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Telecoms industry in China, with nearly 600m mobile subscribers, 360m fixed-line customers and $244 billion in revenue, will be reconfigured

The reorganisation of China’s vast telecoms industry begins (From The Economist print edition)

BY ANY measure—revenues, employees, customers—it is the largest industrial reorganisation ever. And, reflecting how business is done in China, it was announced in the most modest way, with a posting on a government website on May 24th. The country’s telecoms industry, with nearly 600m mobile subscribers, 360m fixed-line customers and $244 billion in revenue, will be reconfigured. Six companies will be collapsed into three, each spanning mobile, fixed and broadband services.

China Mobile, the world’s largest mobile operator by subscribers, will merge with China TieTong, the smallest fixed-line operator. China Telecom, the country’s biggest fixed-line operator, will acquire one of the mobile networks run by China Unicom, which will merge its remaining mobile operations with China Netcom, another fixed-line operator. A sixth operator, China Satcom, will be taken over by China Telecom.
The reorganisation had been expected for years, but rumours of an imminent decision swept the Hong Kong and Shanghai markets on May 23rd, provoking a panic that continued until May 27th. The shares of China Telecom, China Unicom and China Netcom were suspended, and those of China Mobile fell in value by 10%, or $31 billion. (The other two operators are unlisted.)

The main purpose of the plan is to create a more competitive industry—which means, in practice, taking China Mobile down a peg or two. It will gain a fixed-line arm, but that is no recompense for what it will give up: its lock on the massive mobile market, encompassing two-thirds of Chinese customers and an even higher share of new subscribers. Under the new rules, which have yet to be spelled out, it will face regulatory pressure to allow rivals into its market.

China Mobile is also likely to be hobbled in another way. The reorganisation will at last allow the Chinese government to grant licences for “third generation” (3G) mobile services, after years of delay. 3G gives operators more capacity and makes possible whizzy mobile-data services. But the government has delayed issuing the licences so that China’s home-grown but long overdue 3G technology, called TD-SCDMA, can be used for at least one of the country’s three networks. (The other two networks will use foreign standards which are already widely deployed elsewhere.) It is expected that China Mobile will be forced to adopt TD-SCDMA, an immature standard for which there is only a limited selection of handsets and equipment.

Telecoms in China, Rewired, May 29th 2008 | HONG KONG

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