BEIJING -- China unveiled plans for a long-awaited shake-up of its huge telecommunications sector that could enhance competition among its carriers and, eventually, lead to billions of dollars in new contracts for global wireless equipment companies.
The restructuring, announced Saturday after years of preparation, will reshape China's telecom industry, one of the world's most lucrative with total revenue last year of 728 billion yuan ($104.85 billion).
It will meld six main state-owned telecom companies into three full-service carriers offering both fixed-line and wireless service nationwide. That will mean two more robust rivals for China Mobile Ltd., the world's biggest wireless carrier with about 400 million subscriber accounts, which now dominates its sole wireless competitor.
The announcement was made in a statement from three ministries posted on a government Web site. It gave no timetable for execution, saying only that the companies should "as quickly as possible" report detailed arrangements for carrying out the plan.
After the restructuring, the statement said, the government will issue licenses for advanced, "third-generation," wireless services that enable high-speed functions like video downloads. China is one of the last major telecom markets to adopt such "3G" technology, and global telecom-equipment providers like Telefon AB L.M. Ericsson, Alcatel-Lucent SA, and Huawei Technologies Co. have been waiting for years for it to begin building 3G networks.
"This restructuring is key to a 3G roll out, and there will be a lot of opportunities for domestic and foreign equipment providers," said Ian McGuinn, managing director in Shanghai for JL McGregor & Co., a China-focused consulting firm.
The announcement highlights how dominant the state remains in one of China's biggest industries. The four biggest existing carriers have units that list shares in Hong Kong and New York: China Unicom Ltd., China Telecom Corp., and China Netcom Group Corp. (Hong Kong) Ltd., in addition to China Mobile.
But the new industry structure has been determined entirely by the government, which owns all of their parent companies, without say from outside shareholders. While Saturday's statement said the government only "encouraged" companies to follow the plan, it is clear that companies have already begun to implement it.
Indeed, a day before the announcement, the official Xinhua news agency announced the first major merger, saying China Mobile Communications Corp., parent of China Mobile, will take over China Tietong Telecommunications Corp., the smallest of three fixed-line operators. The report, which cited China Mobile officials, didn't disclose financial terms.
China Mobile, in a statement Sunday to the Hong Kong Stock Exchange, acknowledged the government's announcement Saturday, as well as several senior personnel changes, but didn't elaborate. A Tietong official confirmed the merger plan.
The mergers are certain to affect the listed companies, in addition to their parents, creating lucrative opportunities for global investment banks. Under the plan, fixed-line carrier China Telecommunications Corp., parent of China Telecom, will acquire one of two wireless networks owned by China United Telecommunications Corp., parent of Unicom. The remaining operations of China United will then merge with fixed-line carrier China Network Communications Group Corp., Netcom's parent. The sixth national carrier, China Satellite Communications Corp. will be folded into China Telecommunications.
Shares in the listed companies have been roiled repeatedly in recent months by speculation over the timing and nature of the planned restructuring.
After Friday's Xinhua report, China Mobile shares on the New York Stock Exchange dropped 5.8%, following a 3.8% declined in the company's Hong Kong listed shares earlier in the day. Shares in New York and Hong Kong in the other three listed companies all surged.
Midway through the Hong Kong trading sessions Friday, after Xinhua's report, China Telecom, Unicom, and Netcom all suspended trading in their shares pending announcements, in line with local rules. In statements issued Sunday, the three companies acknowledged the announcement, and said that they were already engaged in related merger negotiations, which they promised would "follow international practice." The three companies said trading in their shares in Hong Kong will remain suspended while negotiations take place.
Shareholders and potential investors are "reminded to exercise caution" toward its shares, Unicom said in its statement. Unicom said it is in now talks to sell its code-division multiple access, or CDMA, wireless network to China Telecom, and in merger talks with China Netcom.
All four listed companies also announced changes among their senior executives. Among the most prominent: Zhang Chunjiang, chairman of Netcom, will become a vice president at China Mobile and head of its powerful Communist Party committee, and Shang Bing left his role as president of Unicom to join China Telecom.
Numerous questions remain about how the industry changes will play out -- not least about how various 3G technologies will be deployed. Industry executives and analysts expect each of the three new carriers to use a different type of 3G technology, including two international standards and one that is homegrown in China.
China's government has been especially eager to promote the domestic 3G standard, called TD-SCDMA, as part of a broader push for "indigenous innovation" that officials hope will help wean the country from expensive foreign technologies. So far, TD-SCDMA has undergone the widest testing in China, and some analysts say problems with the technology -- which has never been used outside China -- have caused the government to delay the rollout of commercial 3G services.
Saturday's statement alluded to the importance placed on TD-SCDMA, saying that one of the industry restructuring's main goals is to foster "indigenous innovation."
It remains unclear how the other two 3G technologies, WCDMA and CDMA2000, will be employed -- a key question for foreign companies which stand to earn more from their use. China Mobile, by far the strongest financially of the existing operators, has been handling the bulk of the TD SCDMA tests, and is expected to keep using the technology as licenses for commercial service are issued. Analysts expect China Telecom to employ CDMA2000 technology, and the merged Unicom-Netcom to use WCDMA, but the government hasn't confirmed that.
