China Telecoms Operators to be Restructured

By: Charice Wang, Ovum
( 1 May 2008 )

After many forecasts and rumors in 2007, the first month of 2008 welcomed the Chinese operators' reorganization in the telecoms market. According to our internal sources, the new plan in discussion is that China Unicom (one of the only two mobile operators in China) will split its CDMA network with China Telecom (the biggest fixed operator), the rest of China Unicom will combine with China Netcom (second biggest fixed operator), and China Tietong (small fixed operator) is to merge with China Mobile (the biggest mobile operator). As a result, all three newly created operators will provide fixed, mobile and broadband nationwide with their own networks.

It seems like a reasonable plan so far for the state-led restructuring of the four major operators. Firstly, the regulator announced that it was to impose the unified (fixed and mobile) operating license last year, and the plan we outlined above will bring the unified license to each operator. Secondly, it will help to improve the lost balance between the four major operators currently only permitted to provide mobile or fixed services. China Mobile is responsible for almost 80 percent of total telecoms revenues in China.

The impact on the industry will be positive. After restructuring, the three new operators will be able to provide fixed and mobile services. Fixed operators will reverse the current trend that led them to lose their subscribers in the last two years. The proposed restructuring will also attract foreign investment in the Chinese telecoms market, particularly from overseas operators that have already invested, such as Vodafone, Telefonica and SKT.

The proposed restructuring will also be good for consumers. Triple-play services are likely to become available, and the three mobile operators instead of the current two will compete harder, resulting in lower prices and better services. Finally, the 3G licenses issues. The Chinese government had recently approved the use of WCDMA and CDMA2000 in China under criticism for delaying to grant 3G licenses to protect its own home-grown standard TD-SCDMA. We expect the new 3G licenses to be allocated along with the coming restructuring. 3G licenses for different technologies, WCDMA, CDMA2000 and TDSCDMA will be issued, with each standard being allocated to each operator. China Mobile is now trialing TD-SCDMA in eight cities, so it is likely to receive the TD-SCDMA 3G license and continue to extend the TD-SCDMA network further. The new China Telecom holds Unicom¡¯s CDMA network, so it will opt for CDMA20001x and EV-DO technology. The newly combined China Unicom and Netcom is most likely to opt for the more mature European technology, WCDMA.

The new plan needs approval from the State Council (the China's chief administrative authority), but we believe it is just a matter of time.