(L-R) China Netcom CFO Li Fushen, China Netcom Chairman and CEO Zuo Xunsheng, China Unicom Chairman and CEO Chang Xiaobing and China Unicom CFO Tong Jilu join hands after announcing the merger of China Netcom and China Unicom in Hong Kong, South China, June 2, 2008. China Unicom also said it reached a framework agreement with China Telecom under which China Telecom will buy CDMA business and CDMA network from China Unicom Group. (Xinhua/Zhou Lei)

Mainland-based telecommunications giants China Unicom and China Netcom, both listed on the Hong Kong stock exchange, announced Monday that each share of Netcom will be exchanged for 1.508 Unicom shares in a proposed merger.

The rate was based on the price of China Netcom shares on the Hong Kong mainboard before their suspension from trading on May 23,with a 3 percent premium, said Tong Jilu, executive director and chief financial officer of China Unicom.

Chang Xiaobing, chairman and chief executive officer of China Unicom, also said each American depository share of China Netcom will be exchanged for 3.016 American depository shares of the new China Unicom, subject to shareholders' approval.

The merger is expected to be completed in October this year after the shareholders' conferences in September if everything went ahead smoothly, Tong said.

The merged group, possibly bearing the name of China Unicom, will have an enlarged capital of 23.76 billion shares, worth a total of 439.17 billion yuan (63.28 billion U.S. dollars). It is expected to be a provider of integrated services including mobile and fixed-line telecommunications, broadband, data and value-added services.

"The merger is in line with the trend of convergence of fixed- line and mobile networks, and is expected to enable the merged group to set clear strategy," Chang said, referring to the direction for the company to pursue 3G strength.

China Unicom, currently one of the telecommunications giants in the Chinese mainland, is a far second to the largest mobile carrier China Mobile, while China Netcom is a provider of fixed line telecommunications and broadband services.

The merger was currently between the Hong Kong-listed China Unicom Limited and the China Netcom Group Corporation (Hong Kong) Limited, but not a merger between their mother companies, Chang told a press conference held in Hong Kong.

China Netcom will cease to exist as a listed firm after the merger, subject to approval from the shareholders at the company's annual conference, which is expected in September, said Zuo Xunsheng, chairman and chief executive officer of China Netcom.

Shares of both companies will resume trading on Hong Kong exchange on Tuesday.

The merger was part of a major regrouping in the Chinese telecom industry aimed at more competition by forming three providers of integrated services after regrouping.

State authorities issued an announcement on May 24, saying that they "encouraged" a regrouping of the telecom corporations to form three providers of integrated services to increase market competition. China Mobile has recently announced a proposal to buy fixed-line operator China Tietong, or Railway Telecommunications.

At a separate press conference in Hong Kong on Monday, the HongKong listed China Telecom announced that it has reached an agreement to buy the CDMA services of China Unicom, thus making it one of the three integrated services providers, too.

China Unicom also announced at the conference that it will sell its CDMA services at 43.8 billion yuan (6.31 billion U.S. dollars)and that its mother firm China Unicom Group will sell its CDMA network at 66.2 billion yuan (9.54 billion U.S. dollars) to China Telecommunications Corporation, the mother firm of China Telecom.

Speaking at a separate press conference in Hong Kong, Wang Xiaochu, chairman and chief executive officer of China Telecom, said that the deal is expected to be completed in October, subject to shareholder approval at annual conferences in September.

China Telecom will pay for the transaction in cash, Wang said, adding that he expected the CDMA part to contribute net profit as early as 2012, although the deal could impact the earnings record of the company in short term.

The regrouping will result in three separate providers of integrated services, with most of the analysts saying that they expected China Unicom to benefit the most from the regrouping whereas the strength of China Mobile could be reduced.

Others, however, said they expected China Mobile to remain the giant among the giants and retain most of its power in the mainland telecom industry.

Chang, head of China Unicom, also warned against "over optimism" about the increased strength of the merged company, saying it required long-term effort.

(Xinhua News Agency June 3, 2008)