China Mobile/Millicom Merger Analysis

June 05, 2006

China Mobile Communications Corporation (CMCC), the state-owned parent of China Mobile and the largest mobile operator in the world by total subscribers, has agreed to a deal to acquire Millicom International Cellular (MIC) for approximately US$4 billion. It is widely expected that the required final regulatory approval from Beijing will be granted. The agreement follows weeks of speculation over MIC’s future and comes only after rival suitor Investcom dropped out of the bidding.

The acquisition of MIC marks CMCC’s first investment outside of Asia and only its second outside mainland China. The first came in the fourth quarter of 2005 when it agreed to buy People’s Telephone, Hong Kong’s third largest cellular operator by subscribers, for approximately US$300 million. Despite soaring demand in its domestic market for mobile services, rumors have circulated for some time that CMCC has ambitions to establish itself on the world stage. The purchase of Luxembourg-based MIC paves the way for entry into 16 developing markets throughout Africa, Central America, South America and South Asia. According to TeleGeography’s Wireless Operator Metrics Research Service, at the end of 2005 MIC claimed 8.9 million total subscribers worldwide, while revenue for the fiscal year stood at US$1.1 billion, up 18 percent from 2004.

CMCC Rankings Unchanged: 1st by Subscribers, 6th by Revenue

Despite the clear signal of intent, CMCC’s move changes little in terms of its relative position on the global scene. The acquisition solidifies its place as the largest mobile operator in the world by total subscribers, with over a quarter of a billion customers at the end of the first quarter of 2006, but leaves it unchanged as the sixth largest in terms of revenue (US$30.8 billion for fiscal year 2005, including MIC). Ahead of CMCC stands Verizon Wireless (US$32.3 billion), Cingular Wireless (US$34.4 billion), T-Mobile International (US$35.5 billion), NTT DoCoMo (US$44.8 billion), and Vodafone Group, the world’s largest mobile company by revenues (US$62.6 billion).

Contrast to Vodafone’s Current Path

While CMCC targets overseas expansion, interestingly the reverse appears to be taking place at Vodafone. After mounting shareholder pressure to formulate a more coherent and strategic approach to its overall business, Vodafone sold Japanese subsidiary Vodafone KK to Softbank earlier this year. Many industry watchers believe the Newbury-based holding company will follow that up by offloading its 45 percent stake in Verizon Wireless to Verizon for a rumored US$50 billion. Vodafone’s massive global expansion began in the late 1990s and continued into the early part of the new millennium, driven by ex-CEO Sir Christopher Gent. However, those days appear to be over. Current CEO Arun Sarin is taking the company more in the direction of fixed line broadband services in countries closer to home — namely Germany (via existing subsidiary Arcor) and the U.K. — to complement its own cellular offerings.

Data from TeleGeography’s Wireless Operator Metrics Research Service is now available in the GlobalComms Database Service.