China Mobile on Wednesday confirmed that it was in talks with Shanghai Pudong Development Bank over a potential investment in the lender, a step that could help the world’s largest wireless operator expand its mobile payment services.

The confirmation of talks comes after Pudong Development’s shares were suspended on Friday as the lender said it was preparing to sell stakes to strategic investors. Guotai Junan, one of China’s biggest brokerages, said in a research note that SPD Bank planned to sell a 20 per cent stake to China Mobile for about Rmb40bn ($5.9bn).

Analysts said that expanding China Mobile’s presence in mobile payments could be important at a time when competition in the telecoms sector is heating up. China Unicom, China Mobile’s smaller rival, has recently started picking up third-generation subscribers at a faster pace as it operates a network using the mature 3GSM standard.

China Mobile was forced by the government to roll out 3G services using the less-stable TD-SCDMA standard. With some customers reluctant to sign up to the homegrown standard, China Mobile has been forced to strengthen other value-added services to prevent its average revenue per customer from eroding.

The pressure is set to intensify as a government push for convergence between telecoms, television and internet services could introduce even more competition in mobile content.

“China Mobile is [considering the investment] to develop mobile payment systems – an area which they’ve been preparing for a long time and which will be a focus for them in 2010,” said Zhang Lijun, an analyst with Analysys, a technology research firm in Beijing.

China Mobile started offering some mobile payment services last year, hoping to tap into the country’s Rmb180bn online payment market. But the group is facing competition from Taobao, China’s leading retail e-commerce site and Alipay – the internet payment unit of Alibaba.com, the world’s largest internet trading platform for businesses.

The telecoms company’s move has international precedents. NTT DoCoMo, the Japanese mobile operator, acquired a stake in the Japan Net Bank in 2000. Last year, SK Telecom of South Korea agreed to invest in the credit card arm of Hana Financial Group.

China Mobile said on Wednesday that it was holding preliminary discussions with Pudong Development in relation to the potential subscription of new shares and potential strategic co-operation.

However, the telecoms group said it could not given an indication of the timing of the subscription and the strategic cooperation, adding that the transaction “may or may not proceed”.

Pudong Development was not available for comment on Wednesday.

source:ft