STOCKWATCH: China Mobile, China Unicom lower on possible tariff cut concerns
HONG KONG (AFX-ASIA) - China Mobile (Hong Kong) Ltd and China Unicom Ltd shares were sharply lower in mid-morning trade on rising concerns that another round of tariff cuts will result in a price war between the two companies, analysts said. They said reports that China Unicom is seeking the approval of the Ministry of Information Industry for its new seven-tier tariff rate package has raised concerns that this will trigger intensive competition. Reports say the proposal includes seven-tier fixed monthly fees ranging between 88 yuan and 708 yuan. Earlier this month, China Mobile announced plans to secure the authority's approval for its six-tier tariff package with fixed monthly fees ranging between 98 yuan and 788 yuan. At 10:59 am, China Unicom was down 0.45 hkd or 4.592 pct at 9.35 on 10.177 mln shares while China Mobile lost 1.50 or 4.065 pct to 35.40. The Hang Seng index was down 414.18 points at 12,740.26. Dao Heng Securities' telecommunications analyst, Benjamin Tam said investors are concerned that the new package proposal put forward by China Unicom could lead to a 10-20 pct cut in tariffs. "People are afraid of a price war ... this is causing the selling pressure," he said. Tam believes that in the event of a price war breaking out between the two companies, China Mobile is best positioned to benefit. China Mobile's mobile subscriber base is about four times that of China Unicom's, while in terms of financial strength, China Mobile's gearing is definitely less than China Unicom, he said. In addition, about half of China Unicom's earnings come from its paging services. In the event of mobile phone tariff cuts, people are likely to switch from their paging services to mobile services which in turn may affect China Unicom's earnings. Tam is currently calling a "buy" on both companies but plans to take a another look at the recommendations after the companies release their results.
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