China Mobile to buy 12% of Far EasTone

China Mobile yesterday announced that it has entered into an agreement to buy a 12% stake in Taiwanese mobile phone operator Far EasTone Telecommunications, worth NT$17.7 billion ($528 million). This is the first major deal between China and Taiwan since cross-strait relations started to thaw last year.

China Mobile will subscribe to 444 million shares at a price of NT$40 per share, a 15.3% premium to Tuesday's closing price of NT$34.70.

Underlying the transaction is a strategic agreement to cooperate in the development of both company's businesses, said China Mobile in a stock exchange filing. The areas of cooperation will include: joint purchases, roaming, data and value-added businesses and network and technology advancement.

A source close to the deal says that China Mobile is interested primarily in the strategic benefits, rather than control, and that the company is unlikely to try to increase its stake in the target.

In the filing, China Mobile said that the agreement will help the company expand its business in mainland China, Hong Kong and Taiwan, since it will be able to offer better services to its customers who are part of the growing traffic across the strait. Better transport links between Taiwan and the mainland are one of the most concrete outcomes from diplomatic relations that began to warm when Ma Ying-jiou became president of Taiwan last year.

Another benefit of the deal is technology. It will allow China Mobile to "better explore future technological trends in the mobile communications market and accumulate advanced technological and operational expertise in areas such as 3G and next generation technology, since Taiwan is in a more advanced stage of development in both 3G-technology applications and value-added services," the Chinese telecom company said.

Technology exchange relating to 3G is of notable importance to China Mobile since it has been tasked with laying down China's first high-speed mobile telecoms network.