Article: China Telecom + China Netcom + Jitong
Mainland telecoms merger proposal prompts questions
Wednesday, October 10, 2001
ERIC NG
More questions have been raised on the future of the mainland telecommunications industry following a proposal to merge fixed-line giant China Telecom with rivals China Netcom and Jitong Communications after its proposed split-up.
The proposal emerged after various plans were put forth to break up the market dominator to promote competition and strengthen the industry before foreign rivals arrive after China's World Trade Organisation entry.
A previous proposal was to split the giant into two regional entities - one based in northern China and the other in the south, while another suggested carving it up into separate businesses according to product lines.
The proposed break-up was modelled after the United States' division of its former monopoly AT&T into regional units in 1984.
Yesterday, it emerged that Beijing is also considering merging the northern unit with Netcom, and combining the southern company with Jitong, the People's Daily reported.
Netcom and Jitong emerged a few years ago as credible rivals to China Telecom, backed by state financing to build advanced network infrastructure.
No official from the companies involved would confirm or deny the speculation.
A European brokerage analyst doubted the proposal's logic.
"Given China Telecom is to be split into two regional entities, and Netcom and Jitong are national players, how will they fit into the regional companies?" he asked.
"Secondly, if the restructuring's original intention was to introduce more competition, how would this be achieved by consolidating Netcom and Jitong into China Telecom?"
Credit Lyonnais Securities Asia analyst Edison Lee said talks about a merger in the fixed-line industry may signal Beijing's intention to consolidate the sector after the emergence of five new players.
"Beijing may think that the six fixed-line companies may already be more than enough to ensure market competition," Mr Lee said.
Other than China Telecom, Netcom and Jitong, China Railway Telecom, China Unicom and China C Net hold licences to conduct fixed-line business.
"By consolidating operations, the industry could avoid overlaps in infrastructure investment," Mr Lee said.
However, analysts said China Netcom has limited synergy with China Telecom as the former focuses on the corporate sector while the latter has much larger exposure in residential telephony.
Despite a lack of clarity behind Beijing's merger proposal, analysts say one factor is certain: industry deregulation will accelerate in the next few years.
" Success seems to be largely a matter of hanging on after others have let go." ~ William Feather
