China Telecom Unveils CDMA Plans

China Telecom Corp. Ltd. (NYSE: CHA) has unveiled its multibillion-dollar plans to invest in and expand the CDMA mobile business it's buying from China Unicom Ltd. (NYSE: CHU) as part of the radical revamp of China's telecom sector. (See China Begins $70B Carrier Revamp.)

The national fixed line carrier, which is listed on the Hong Kong and New York stock exchanges, is buying Unicom's CDMA business, which has about 43 million customers, for 43.8 billion Renminbi (US$6.4 billion), but will not own the physical network assets.

The infrastructure will be acquired, for RMB66.2 billion ($9.65 billion), and owned by the operator's state-owned parent, China Telecom Group, which will lease the infrastructure to its service provider subsidiary.

The network lease fee will be equivalent to 28 percent of China Telecom Corp.'s CDMA service revenues. In 2007, China Unicom's CDMA service revenues totaled RMB27.73 billion ($4.1 billion). (See China Unicom Reports 2007.)

In a filing with the Hong Kong Stock Exchange, China Telecom Corp. noted that the lease fees are capped for 2008, 2009, and 2010 at RMB4 billion, RMB20 billion, and RMB35 billion ($585 million, $2.9 billion, and $5.1 billion), repectively.

China Telecom Group says it plans to invest RMB80 billion ($11.7 billion) in the network in the first three years of ownership (starting October 1, 2008), with RMB27.9 billion ($4.1 billion) to be invested during the "first phase" of capital expenditure, details of which leaked into the market last week. (See China Telecom's Big Numbers.)

By the end of those three years, China Telecom Group expects to have CDMA 1xEV-DO coverage in all urban areas, have a capacity for 200 million customers, and have the whole network IMS-enabled. The company also intends to share systems and infrastructure, such as transport networks, IP-based metro rings, and international access gateways, with China Telecom's fixed network operations.

By the end of 2011, China Telecom expects to have 100 million CDMA mobile customers, which, it believes, would give it a 15 percent share of the mobile market in China (which would total about 670 million customers).

China Telecom's commitment to growing its mobile business spells good news for CDMA vendors Alcatel-Lucent (NYSE: ALU), Motorola Inc. (NYSE: MOT), Nortel Networks Ltd. , and local equipment suppliers Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), which are particularly well placed to benefit from this expansion and China's plans to become a 3G market. (See China to Get 3G – At Last!, AlcaLu Lands Big $$ in Little China, and Moto Expands China Unicom.)

— Ray Le Maistre, International News Editor, Light Reading