China Unicom Merger a Done Deal

China Unicom Ltd. (CHU - Analyst Report), the second-largest cellular operator in China, recently completed its merger with China Netcom and disposed the required CDMA business to China Telecom (CHA - Snapshot Report) for approximately RMB 43.8 billion (US$6.39 billion).

This restructuring is expected to offer significant synergies as the integrated company becomes a full-service telecom operator (offering bundled fixed-line and mobile services) and as the company focuses on strengthening its position in China's 3G wireless market. Although we envision incremental growth in the company's subscriber base, the associated expenditures is likely to tighten short-term profitability.

Additionally, competition is expected to intensify in the 3G wireless market and integration risks still remain with regard to China Netcom's fixed-line business. Therefore, we maintain our Hold rating.

Anindya Barman contributed to this report.

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