Chinese School - Telecom restructure in a tangle

BIZCHINA / Weekly Roundup

Telecom restructure in a tangle

By Li Weitao (China Daily)
Updated: 2007-03-30 09:20

Wang Xiaochu is frank and outspoken. The chairman and CEO of China
Telecom will grab any opportunity to express his desire for a
restructuring of China's telecom industry.

This week, Wang reiterated his company's desire to buy a mobile network
owned by China Unicom. And this time he found a good excuse: the voice
call revenue of China Telecom, a fixed-line carrier, fell for the first
time last year.

Related readings:
Telecom, railway services sector to open wider

Wrong number for China Telecom China Netcom looks to corporate clients
Telecom monopoly still exists

The fall underlines the problems fixed-line operators are facing as voice
goes mobile. And that, according to Wang, would be a "positive" sign for
the introduction of licensing for third-generation (3G) mobile phone
services.

China Mobile operates a network based on the GSM standard while China
Unicom operates two networks GSM and CDMA. China Telecom and China Netcom
have yet to be allowed to offer mobile phone services.

Unicom's two mobile networks compete with each other and have not been
performing very well compared to China Mobile. Selling one network could
help it improve its finances and focus on a single network, and could
boost competition in the industry, says Wang, who submitted a proposal to
regulators in December 2004 for such an arrangement.

Although regulators have kept mum about such proposals, China Telecom has
been firm in its stance. It has been reportedly talking with Unicom on
the pricing of the CDMA network China Telecom wants to buy. Unicom has
denied these reports.

But signs of a reshuffle are evident. Earlier this year, Unicom split its
marketing unit into two separate divisions overseeing promotions of CDMA
and GSM services. That was viewed by many as a prelude to a split of
Unicom.

Zhu Lijun, deputy general manager of China Netcom and a deputy to the
National People's Congress (NPC), submitted a proposal in March, calling
for the reduction of the number of top telecom operators from four to
three. The reason: China Mobile is growing too strong. Last year, it
controlled about 70 percent of the newly generated revenue and profit in
the telecom industry.

A consolidation could create two operators on a par with China Mobile.

Shi Jixing, an industry veteran, said a consolidation is possible but the
decision-making process could be as lengthy.

"It's true, the necessity for a reshuffle is increasing. But the process
could be quite complicated as the regulators are getting too involved,"
says Shi, vice-chairman of the China Mobile Communications Association.

The State-owned Assets Supervision and Administration Commission (SASAC),
the National Development and Reform Commission (NDRC) and the Ministry of
Information Industry, all have a say in the consolidation issue.

"I think it could be a good option for Unicom to sell its CDMA network.
But it's up to Unicom to decide. Regulators should not get involved too
much," Shi said.

Shi was one of the vocal advocates for the introduction of the CDMA
technology in China. He made several proposals to the State Council in
the 1990s for adopting CDMA to "boost competition" in the domestic
telecom industry.

But Shi did not expect that Unicom would be mandated to adopt CDMA. "In
fact I hoped a greenfield operator (instead of Unicom or China Mobile)
would adopt CDMA," he said.

Running networks based on two different standards have put Unicom under
great pressure. The CDMA network, formally launched in 2002, has just
starting turning a profit and the growth of Unicom's GSM service has been
sluggish in the past years. That has frustrated regulators, who hoped
Unicom would break China Mobile's monopoly.

Unicom vice-president Li Zhengmao had earlier indicated that regulators
would decide how to develop the telecom industry "at the right time" as
China Mobile is stretching its dominance.

But the restructuring will not be an easy decision as even different
government bodies disagree on the issue, as they do over 3G licensing,
Shi said.

In January 2005, the SASAC held a surprise press conference after media
reports that Unicom might be split. SASAC dismissed the reports as rumors
but added it had yet to work out a "specific" plan for telecom industry
reform.

That has left the door open for a possible consolidation, industry
observers say.

Wang Guoping, an analyst with China Galaxy Securities, said several
factors are adding to the uncertainty. For instance, Hong Kong-listed
China Mobile plans to list on the mainland, which could be followed by
China Netcom and China Telecom.

"If they get listed on the mainland soon, the possibility of a
restructuring could diminish," Wang said.

(China Daily 03/30/2007 page15)

(For more biz stories, please visit Industry Updates)

Learn Chinese, Chinese Online Class