Fixed-line telephone carrier China Netcom Group Corp (Hong Kong) Ltd yesterday said it would sell its undersea cable unit, Asia Netcom, for US$169 million.

 

The move marks a big shift in the company's strategy, from aggressive overseas expansion back to concentrating on its home turf.

 

In a statement, Netcom said it had signed an agreement with Ashmore Emerging Markets Liquid Investment Portfolio and Spinnaker Global Opportunity Fund Limited to sell 100 percent of its interest in Asia Netcom Corp.

 

China Netcom's State-owned parent, China Network Communications Group Corporation, will also sell its stake in Asia Netcom for about US$240 million, industry sources said.

 

Asia Netcom, headquartered in Hong Kong, provides submarine cable capacity, and international data and voice services to multinational corporations and telecoms firms, primarily in the Asia-Pacific region.

 

China Netcom Chairman Zhang Chunjiang said the firm would "maintain its business relationship with Asia Netcom" after the disposal.

 

Asia Netcom consists mostly of assets belonging to Asia Global Crossing (AGC).

 

China Netcom bought bankrupt AGC for US$120 million plus undisclosed liabilities in 2003.

 

The much-hyped deal was the first major overseas acquisition by a Chinese telecoms operator. But Asia Netcom has remained unprofitable since the completion of the deal.

 

The sell-off of Asia Netcom is the right choice for cash-strapped China Netcom, said Qiu Lin, an analyst with Beijing-based research house Analysys International.

 

"It's a practical move for Netcom to shift focus back to the domestic market," he said.

 

China Netcom is the smallest of the top four telephone carriers in China, but has been the most aggressive in overseas expansion.

 

It has formed strategic alliances with Hong Kong's PCCW Ltd and Spain's Telefonica.

 

According to China Netcom's annual financial reports in 2005, its liability/asset ratio was more than 50 percent.

 

Chinese regulators are expected to award operators with licences to build 3G (third generation) mobile networks probably this year.

 

Netcom is in the worst position of all firms competing for the licences, as the cash-strapped company might be unable to afford to build a costly 3G network.

 

Building a 3G network hosting 10 million subscribers could cost up to 20 billion yuan (US$2.5 billion), according to Analysys.

 

Netcom had only 4.9 billion yuan (US$612 million) cash in hand at the end of last year.

 

"As the weakest player, Netcom needs to continue getting rid of loss-making or less profitable units and cut workforce to counter competition from its bigger rivals," Qiu said.

 

(China Daily June 6, 2006)