China orders sweeping telecom merger

China's phone companies will merge into three large groups in a long-awaited government restructuring of its giant telecoms market that could lead to billions of dollars in new orders for foreign equipment suppliers.

A plan announced over the weekend calls for energizing competition by bringing together mobile and fixed-line operators. It says once mergers are complete, licenses for next-generation services will be issued — a step that would require heavy spending on new equipment.

The announcement said mergers were expected to take place as quickly as possible but gave no time frame.

The plan is aimed at creating more robust competitors to China Mobile Ltd., which dominates China's market and is the world's biggest carrier by number of subscribers, with more than 400 million accounts.

It would result in three groups based around the parent companies of China Mobile and fixed-line carriers China Telecom and China Netcom.

The competitive environment will "dramatically change" over time, but China Mobile is unlikely to lose its dominance for at least one to two years, said Fitch analyst Jinqing Li.

Even after that time, "China Mobile's strong financial profile also provides further support in the face of evolving industry developments and uncertainties," Li said in a report.

Fixed-line carriers are struggling to attract new business at a time when first-time customers are passing up traditional service in favor of mobile phones. China Mobile's smaller rival, China Unicom, also is having trouble attracting users.

The merger plan highlights the communist government's continued dominant role in the industry even after an earlier restructuring that broke up China's phone monopoly into smaller competitors.

The plan released by China's telecoms regulator, the Ministry of Information Industry, directly applies to the state-owned parent companies of Chinese carriers.

But it is expected to affect subsidiaries that have public shareholders abroad and create new commercial opportunities for equipment vendors such as Sweden's AB LM Ericsson, Franco-American company Alcatel-Lucent SA, China's Huawei Technologies Co. and Nokia Siemens Networks, a partnership between Finland's Nokia Corp. and Germany's Siemens AG.

The plan would have no direct effect on foreign carriers, which are barred from competing in China's telecoms market.

The mergers would set in motion the awarding of licenses for third-generation, or 3G, service that supports wireless video, Web surfing and other services, the government statement said.

Nokia and other suppliers are anticipating billions of dollars in orders for 3G equipment.

China has the world's biggest population of mobile phone users, with some 520 million accounts, and the government says that should reach 600 million soon.

The plan's rollout began Friday with the announcement that China Mobile's parent, China Mobile Communications Corp., will acquire China Railway Communication, also known as Tietong.

The plan also calls for China Telecommunications Corp., parent of China Telecom, China's main fixed-line carrier, to buy a mobile network from China United Telecommunications Inc., Unicom's parent company.

The rest of Unicom would be folded into fixed-line China Network Communications Group Corp., Netcom's parent. The remaining carrier, China Satellite Communications Corp. would be taken over by China Telecommunications.

In trading in Hong Kong, China Mobile shares fell 8.2% Monday on investor worries about greater competition. Its shares fell 3.8% Friday on speculation ahead of the weekend announcement. That means China Mobile's market capitalization has lost 304 billion Hong Kong dollars ($38.9 billion) since Thursday.

Trading of China Telecom, China Unicom and China Netcom shares in Hong Kong was suspended Friday pending the announcement of the restructuring and that stayed in effect Monday.

In Shanghai, trading also remained suspended in China United Telecommunications, which owns part of China Unicom and is the only phone company with shares traded on the mainland.

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