Telstra has high hopes for HK merger

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Australia’s Telstra said the merger of its mobile operation in Hong Kong with a local rival would be earnings accretive in the first year and that the combined business might go public in 2009.

The integrated business, which will be Hong Kong’s largest wireless company with 34 per cent market share, would also generate cost savings of at least A$400m (US$301m) over 10 years, Telstra said.

Telstra announced in November that CSL, its Hong Kong mobile arm, would merge with New World Mobility, reducing the number of operators in the territory from six to five.

The Australian company will own 76.4 per cent of the combined business and receive HK$244m (US$31.5m) from New World, which will own the remaining 23.6 per cent. “The merged business will have first mover advantage in the long-awaited consolidation of the Hong Kong cellular market,” said Sol Trujillo, Telstra chief executive.

With a mobile penetration rate of about 121 per cent, wireless operators in Hong Kong constantly slash prices and offer handset subsidies to persuade users to switch to their services. The operators, however, suffer from one of the world’s lowest margins as a result of high sales and marketing costs and high churn rates.

Mr Trujillo said yesterday the merger “was a smart transaction” because the two operators, with 2.6m users between them, were complementary and would generate the scale to grow further, mainly through third-generation mobile service.

Telstra said the new company, to be called CSL New World Mobility, had combined sales of HK$6bn as of June while earnings before interest, tax, depreciation and amortisation was HK$1.6bn. Telstra said the merger would lead to top and bottom line growth as well as ebitda margin, a key figure showing the company’s effectiveness.

CSL, through its two brands and one of Hong Kong’s four 3G licences, predominantly serves high-end users. New World, which does not have a 3G permit, targets the low end of the market. Telstra said it would retain the three brands initially while encouraging New World’s premium users to move to CSL’s 3G service, with aims to move to a single network eventually.

It also said both CSL and Hong Kong-listed New World have the right to call for an initial public offering of the business in 2009.

New World Development, which has a 58 per cent stake in New World Mobility, said on Sunday that the wireless company would maintain its listing status for the moment.

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