China Unicom tower 260Saving money by combining all towers. Building one network is cheaper than building 2, 3, 4, or 7. Policy people around the world are re-discovering that basic fact. Competition is great where it works, but building duplicate networks is very expensive. The Chinese government has decided wireless towers and related backhaul are a natural monopoly and forced the three telcos to share.  

 Savings will range from 20% to 55%, according to the below filing by China Unicom. "Co-tenancy discount 1: a 20% discount if two companies share the use of the telecommunications towers and a 30% discount if three companies share the use of the towers. The first user will be entitled to an additional 5% discount. Co-tenancy discount 2: 40-55%."

 The tower company intends to IPO next year,

but the government will still retain a majority shareholding and control. There's no way to determine the market value of Towerco by financial analysis. It will essentially be determined by the pricing among four government-controlled companies. MIIT will probably give the market confidence and make the IPO successful.

Nobel Laureate Paul Krugman believes telecom networks are a natural monopoly. So did nearly every economist for 50 years. Reality is more nuanced. We all have seen the inefficiencies common in monopolies, typically wasteful and slow to upgrade. In the U.S., cable competition persuaded the telcos to launch DSL several years earlier than planned. Verizon's Ivan Seidenberg decided, "We have to get cable out of the house." He built FiOS, still the largest fiber network in the West. Brian Roberts of Comcast then brought forward the plans for DOCSIS 3.  

 Vectoring has now made DSL unbundling obsolete. There is no gear in sight that allows sharing the physical network to the home. See That does not eliminate the possibility of competition. While the line to the home can't be physically unbundled, from the exchange out to the Internet can be. John Cioffi and ASSIA also have a proposal for virtual unbundling.

As always, the incumbent is trying to grab a monopoly, the regulator hoping to prevent it. In Germany with vectored VDSL (30-100 megabit,) competition will live or die depending on the price the regulator sets. Carefully determined cost-based unbundling worked well in France and somewhat in England and Germany. BNetzA planned to break from cost-based pricing, the EU wants it. The German Internet, already slower than most of Europe, will be even slower if DT is allowed to charge the huge premium they are demanding.

England's getting G.fast, 200+ megabits to most. BT proposed leaving the first 22 MHz for VDSL from others (~20-50 for many,) but that's likely to fail in a few years. With cable 400+ and BT G.fast 200+, 20-50 meg offerings will lose the market. Instead, Sharon White should allow G.fast to use all the spectrum from 2-106 MHz and bring 100 megabits more to Britain. She then has to set a system that moves the unbundling to the exchange or virtualizes it. Readers in England - please make sure OFCOM understands the real choices. 

5G in high frequencies "is an incumbent's game," even more of a natural monopoly. 


VOLUNTARY DISCLOSURE – COMMERCIAL PRICING OF THE LEASE OF TELECOMMUNICATIONS TOWERS AND RELATED ASSETS FROM CHINA TOWER CORPORATION LIMITED

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong
Limited take no responsibility for the contents of this announcement, make no
representation as to its accuracy or completeness, and expressly disclaim any liability
whatsoever for any loss howsoever arising from or in reliance upon the whole or any part
of the contents of this announcement.
CHINA UNICOM (HONG KONG) LIMITED 中國聯合網絡通信(香港)股份有限公司
(Incorporated in Hong Kong with limited liability)
(Stock Code: 0762)


