BL: China Tells Telecom Companies to Merge in Industry Overhaul
By Janet Ong
May 24 (Bloomberg) -- China told its six telecommunications companies to merge their assets, allowing fixed-line carriers to expand into wireless services and creating three operators that will offer phone and Internet connections to 1.3 billion people.
Under the plan, the parent of China Telecom Corp. will buy a mobile-phone network from China Unicom Ltd.'s parent, which in turn will merge with the company that controls China Netcom Group Corp., the Ministry of Industry and Information said in a statement today. China will issue three third-generation wireless licenses after the overhaul is completed, it said.
The revamp will help China Telecom and Netcom expand their operations to compete against China Mobile Ltd. in the world's biggest wireless and Internet market by users. The $105 billion industry has room to expand because six out of 10 people still don't own mobile phones and 84 percent of the population lacks Web connections.
``Everyone has been waiting for it for over three years and now it is here,'' said Kelvin Ho, a Hong Kong-based analyst at Nomura International Ltd., referring to the reorganization plan. ``Creating three full-service phone companies offering both fixed and mobile services will help the fixed-line phone companies.''
The reorganization is designed to foster ``healthy market competition and prevent a monopoly,'' according to the statement, which didn't give a timeframe for the plan or financial details.
Jacky Yung, a spokesman at China Telecom, said the company may issue a statement tomorrow or May 26. Officials at China Unicom, China Mobile and China Netcom either declined to comment or weren't immediately available.
$12.8 Billion Evaporates
China Mobile, the world's largest phone company by users, fell the most in two months in Hong Kong trading yesterday after a report from the official Xinhua News Agency triggered speculation that China was poised to announce its overhaul plans for the industry. The drop wiped out $12.8 billion in market value on concern the company would face increased competition.
China Mobile Communications Corp., the state-owned parent, will take control of fixed-line operator China Tietong Telecommunications Corp., Xinhua reported yesterday. Executives at the country's largest carriers will be reshuffled, it said.
Shares of China Unicom, China Telecom and China Netcom surged in Hong Kong before trading was halted. The three companies requested a suspension of their stock, pending ``price- sensitive'' information. The shares will probably be suspended until more financial details are disclosed, according to Wendy Liu, a Hong Kong-based analyst at ABN Amro Holding NV.
China Telecom, the nation's biggest fixed-line company, will acquire Unicom's smaller mobile-phone network, which provides services to 43 million customers based on the code-division multiple access technology used in Japan and South Korea, according to the statement. China Telecom will also get China Satellite Communications Corp.'s phone assets, the statement said.
$16 Billion Network
Unicom's CDMA network and its subscribers are worth about 111 billion yuan ($16 billion), according to Goldman, Sachs & Co. estimates in March. CDMA is the smaller of Unicom's two wireless networks.
China Network Communications Group Corp., Netcom's parent, will merge with Unicom's parent to offer fixed-line and mobile- phone services based on the global system for mobile communications technology that's used in most of the world, according to the statement.
Unicom had 125.4 million GSM customers as of the end of April, according to the company. Netcom, the nation's second- largest fixed-line company, had 108.7 million phone users.
China Mobile will take control of unlisted Tietong, the statement said, confirming yesterday's Xinhua report. Tietong, which means ``railway'' in Chinese, had assets of 55.3 billion yuan as of the end of 2006, according to the company's Web site.
China Mobile, with 399.6 million customers as of April 30, posted profit of 87.1 billion yuan last year, more than double the combined total at the nation's three other phone operators.
Bigger Than Microsoft
The company's dominance of China's wireless market helped its stock triple in the past two years, overtaking General Electric Co. and Microsoft Corp. to become the world's fourth- largest company, with a market value of $321 billion.
Chinese regulators aim to boost competitiveness at fixed- line operators and provide capital resources to the reorganized companies as the nation prepares to roll out 3G high-speed wireless services, which will require billions of dollars in investments for network equipment. The government has said it plans to offer 3G services during the Olympic Games in August.
China had 583.5 million mobile-phone subscribers at the end of April, exceeding the combined populations of the U.S. and Japan.
``The industry restructuring is not a choice, it must be carried out,'' said Chen Haofei, an analyst at China International Capital Corp. in Beijing. ``After this is completed, the phone companies have more freedom to focus on the future.''
To contact the reporter on this story: Janet Ong in Beijing at jong3@bloomberg.net
Last Updated: May 24, 2008 11:51 EDT
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