PCCW, China Telecom in mainland joint venture


PCCW CEO Richard Li hailed the venture as an important step in the firm's growth

By Ravi Hiranand

HONG KONG, China -- Telecom companies Pacific Century CyberWorks and China Telecom announced a joint venture this week to sell information-technology consulting to China's financial sector.

The two companies signed a framework deal to set up a joint venture within three months, based in Beijing and capitalized at 200 million yuan ($24.2 million).

"This partnership with China Telecom marks the most important step for PCCW's growth strategy so far," PCCW's chairman and CEO Richard Li said in a release.

China Telecom will own 51.5 percent and PCCW the remaining 48.5 of the venture, which will provide tech consulting services for banking, insurance and brokerage companies in China.

The deal also includes an agreement from both companies to pursue "other industry sectors as the opportunities arise."

A good fit

"This partnership with PCCW draws upon the strengths of both partners," Zhou De Qiang, president of China Telecom, said in a release.

HSBC analyst Colin McCallum said the joint venture made sense for both companies.

"The value-added service area is the first segment of China's telecom industry which is being thrown open to foreign investment," McCallum said in a research note.

"While it will be a highly competitive area, the opportunities are also significant."

Optimism for future

Both companies are the dominant fixed-line telephone companies in their respective markets.

Though Hong Kong has been a Chinese city since 1997, it is also a special administrative region with its own laws and regulations -- and phone companies.

This is the second joint venture PCCW has signed with a mainland firm this year. In February, the company took a 45 percent stake in a tie-up with oil producer Sinopec to provide IT consulting to the petrochemical industry.

The company is looking to IT consulting after selling the rest of its stake in Hong Kong mobile phone operator CSL to partner Telstra. (full story)

The Chinese government recently split China Telecom into two to create competition in the market. China Telecom took the southern 21 provinces of the country and China Netcom, the northern 10 provinces. (full story)