VOLUNTARY DISCLOSURE – COMMERCIAL PRICING OF THE LEASE OF TELECOMMUNICATIONS TOWERS AND RELATED ASSETS FROM CHINA TOWER CORPORATION LIMITED
1. INTRODUCTION Reference is made to the announcements dated 14 October 2015, 30 October 2015, 2 November 2015 and 29 January 2016 and the circular dated 29 October 2015 (the “Circular”)
issued by China Unicom (Hong Kong) Limited (the “Company”) in connection with the disposal of certain telecommunications towers and related assets through the Company’s wholly-owned subsidiaries, China United Network Communications Corporation Limited
(“CUCL”) and Unicom New Horizon Telecommunications Company Limited, to China Tower Corporation Limited (the “Tower Company”). Unless otherwise defined, capitalised terms used in this announcement shall have the same meanings as those defined in the Circular.
2. THE LEASE AGREEMENT IN RELATION TO THE
TELECOMMUNICATIONS TOWERS AND RELATED ASSETS The Company announces that on 8 July 2016, CUCL and the Tower Company entered into an agreement to finalise the arrangement in relation to the leasing and pricing of the telecommunications towers and related assets (including the Acquired Towers and the New Towers) (the “Lease Agreement”). The major terms of the Lease Agreement are as follows:
(a) Parties (1) CUCL, as lessee; and (2) the Tower Company, as lessor.
2
(b) Service Period Pursuant to the Lease Agreement, the respective provincial companies of CUCL and the Tower Company will enter into the Provincial Service Agreements based on their actual service demand separately. The service period of each Provincial Service Agreement shall be five years. Prior to the expiry of the service period, the contracting parties or their respective subordinate companies will determine whether the supply of the various products will be renewed by executing a product confirmation note.
(c) Leased assets Pursuant to the Lease Agreement, the assets that CUCL may lease from the Tower Company include: (1) the tower products acquired by the Tower Company in accordance with the Transfer Agreement (the “Acquired Towers”); (2) the new tower products built by the Tower Company (the “New Towers”); (3) indoor distribution systems; (4) transmission products; and (5) service products.
(d) Pricing basis and methodology for the lease of the tower products (1) Pricing basis CUCL and the Tower Company have considered a number of factors in determining the price for the lease of the telecommunications towers and related assets, including the depreciation cost, maintenance cost, cost margin and cotenancy discount. (2) Pricing formula The price will be calculated based on the following formula: Product price = base price ×(1 - co-tenancy discount 1) + (site fee + electricity input cost) ×(1 - co-tenancy discount 2) Base price = (standard construction cost/years of depreciation × (1 + impairment rate) + maintenance cost)×(1 + cost margin) (3) Pricing for New Towers and Acquired Towers
New Towers: in order to reflect the difference in the standard costs for new construction in different geographical areas, 31 provinces have been divided into four areas, each with a different adjustment rate. The maintenance cost will be determined based on the actual final bidding price. Impairment rate is fixed at 2% and the cost margin is fixed at 15%. The site fee and electricity input cost are either priced on a lump sum or on an itemised basis. In order to leverage the co-tenancy synergy, the Tower Company will grant the following co-tenancy discounts:
3
Co-tenancy discount 1: a 20% discount if two companies share the use of the telecommunications towers and a 30% discount if three companies share the use of the telecommunications towers. The first user will benefit from an anchor discount policy (i.e. it will be entitled to an additional 5% discount in addition to the existing discount).
Co-tenancy discount 2: a 40% discount if two companies share the use of the telecommunications towers and a 50% discount if three companies share the use of the telecommunications towers. The first user will benefit from an anchor discount policy (i.e. it will be entitled to an additional 5% discount in addition to the existing discount).
Acquired Towers: the product catalogue and pricing formula for the Acquired Towers are basically consistent with that of the New Towers except for that no electricity input cost will be charged for the Acquired Towers. The adjustment coefficient for the standard construction cost for each province is determined by the proportion which the adjusted depreciation cost of the Acquired Towers bears to that of the New Towers in that particular province. The co-tenancy discount and the anchor discount policies for the Acquired Towers are consistent with those for the New Towers. Prior to 2018, the original sharing parties (which shared the Acquired Towers with the original property owner prior to Completion) will be charged at 30% of the prices (which include the base price and the site fee) of the tower products at the relevant site, and the original property owner will benefit from an anchor discount on the base price, and be charged at 70% of the site fee if two companies share the use of the telecommunication towers and 40% of the site fee if three companies share the use of the telecommunications tower. (4) Commencement date of the term of the lease for New Towers and Acquired
Towers
New Towers: the date of commencement of services as set out in the batch product lease commencement confirmation and/or the product confirmation note signed by the respective provincial companies of CUCL and the Tower Company or their subordinate companies
Acquired Towers: 1 November 2015 The pricing basis and fee standard set forth above have been determined after arm’s length negotiations between CUCL and the Tower Company. Such pricing may be subject to adjustment as agreed between the parties, after taking into consideration the impact brought by, among other things, the significant fluctuation in steel price, inflation and condition of the property market or any significant change between the
Tower Company’s actual and forecasted operational situations.
4
3. REASONS AND BENEFITS FOR ENTERING INTO THE LEASE
AGREEMENT The Company is of the view that, by entering into the Lease Agreement with the Tower Company, this will enable the Company to promote a quick and effective 4G network roll-out and to facilitate the development of its mobile business, while at the same time reducing the capital expenditure of the Company. By co-using the telecommunications tower assets, the Company expects it will benefit from the advantages arising from the effective operation and sharing of resources in the long term. Further, as CUCL is one of the major shareholders of the Tower Company, the Company expects to benefit from the upside potential of the Tower Company in terms of its profitability and value in the long term. By order of the Board
CHINA UNICOM (HONG KONG) LIMITED
YUNG SHUN LOY JACKY
Company Secretary Hong Kong, 8 July 2016 FORWARD-LOOKING STATEMENTS
Certain statements contained in this announcement may be viewed as “forward-looking
statements” within the meaning of Section 27A of the U.S. Securities Act of 1933 (as amended)
and Section 21E of the U.S. Securities Exchange Act of 1934 (as amended). Such forwardlooking statements are subject to known and unknown risks, uncertainties and other factors,
which may cause the actual performance, financial condition or results of operations of the
Company to be materially different from any future performance, financial condition or results
of operations implied by such forward-looking statements. In addition, we do not intend to
update these forward-looking statements. Further information regarding these risks,
uncertainties and other factors is included in the Company’s most recent Annual Report on
Form 20-F filed with the U.S. Securities and Exchange Commission (the “SEC”) and in the
Company’s other filings with the SEC. As at the date of this announcement, the Board comprises:
Executive Directors: Wang Xiaochu, Lu Yimin, Li Fushen and Zhang Junan
Non-executive Directors: Cesareo Alierta Izuel
Independent Nonexecutive Directors: Cheung Wing Lam Linus, Wong Wai Ming, Chung Shui Ming Timpson and Law Fan Chiu Fun Fanny

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Wireless Abundance is here: What the new tech means http://bit.ly/Wirelessabundance
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dave right5G? 4G? Whatever the name, wireless is going to a gigabit, soon.  I've reported broadband since 1999 and now is the time for gigabit wireless. Catch a mistake or have news? Email me please. Dave Burstein

 

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