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Three state-run telecom operators of China have established a joint venture company named China Communications Facilities Services to share telecom infrastructure and reduce their related capital expenditure.

The newly formed company has a registered capital of 10 billion yuan ($1.6 billion) with the world’s largest wireless carrier in terms of subscriber base – China Mobile Limited (CHL - Snapshot Report) – holding a majority 40% stake. Meanwhile, China Unicom Hong Kong Limited (CHU - Analyst Report) will have a 30.1% stake, while China Telecom Corp. Limited (CHA - Snapshot Report) will hold the remaining 29.9%.  

China Communications Facilities Services will focus on construction, maintenance and operations of wireless towers apart from providing power and air conditioning for base stations. Additionally, the company will also outsource maintenance services of base station equipment to third party vendors. The three operators are currently mulling over the respective tower assets which they will contribute to the joint venture to make it a success.     

The project dates back to April 2014 when the three companies had declared their plans to set up an infrastructure-sharing joint venture in a bid to reduce costs, but at the same time, ramp up the efficiency of rolling out their individual networks.

Notably, the three Chinese operators won the LTE-TDD license in Dec 2013 and since then have launched their services in different parts of the country. However, China Mobile secured a competitive edge in 4G owing to the compatibility of its 3G standard (Time Division Synchronous Code Division Multiple Access or TDSCDMA) with TD-LTE.

To curb China Mobile’s dominance, China Unicom and China Telecom are undergoing a hybrid network trial by integrating both the TDD-LTE (Time Division Duplex) and FDD-LTE (Frequency Division Duplex) Standards in 16 different cities in the mainland.

According to the telecom giant trio, the tower sharing deal will reduce unnecessary construction of towers. We believe apart from controlling costs, it will also allow faster roll out of networks.

Further, the advent of free messaging apps has taken a toll on the carriers’ income from text and voice services, resulting in declining revenues. In this regard, the new joint venture can prove instrumental in giving a new lease of life to the company’s top line, at least to some extent.  

China Mobile holds a Zacks Rank #4 (Sell), while China Unicom and China Telecom currently carry a Zacks Rank #5 (Strong Sell). A Zacks Rank #1 (Strong Buy) stock worth considering within this sector is Shenandoah Telecommunications Co. (SHEN - Snapshot Report).

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