Major Carrier Shakeup Expected in China

The Chinese government is planning a major restructuring of the country's telecom sector to create three giant operators that each own fixed and mobile network assets, according to reports in the Chinese media. Currently, each operator is focused on running either a fixed line or a mobile business.

According to the South China Morning Post, the ruling Communist Party has signed off a plan that will involve a series of mergers and asset divestments to create a trio of fixed/mobile supercarriers.

  • Fixed line carrier China Netcom Corp. Ltd. (NYSE: CN; Hong Kong: 0906), which has 114 million fixed line customers, including more than 18 milion broadband customers, will take on the GSM business of mobile operator China Unicom Ltd. (NYSE: CHU), which boasts 118 million customers. (See China Netcom Reports 1H07.)

  • Fixed line giant China Telecom Corp. Ltd. (NYSE: CHA), which has 222 million fixed line customers, including 35 million broadband subscribers, is set to merge with China Unicom's CDMA wireless business, which has 41 million subscribers.

  • China Mobile Communications Corp. , which has more than 332 million subscribers, is set to merge with national fixed network operator China TieTong Telecommunications Corp. (formerly China Railcom), a relative minnow in the Chinese market with more than 20 million fixed line customers, including more than 3 million broadband subscribers. (See China Mobile Reports H1.)

The news had a slightly negative impact on the share prices of China Telecom, China Mobile, and China Netcom, but China Unicom's share price raced up by more than 7 percent Thursday and more than 6 percent Friday on the Hong Kong Exchange, prompting the carrier to issue a statement saying that it had no idea why its stock was experiencing "unusual movements."

The move comes as China creeps closer towards the award of 3G mobile licenses, something for which the carriers have been preparing for years, with serious investments made during the past year or so to put China's homegrown 3G technology, Time Division Synchronous Code Division Multiple Access (TD-SCDMA), through its paces. (See Investments Line Up for Chinese 3G.)

Each supercarrier would, it seems, be awarded the right to build out 3G networks, though the underlying technology (WCDMA, CDMA2000, TD-SCDMA) might differ between the operators.

The restructuring would herald a ramp in capital expenditure by all three supercarriers, with domestic vendors Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) likely to benefit the most, though global giants Alcatel-Lucent (NYSE: ALU), Cisco Systems Inc. (Nasdaq: CSCO), Ericsson AB (Nasdaq: ERIC), Nokia Networks , and Nortel Networks Ltd. , all already very active in China, would probably pick up some of the new spend too.

But even if the restructuring plan has been given the official and final green light, there's no telling when the sector's revamp might begin. China is set to host the Olympic Games in Beijing in August, and the government is unlikely to begin any major industrial programs that might impact the event.

— Ray Le Maistre, International News Editor, Light Reading

Be the first to post a comment regarding this story.
Sign In