Telstra said Friday it plans to merge its Hong Kong mobile subsidiary, Hong Kong CSL, with rival mobile operator New World PCS.
"What this merger does is create a stronger CSL in a very competitive market," said Sol Trujillo, Telstra's chief executive officer, during a conference call.
Trujillo said the deal would benefit Telstra in Australia by creating more opportunities to work with CSL, expanding on cooperation that exists in 3G (third-generation) services
The combined company, which will be called CSL New World Mobility, will be Hong Kong's largest mobile operator, with 34 percent of the market, Telstra said, adding that the increased size of the company will result in cost savings due to the larger scale of its operations.
New World and CSL had a combined 2.6 million subscribers in June, Telstra said.
Under the terms of the deal, Telstra will own 76.4 percent of the combined company and receive HK$244 million (US$31.5 million) in cash, while New World Mobile Holdings (NWMH) will hold a 23.6 percent stake in the company, Telstra said. The CSL and New World brands will both be retained, it said.
The merger will expand CSL's reach in the market, combining CSL's focus on the high-end of the market with New World's focus on low-end customers, said John Stanhope, Telstra's chief financial officer, during the conference call.
Hubert Ng, the current chief executive officer of CSL, will retain the same position in the combined company, Stanhope said.
The combined company is expected to save $400 million by combining its networks, IT systems and support operations, Telstra said. Those savings will be realized over the next 10 years, Stanhope said.
Nokia is the principal network equipment vendor for both CSL and New World, which means the combined company should be able to realize savings in this area over time, Stanhope said, estimating the combined company will save $8 million per year in capital expenditures.
One key focus of the merger is on 3G services. Telstra wants to migrate New World's high-end customers to its 3G network, which is currently under construction, Stanhope said.
The transaction must be approved by Hong Kong regulators and NWMH shareholders, Telstra said, noting the merger is expected to be completed by March 31, 2006.