PCCW says its takeover of Sunday Communications makes it a natural investment partner for China Netcom, which hopes to win a license to provide third-generation (3G) mobile phone services in the mainland.

Sunday, Hong Kong's smallest wireless operator, has just launched 3G services. Netcom, a fixed-line operator, acquired 20 percent of PCCW in January.

The acquisition of Sunday "will definitely allow PCCW to be China Netcom's preferred mobile partner in China, since we have experience in the Hong Kong mobile market,'' said PCCW deputy chairman Jack So.

On Tuesday, So said PCCW had no choice but to enter the mainland since the Hong Kong market is congested, with five fixed-line firms and six wireless companies bidding down prices.

Some analysts said the move to take over Sunday removed all doubt about who really runs PCCW. China Netcom "is clearly in the driver's seat,'' Deutsche Bank analyst Matthew Adams wrote in a report.

He described PCCW as a "Netcom investee'' and the Sunday transaction as "just a consolidation of Netcom's position in Hong Kong.''

Others said they now expect Netcom to seize any opportunity to increase its stake in PCCW, whose largest shareholder is chairman and founder Richard Li, at just above 25 percent. Netcom bought into PCCW early this year for US$1 billion (HK$7.8 billion). So said PCCW plans to lure customers with "quadruple bundling'' - packages that combine Internet, pay-TV and mobile and fixed-line phone services.

The Sunday acquisition rounds out PCCW's portfolio of services. The company is already Hong Kong's largest provider of fixed-line connections and a supplier of Internet access and broadband television.

Sunday would become a stronger wireless player thanks to PCCW's financial backing and diversified customer base, So said. ``Sunday will not be a financial burden for us and will provide a significant contribution to PCCW in the near future''

He said there are no plans for layoffs either at Sunday or PCCW.

``The acquisition will not affect our future dividend payouts. Our previous pledge to pay dividends to shareholders remains unchanged,'' he added.

On Monday, PCCW unveiled its offer of HK$0.65 per Sunday share, a 22.6 percent premium to the closing price of HK$0.53 on Friday. Both Distacom Communications, Sunday's largest shareholder at 46.1 percent, and USI Holdings, the second largest at 13.7 percent, have accepted the offer. USI said it would book a gain of HK$67.13 million.

Shares in Sunday soared as much as 23 percent Tuesday, touching an intraday high of HK$0.65.

So said the takeover will boost PCCW's subscriber base to three million from 2.5 million.

PCCW was one of the original wireless operators in Hong Kong through its former CSL unit. But in 2002, in the depths of its debt crisis, it completed the sale of CSL to Australian strategic partner Telstra for US$2.29 billion. CSL remains Hong Kong's most profitable mobile phone company. kc.wong@singtaonewscorp.com

mark.lee@singtaonewscorp.com