China Netcom Group Corporation (Hong Kong) Limited (China Netcom) is a state-owned telecommunications company. In addition to providing local fixed-line telephone services to residential and business customers in 10 Chinese provinces which are in the northern parts of China, the company offers domestic and international long distance telephone services Internet and managed data value-added services leased line and limited mobility wireless services. It is one of the largest phone companies in China (and the world), with 111 million access lines in service and 20 million broadband users as of December 30, 2007. The company generates the bulk of its revenue from local phone, domestic long distance, and international long distance services. Additionally, it derives revenue from data and Internet services, value-added services, and interconnection fees paid by other phone companies. In 2006, revenues from fixed line service contributed 78% of the total revenues while broadband & other Internet related service and business & data communication service contributed 13% and 5% of the total revenues in 2006, respectively.
China Netcom announced disappointing operating results for the first three quarters of 2007 due to competition from Chinese mobile operators. However, China Netcom is a major player in fixed-line phone services in one of the world's fastest growing telecom markets. Its attractive long-term prospects arise from growth in broadband, value-added services, and potential 3G services. Moreover, China Netcom is expected to benefit from the possible telecom restructuring in China and issuances of 3G licenses in China. Thus, we are maintaining Hold rating on the stock.