedly Interesting in Acquiring Asia Netcom). Asia Netcom's East Asia Cable (EAC) network, which connects six major Asian markets - Hong Kong, Taiwan, South Korea, Singapore, the Philippines and Japan - represents a valuable asset for strategic investors (see Asia Pacific: 24 January 2006: Asia Netcom Upgrades Pan-Asian Submarine Cable Network). Which telcos will be the ultimate owners of Asia Netcom remains to be seen.