China has announced its long-awaited telecommunications industry restructure, as foreshadowed and analysed by BuddeComm over the last three years.
The six main state-owned carriers are to merge their assets into just three networks. This will allow fixed-line carriers to expand into wireless services, creating three operators that will offer phone and Internet connections to 1.3 billion people. The US$105 billion industry has plenty of room to expand since mobile penetration is still only around 40% and over 80% of the population is not yet making use of the internet.
In March 2008 the ruling State Council agreed to split up China Unicom and create three new integrated telecommunications operators, as per restructuring scenario 3, as predicted by BuddeComm in 2004.
Restructuring Scenario 3
China Mobile (the largest mobile operator) merges with China Tietong (the smallest fixed-line operator set up by the Ministry of Railways);
China Telecom acquires China Unicom’s CDMA mobile network and China Satcom;
China Netcom joins with China Unicom’s GSM network.
The changes, jointly announced by the Ministry of Industry and Information (MII), the State Reform and Development Commission (SRDC) and the Ministry of Finance in May 2008, are the biggest reforms to China’s booming telecom sector since the formation of the MII in 1998.
The goal of the plan is firstly to create three integrated operators that operate with greater efficiency than in the current lopsided mobile and fixed-line markets, and secondly to create more competition as China moves toward fixed/mobile convergence ( FMC ). In 2007 China Mobile posted a profit of 87.1 billion yuan (US$12.5 billion), which was almost half as much again as the combined profit of China Telecom, China Netcom and China Unicom.
While the reforms were agreed on In March 2008, it has taken time to agree on the sensitive appointments of top executives at the new carriers. Senior positions in the state-controlled corporations are all Communist Party appointments. The May announcement confirmed China Mobile chairman Wang Jianzhou and China Telecom chairman Wang Xiaochu in their current posts. China Unicom chairman Chang Xiaobing was made head of the “preparatory group” driving the Netcom merger and should retain his post.
The most prominent move was that of Netcom chairman Zhang Chunjiang to China Mobile, where he becomes party secretary. Unicom president Shang Bing was posted as the new party secretary at China Telecom, while China Tietong chief Zhao Jibin and Unicom vice-president Li Zhengmao are also to become China Mobile VPs.
Officials stopped short of setting a timetable for the introduction of 3G, saying that licences will be issued after the restructure is completed. It is expected that each of the three carriers will receive a 3G license, although no details have been issued on what kind of technology each will need to adopt.
See also: China – Key Statistics, Telecom Market Overview & Analysis.