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April 14, 2004

China Telecom acquires provincial networks from parent

China Telecom Corp Ltd, the largest fixed-line operator in mainland China, has announced it is purchasing provincial phone networks from its parent company China Telecom. This follows a similar purchase last year.

By CBR Staff Writer

Last October, China Telecom Corp paid its parent $5.6bn in cash for six provincial networks, upping its coverage to 10 provinces and subscriber numbers to 100 million.

With the new purchases, China Telecom Corp will pay its state-owned parent CNY 27.8bn ($3.35bn) for 10 more provincial networks. CNY 3.84bn ($1bn) will be paid in cash upfront, while the remainder will be paid 10 years after the deal is completed. In addition to this, it will also assume CNY 40bn ($4.83bn) of debt owed by the networks.

The new networks are in the provinces of Hubei, Hunan, Hainan, Guizhou, Yunnan, Shaanxi, Gansu, Qinghai, Ningxia Hui Autonomous Region, and Xinjiang Uygur Autonomous Region.

These 10 provincial networks are mainly in the poorer regions of China and have a total of 42.9 million subscribers, commanding 95.9% of the market share in the 10 provinces. The business includes fixed-line telephone, internet and managed data, and leased line services. In 2003 they recorded sales of CNY 33.1bn ($3.99bn), but posted net losses of CNY 10.8bn ($1.30bn) after they were hit with a CNY 4.8bn ($580m) write-off.

With the acquisition, the geographic coverage of the company’s operations in China will expand to 20 provinces and its subscribers will exceed 160 million.

Such acquisitions have become common practice for China’s three largest telecoms companies: China Telecom, China Mobile and China Unicom. Each of these made initial public offerings of their parents’ most profitable provincial networks, and have purchased the less profitable networks from their parent companies.

Last month, China Telecom Corp posted a better-than-expected 2003 net profit of CNY 24.69bn ($3.2bn), up 153% from the previous year, as the carrier benefited from solid growth in its wireless and broadband businesses. Revenue grew 8.1% to CNY 118.5bn ($14.31bn).

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In February, China Telecom Corp announced plans to issue shares worth roughly $3.03bn to fund the acquisition of the 10 provincial networks.

This article is based on material originally published by ComputerWire

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