By Wang Xing (China Daily)
Updated: 2007-12-31 17:03

For years, speculation has been rife about possible consolidation of China's telecom industry.

Much of the talk centered on the near monopoly enjoyed by China Mobile, which has not only expanded its edge over its much smaller mobile phone services rival China Unicom, but also eroded the subscriber growth of fixed-line carriers China Telecom and China Netcom due to the trend felt virtually everywhere in the world - the voice going mobile.

That is why many believe the government might merge China Telecom, China Unicom and China Netcom into two companies and award them licenses to operate mobile phone services to better compete with China Mobile.

Yet China Mobile, whose capitalization now tops the world, is prowling for overseas acquisition targets, so some say the government will not seek to split it.

The possible reconfiguration has never approached fruition due to a number of thorny issues, including licensing of the next generation mobile telephony as well as disagreements among various government agencies.

But speculation has again resurfaced after a government-affiliated research institute issued a report on December 21 suggesting the government split China Unicom's two mobile phone networks and merge one with each of China Telecom and China Netcom.

Although Shi Wei, a researcher with the Institute of the Economic System and Management under National Development and Reform Commission (NDRC), insisted when the report was released that it was only academic advice rather than government policy, shares of China Unicom, China Telecom and Netcom all immediately surged amid the flurry of speculation of a possible reshuffle.

Shi then reiterated on his Weblog - popular among China's telecom industry watchers - that his suggestion does not represent the government's stance. Yet many industry observers still believe the reorganization has become an urgent task for the government.

In the first half of this year, China Mobile's revenue soared 21.6 percent to 166.6 billion yuan, accounting for nearly half of the combined revenue of all top four operators in the same period.

Its number of new subscribers reached 31.1 million in the first six months of 2007, nearly three times that of the other three.

Its profit increased 25.7 percent while China Telecom and Netcom registered respective decreases of 4.8 percent and 5.4 percent.

The competition is now "incredibly imbalanced", says Shi. "If such a monopoly cannot be properly resolved, it will badly hurt the competitiveness of the domestic telecom industry," he says.

China Telecom and Netcom have been lobbying the government for licenses to build mobile phone networks. If their revenues and profits continue to slow or drop, the government will feel increasing pressure to make a move.

"If we look at network resources, cellphone carriers do not have a significant advantage over fix-line operators," says Shi. "But as China Telecom and China Unicom are not allowed to offer wireless services, their network resources cannot be fully used in the era of the mobile phones."

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