China Mobile to buy Pakistani operator for US$284M

China Mobile, the world's biggest mobile operator, is acquiring Pakistani operator Paktel in a move to expand further into the overseas market.

According to a statement Sunday, China Mobile will pay Luxemburg-based Millicom International Cellular US$284 million for the latter's 88.86 percent share in Paktel. The transaction is expected to be completed by late February 2007, subject to regulatory approval.

Marc Beuls, president and chief executive of Millicom, said in a statement: "We are pleased to announce the sale of Paktel to China Mobile, following strong interest from a number of parties during the sale process."

According to analyst company Ovum, Paktel is the fifth-largest GSM operator in Pakistan, with around 1.5 million subscribers as at September 2006.

Ovum senior analyst Kevin Lee said the deal marks the first strategic overseas acquisition for the world's biggest mobile operator. It is also the first successful overseas acquisition bid by a Chinese operator, he added.

Lee said Pakistan provides a comparable environment for China Mobile to grow its overseas experience, since Pakistan and China share a similar demographic and economic profile.

With over 165 million residents, Pakistan is a fast-growing economy that has benefited from a wide range of economic reforms. The country recorded strong GDP growth of 7 percent last year.

Pakistan's large rural population of about 66 percent would present an opportunity for China Mobile to duplicate its success in developing rural markets in China, Lee said.

Lee noted that the US$284 million deal is a smaller transaction for China Mobile, compared to the Chinese operator's previous US$5.3 billion attempt to acquire Millicom last year.

"We believe the deal is worthwhile," Lee said. "Despite its modest value, it allows China Mobile to expand into overseas business to drive business growth, and at the same time, it provides sufficient reserves for the operator to focus on the domestic 3G development."

The Chinese government has said it would issue 3G licenses before the Beijing Olympics in 2008. Last week, China Netcom sold of its fixed-line assets in Shanghai and Guangdong, in what may be seen as a move by the operator to consolidate its business and make preparations to support upcoming 3G services.

Despite the benefits to China Mobile, the Ovum analyst noted that the acquisition will be a challenge for the operator, given its lack of international management experience.

Paktel grew 62 percent year-on-year in 2006. But with only 4 percent market share, the company also faces intense rivalry from Orascom Pakistan and Pakistan Telecom, which have 51 percent and 24 percent market share, respectively.

Lee said: "China Mobile will face challenges including building local market knowledge, product development catering to local cultures, local customization, and integrating the company culture into the non-Chinese market."

But if its Pakistani venture proves to be a success, Lee noted, China Mobile will continue to look for other overseas opportunities to achieve scale in the global mobile industry to fuel its continuous growth.

"The pace will accelerate once the company builds a successful blueprint in running an overseas subsidiary," Lee added.