China's $40 bln deals kick off telecoms shake-up

By Vinicy Chan and Joseph Chaney

HONG KONG (Reuters) - China kicked off its overhaul of the world's largest telecoms industry on Monday with mobile operator China Unicom (0762.HK) paying $24 billion for a fixed-line peer and selling a network for almost $16 billion.

After years of waiting and false starts, Beijing last month unveiled a sweeping shake-up aimed at speeding up the roll-out of high-speed third-generation mobile services for its 1.3 billion people.

Monday's deals give top fixed-line operator China Telecom (0728.HK) (CHA.N) a foot in the mobile market while second-ranked mobile operator Unicom gets fixed-line firm China Netcom 0906.HK to work with.

The advent of 3G will mean China's phone users can join those in advanced economies who already enjoy speedy Internet access, games and a host of multimedia content from maps to music on their mobile phones.

That could unleash billions of dollars in spending as China's newly revamped phone giants invest to compete, including work for network equipment makers such as Ericsson (ERICb.ST), Motorola (MOT.N), Nokia (NOK1V.HE), Nortel (NT.TO) and Siemens (SIEGn.DE).

NEW SHARES

Unicom (CHU.N) will issue slightly more than 10 billion new shares to buy China Netcom at a ratio of 1.508 per Netcom share.

The deal is worth about HK$186.7 billion ($23.9 billion) based on its last closing price of HK$18.48 and assuming no outstanding Netcom options are exercised.

It also agreed to sell the smaller of its two wireless networks to China Telecom and its parent firm for 110 billion yuan.

"This is the only way China Telecom is going to get into the mobile business," said BOC International's Allan Ng.

The shake-up also opens the door to foreign investors who have been restricted to taking small stakes, such as Vodafone's (VOD.L) 3.3 percent investment in China Mobile.

Spain's Telefonica (TEF.MC) owns 7.2 percent of Netcom, which will be delisted following the merger. South Korea's SK Telecom (017670.KS) owns about 6.6 percent of Unicom.

UNICOM WINS

Analysts said Unicom, which has been losing market share to the larger China Mobile, seemed to win out in both deals. They noted it is getting Netcom at a 4 percent premium to its market capitalization of about $23 billion.

"Unicom walks out as the biggest winner for selling off its burdensome CDMA business at a huge premium," said Marvin Lo, an analyst at Daiwa Institute of Research.