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Jury out on dramatic telecom restructure

By Wang Xing (China Daily)
Updated: 2008-05-24 09:28

China's long-awaited telecom restructuring plan kicked off on Friday but its impact on the country's major telecom operators remains to be seen.

China Mobile announced a merger with fixed-line operator China Tietong and a slew of personnel changes that will see the former general manager of China Netcom appointed deputy general manager of China Mobile.

Such an announcement confirmed earlier speculation and is believed to pave the way to a much-awaited 3G (third generation) license in the country.

Wang Guoping, analyst from China Galaxy Securities, said the final restructuring plan will have a relatively negative impact on China Mobile while benefiting China Telecom and China Netcom.

"After the restructuring, China mobile will have two competitors, both of which will have the advantage of combining their fixed-line business with a mobile business," Wang said.

He said China Telecom will benefit by being able to enter the lucrative mobile business, while China Unicom will be able to focus on a single network instead of running two simultaneously.

China's telecom market has long suffered from a lack of competition under the de facto monopoly of China Mobile, which has been taking huge revenue in recent years from fixed-line carriers China Telecom and China Netcom as users go mobile.

China Mobile's only rival, China Unicom, seldom acts as a serious challenger as it has long struggled to operate two often-competing networks .

In the first quarter of this year, China Mobile's revenue reached 93 billion yuan ($13.3 billion), surpassing the combined revenue of China Telecom, China Netcom and China Unicom.

According to the restructuring plan, China Mobile will merge with China Tietong while China Unicom will be divided in two, with its CDMA network sold to fixed-line carrier China Telecom and the GSM network merged with China Netcom.

The government hopes such an arrangement will help balance China Mobile's dominance.

However, Wang Yuquan, a senior consultant of research firm Frost & Sullivan China, said the restructure may not work as planned.

"I don't think the ongoing restructuring could help increase the competition in the market because the restructuring itself was planned by the government and the telecom operators have little say in the decision making," he said.

China Mobile's shares in Hong Kong slumped 3.84 percent on Friday, while shares of China Unicom, China Telecom and China Netcom surged 11.86 percent, 6.98 percent and 12.47 percent respectively.