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China Mobile Seeks Acquisitions in Emerging Markets

China Mobile has announced it wants to buy companies in emerging markets. China Mobile’s likely strategy will be to take over mobile networks in lower-profile emerging markets that have long-term growth potential, using its financial and operational resources to exploit that potential in each market. By following the same process in each emerging market it enters, China Mobile will aim to gain the experience and profile required to move into more mature international markets.

"We hope we can have management control, then we can have synergy with the target company,'' Chairman Wang Jianzhou said. "We're focusing on emerging markets and will not focus on Europe or North America", he continued.

"This is the right strategy for China Mobile in the long term,'' said Kelvin Ho, an analyst at Nomura International. He said that, "Buying control of a company is the fastest way to expand in a new market. The likely regions China Mobile is looking at are Africa and Asia."

China Mobile shares has risen 38 percent this year, outpacing a 14 percent gain in the benchmark Hang Seng Index. "We think there are more opportunities for earnings in emerging markets as the penetration rate of mobile phones is lower than in mature areas,'' Wang said. He declined to say which countries or companies the operator is interested in.

"In the second half and even next year, most of our new subscribers will be from the rural areas with lower usage,'' Wang said. This will be offset by higher revenue from wireless value- added services such as short messages and music downloads, he said.

"We think the market has huge potential in China,'' Wang said, citing the low usage rate of cell phones in the nation. About 32 people out of every 100 own a mobile phone in China, and the rate in provinces such as Henan and Hebei in central China is 22 percent, Wang said.

Chinese companies have competitive advantage building wireless networks for lower income customers, because that's their home market. If China Mobile expands successfully into other emerging markets, Huawei and ZTE, both privately owned, will likely displace the Western suppliers. So this merger is without doubt incrementally negative for the Western wireless network equipment providers.

Ericsson is most threatened, as it has the largest wireless infrastructure business of the publicly traded companies. Lucent and Motorola are also exposed, and to a lesser degree Nokia.

This is the sort of development that won't move the stocks today or tomorrow, but has dramatic long-term implications.


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