Chinese Telecoms Restructuring Consolidates Six into Three and Enters a New Era

(Business News & Technology News, 30 May 2008)

On 23 May 2008, MII, MoF and NDRC formally announced the three "new" operators, China Mobile, China Telecom and China Unicom. This reorganization, together with the appointment of senior executives, and soon to be released 3G licences, will unveil a new era in the China's telecoms market, providing a mix of mobile, fixed and broadband services nationwide.

According to Cynthia Leung, Senior Analyst at Ovum, the reform plan was already well anticipated, so the joint announcement came as no surprise. "What's more, this is not the first time China's telecoms market has undergone a revamp. The last two reforms, in 1998 and 2001, were aimed at ending the dominance of China Telecom and protecting consumer interests. China Telecom was successfully split and resulted in the current landscape of four major operators and two lesser operators, China Tietong and Satcom. However, the trend of mobile substituting fixed line was not envisaged at an earlier time and China Mobile is growing at an unstoppable pace, fully dictating the market. This sets off the necessity of this current third reform," says Leung.

The final outcome was after years of careful consideration by the government, whose ultimate aim is to seek a well-balanced solution which has the least resistance in actual implementation, says Leung. At the same time, it does not lose sight of its important standpoint of promoting full competition, while balancing the interests of all parties. "We believe the resulting solution has met this goal, even though no one single operator will gain all the benefits and despite the fact that internal competition between the merged entities may exist. The restructuring plan avoids the complication and interoperability issues of network rental and network separation, which inevitably can add to cost increase in the end," Leung adds.

She says that in the short term, China Mobile will remain in its leading position and face few challenges. "From now on, its biggest competitor will be China Telecom, not China Unicom anymore; whereas China Unicom will confront China Telecom directly. Initially, both of them will offer fixed and mobile sales bundles, competing on price and offering. With Unicom's existing number of GSM customers twice as many as CDMA's, the new 'Unicom' can play for time. Nevertheless, China Telecom has a stronger foothold in the residential market; therefore service bundling will effectively bring about more value to the customer," says Leung. "We expect the consolidation will take at least six months. By 2009, the converged fixed and mobile broadband networks will take off and its development accelerates rapidly. This reform will be the third major milestone in Chinese telecoms history to rework the operators' competitive infrastructure and steadily move towards a market-driven economy under proper regulation and administrative control."

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