Regulatory Clearances and Market Dynamics in China Mobile's HKBN Takeover: Strategic Implications for Long-Term Investors

The proposed acquisition of HKBN by China Mobile Hong Kong (CMHK) has reached a pivotal juncture, with regulatory approvals in Hong Kong largely secured but critical mainland Chinese clearances still pending. For long-term investors, this transaction represents a rare intersection of regulatory scrutiny, market consolidation, and valuation debates in the telecom sector—a sector increasingly defined by the tension between scale and competition.

Regulatory Hurdles Cleared, but Not All

Hong Kong's Communications Authority has accepted CMHK's revised commitments, including open access to critical infrastructure and non-discriminatory pricing, effectively greenlighting the deal. These measures aim to mitigate concerns about vertical integration and market dominance. However, the acquisition remains subject to approvals from mainland Chinese regulators, including the Ministry of Commerce, SASAC, and the NDRC. These agencies will assess cross-border integration, state ownership concentration, and compliance with national competition law. Delays or rejections here could reshape the deal's timeline and terms, creating volatility for investors.

The Ministry of Commerce, in particular, will weigh the acquisition against broader economic and geopolitical priorities. As a state-owned enterprise (SOE), China Mobile's expansion into Hong Kong's fixed-line broadband market aligns with Beijing's push to consolidate control over critical infrastructure. Yet, the transaction also raises questions about whether SOEs are overextending their influence in competitive sectors, potentially stifling innovation.

Financial Performance and Valuation Disputes

HKBN's financials in early 2025 underscore its value proposition. Despite a 1% revenue decline in 1H2025 to HK$5.73 billion, driven by weaker handset sales, EBITDA grew by 5% to HK$1.2 billion. The company's focus on broadband and cloud services—its FTTH subscriber base expanded by 10% to 1.2 million—has driven resilience. Adjusted free cash flow rose 2%, and net profit surged from HK$1.5 million to HK$108 million, reflecting operational efficiency.

However, HKBN's CEO has publicly criticized the HK$5.23-per-share offer as undervaluing the company. Over HK$11 billion in infrastructure investments and a 5% EBITDA growth trajectory since 2024 suggest stronger long-term potential. The board's openness to alternative bids, including from I Squared Capital, which had previously signaled interest in merging HKBN with HGC Communications, adds complexity to the valuation narrative.

Strategic Implications of Market Consolidation

The acquisition would create a vertically integrated telecom entity in Hong Kong, enabling CMHK to bundle mobile, broadband, and enterprise services. This integration could drive cost efficiencies and improve customer retention, but it also risks reducing competition. HKBN's 30% market share in residential fixed-line broadband and CMHK's dominance in mobile services position the merged entity to dictate pricing and service terms, potentially squeezing smaller rivals.

Regulators have mandated open access commitments, but enforcement remains a concern. For investors, the key question is whether these safeguards will hold under CMHK's operational realities. If the merger proceeds, the telecom landscape in Hong Kong may shift toward a model dominated by a few players, a trend already evident in other markets like the U.S. and Europe.

Risks and Opportunities for Investors

Long-term investors must weigh three key factors:
1. Regulatory Uncertainty: Delays in mainland approvals could prolong the deal's closure, affecting CMHK's ability to realize synergies. A rejection, though unlikely given the strategic alignment with SOE goals, would be a surprise but not impossible.
2. Market Concentration: Reduced competition could lead to pricing power for the merged entity, boosting margins. However, it may also invite future regulatory pushback, particularly if consumer complaints arise.
3. Valuation Revisions: HKBN's board has not ruled out competing bids, and I Squared Capital's previous interest suggests the company's infrastructure value is underappreciated. A price increase or alternative offer could unlock significant shareholder value.

Conclusion: A Calculated Bet for Patient Investors

For long-term investors, the CMHK-HKBN merger is a calculated bet on regulatory alignment and market dynamics. If approvals are granted, the deal could enhance CMHK's profitability through integration and scale, while HKBN's infrastructure investments may eventually be recognized at a higher valuation. However, the risks of regulatory overreach or market stagnation should not be ignored.

Investors should monitor the Ministry of Commerce's decision closely, as well as HKBN's engagement with alternative bidders. A final valuation above HK$5.23 would be a positive signal for long-term holders of both CMHK and HKBN. In the meantime, the telecom sector's ongoing consolidation suggests that patience and a nuanced understanding of regulatory and competitive forces will be rewarded.