Spanish Roots Grow in China

By: Marta Munoz Mendez-Villamil, Ovum
( 1 May 2008 )

Spanish incumbent Telefonica recently announced that it will pay €309m for an extra 2.22 percent stake in China's second biggest fixed-line operator, China Netcom. Back in 2005 the Spanish operator purchased a 5 percent stake in China Netcom and announced its objective to achieve a 9.9 percent stake in coming years. Three years later, this objective is now a step closer with the announcement of the recent agreement to purchase a 2.22 percent stake from two existing shareholders.

China's telecommunications market is one of the fastest growing ones in the world and consequently one where many telecoms players would like to have a hefty involvement. The Spanish operator has already managed to see some fruits from its existing relationship with the Chinese player: it has managed some presence in the Olympic Games and it is cooperating in a number of content related projects as well as equipment purchases with the service provider. With rumors of China Netcom's impending entrance into the country's mobile industry, the potential benefits for Telefonica could be major. Its experience and success in mobile activities around the world is indisputable, and the Chinese player would probably consider such experience key to a smooth entrance into the mobile world. Telefonica has the potential to become one of China Netcom's key partners in the months to come.

Doing business with Chinese state owned companies is no simple task. It requires time—among many other skills. So far, Telefonica has showed that patience pays back.