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China to Issue 3G Licenses, Merge Telco Majors

China will issue three Licenses for high-speed third-generation mobile phone services and called for a merger of China Unicom and China Netcom, two of its four biggest telecoms providers, in a long-awaited industry revamp.

Cell phone tower, telcom, telecom
Cell phone tower, telcom, telecom

The government said on Saturday it would also call on China Telecom, the country's biggest fixed-line telecoms carrier, to purchase wireless telecoms company Unicom's CDMA network, fleshing out details of the restructuring following an initial announcement on Friday.

ABN AMRO has valued the Unicom network at HK$40 billion (US$5.1 billion).

China's 1.3 billion people can now look forward to joining others in advanced economies who already enjoy blazing-fast Internet access, games and a host of multimedia content from maps to music on their cellphones.

The 3G Licenses and the industry revamp are also set to unleash billions of dollars in spending for network gearmakers such as Ericsson, Motorola, Nokia, Nortel and Siemens, as newly
merged firms expand to compete.

Although analysts are quick to point out that a full launch of 3G services is years away, allowing three nationwide providers increases choice and promises to hold down user fees.

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On a corporate level, it will also help address the perennial complaints of fixed-line firms at being left out of the world's largest and fastest-growing major telecoms market. Analysts say heightened competition would in theory benefit users by also enhancing service and content quality.

"The move will help foster a more balanced competition landscape for the industry, create a fairer playing ground." said Michael Meng, an analyst with Citigroup.

The government's Saturday statement (http://www.gov.cn) gave no time frame for implementation and did not specify whether the restructuring would involve the state-owned companies or their listed units, but analysts have said mergers were likely to involve the parent firms.

The move is also expected to foster competition in China's mobile sector, where the parent of China Mobile, the world's largest mobile service provider by subscribers, has long overshadowed Unicom, the smaller of China's mobile duopoly and hobbled by a split between two different networks: CDMA and GSM.

Competition For China Mobile

"The move aims to address China Mobile's dominance and Unicom can finally focus on developing a single network, which will boost efficiency, and GSM is traditionally a stronger network," said Sandy Shen, research director at Gartner IT, a consultancy.

China announced an initial series of moves on Friday, including leadership changes and a directive for China Mobile to take over a small fixed-line operator, China Railway Communication Co Ltd, which has assets of 42.4 billion yuan ($6.1 billion) and employs 72,000 staff across China.

The news sent many telecoms stocks soaring in both Hong Kong and on the mainland.

Hong Kong-listed shares in Unicom and Netcom jumped 11 to 12 percent before they were suspended from trade. China Telecom rose 7 percent while the Shanghai-listed shares of China United Telecommunications, part of the Unicom group, rose 5.1 percent.

China Mobile fell 3.8 percent as competition fears weighed.

Analysts said news of the restructuring, a subject of much debate and speculation over the past several years, would remove some of the uncertainty over shares in the sector, although many key details had yet to emerge, including a timeframe.

"It's a long-anticipated move which is finally taking place, and it also means the end of a restructuring trade," said Wendy Liu, telecoms analyst at ABN AMRO.

"I'll expect China Telecom, Unicom and Netcom shares to be suspended for a longer while as they will have to work out the details. But when all the stocks resume trading, investors will be looking at the fundamentals again, and whoever's the most capable to execute will win."

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