Telefónica wins China approval

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Telefónica of Spain could soon intensify its push into international markets after winning approval from the Chinese government to double its stake in China Netcom, the second largest fixed-line operator, to 9.9 per cent.

If completed, the share purchase would take its total investment in the country to more than €1bn ($1.17bn).

However, Telefónica officials on Tuesday cautioned that the purchase was contingent on the Chinese group winning a mobile licence and being allowed to expand its fixed-line footprint.

The accord with Netcom follows the announcement last month of an agreed €26bn takeover bid for O2, the UK mobile operator, and fits with a broader strategy at Telefónica of reducing dependence on the domestic and Latin American markets.

The Chinese share purchase would make the Spanish company the largest foreign investor in China’s state-controlled telecommunications sector after the UK-based Vodafone, which has 3.3 per cent of China Mobile, the main wireless operator.

International telephony groups have been seeking to break into the Chinese market, where mobile penetration rate is about 25 per cent, much lower than developed markets.

However, only a few companies have invested in the country because they are still banned from operating networks or offering value-added services.

Telefónica gained a foothold in June by taking an initial 3 per cent stake in China Netcom, which it later increased to 5 per cent, giving it a seat on the board. It is expected to win a second seat if it lifts the stake to 9.9 per cent.

César Alierta, Telefónica’s chairman, this week offered a board seat at the company’s Latin American subsidiary to a Netcom representative during a meeting in Madrid with Hu Jintao, the Chinese president.

Zhao Zhongxin, a senior manager at China Netcom, said the two operators would consider co-operating in a range of areas including Netcom’s efforts to build its presence in southern China, which is dominated by fixed-line rival China Telecom, and overseas.

The alliance with Telefónica would bring Netcom international management expertise and technology as well as capital, Mr Zhao said. China Netcom is understood to be interested in the Latin American market, where Telefónica is a dominant operator.

“Internationalisation is one of Netcom’s three big strategies, so there is some strategic significance for us to develop co-operation with Telefónica,” he said.

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