Shake-up pulls down Chinese telecom shares

Chinese telecom stocks dropped more than 12% after China Unicom unveiled 25.8 billion euros (US$40 billion) in deals, with investors cashing out amid lingering uncertainty over Beijing's industry revamp, a Reuters report said.

Unicom, smaller rival to China Mobile , said it was paying 15.5 billion euros (US$24 billion) to take over fixed line peer China Netcom and selling its underperforming network to China Telecom for over 9.7 billion euros (US$15 billion), the report said.

The moves are aimed at speeding up the roll-out of high-speed, third-generation mobile services for China's 1.3 billion people.

Shares in Unicom, domestic fixed-line leader China Telecom and smaller player Netcom slid between 12.7 and 14.1%, shedding nearly $15 billion of their value during the trading day, the Reuters report said.

'There's been profit taking because people were expecting too much in terms of a reform for the whole industry,' said Y.K. Chan, a strategist at Phillip Securities, quoted by the Reuters report.

'Now investors are focusing on acquisitions and capex for these firms to build their networks,' Chan added. 'People realize that China Mobile's dominant position is not going to weaken in the short term and the other players have to pay a high cost to compete.'

Lehman Brothers analyst Paul Wuh estimated that China Telecom, which will buy Unicom's Code Division Multiple Access network, will spend at least 30 billion yuan (US$4.33 billion) in 2009 and a similar amount in 2010 on that network.

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