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Rumor: China Communications Services to Acquire Stake in CITCC

Netease Tech, 3/31/08

China Communications Services Corp (CCS) (0552.HK) issued a report today that it would sell 359 mln shares of stock for a total HKD 1.67 bln. Industry speculation is that CCS will use the money raised by the sale of stock to acquire a stake in the China International Telecommunication Construction Corporation (CITCC), meaning that domestic TD-SCDMA network construction projects would be handled jointly by the two companies.

Prior to this, China P&T Appliances (PTAC) sold 100% of its stake in CITCC on the Beijing Equity Exchange for a value of RMB 505.5 mln.

A rumor had circulated around the industry that PTAC had reached a secret agreement with China Communications Services, and that the sale of its stake on the market was merely a way to remain in compliance with regulations on transference of state-owned corporate assets.

Industry insiders believe that a union between these two domestic TD-SCDMA network construction companies could be a violation of antitrust regulations, potentially leading to the first ever monopoly case in China's telecom industry. If China Communications Services, as a subsidiary of the China Telecom Group China, were to succeed in its bid for CITCC, it would vault into a leading position in mobile communications project construction. As a competitor to China Telecom, China Mobile might make a move to purchase CITCC, or to prevent the acquisition through one of its channels.

China Communications Services was formed in mid-2006 and comprises telecom industry assets in Shanghai, Guangdong, Zhejiang, Hebei and Fujian. The company's business comes mainly from construction for telecom networks, technical support and consultation, and the manufacture and sale of communications devices. CITCC controls a 9% share of the domestic communications construction market.

Keywords: 0552.HK telecom engineering financing M&A China Communications Services Corp wireless China International Telecommunication Construction Corporation China Mobile China P&T Appliances China Telecom network construction PTAC TD-SCDMA telecom 3G wireless

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