TELECOM MERGER MAY ATTRACT FOREIGN PLAYERS

July 09, 2008 | BY

clpstaff &clp articles

The Ministry of Industry and Information, the National Development and Reform Commission and the Ministry of Finance have issued a joint statement to confirm…

The Ministry of Industry and Information, the National Development and Reform Commission and the Ministry of Finance have issued a joint statement to confirm the merging plans in the telecommunications sector, saying that the six telecommunications operators would merge into three.

Robert Lewis, managing partner at Lovells, said that the restructuring would lead to some positive changes for consumers and for the Chinese market.

“In the short term, China Mobile will become stronger because they will now have two smaller rivals instead of one strong competitor. In the long term, consumers will get more choices,” he said.

But if the third-generation service [3G] is launched, Lewis said that competition between the three players may erode China Mobile's dominant's position in the market. The joint statement only said that 3G licenses will be issued after the mergers but no fixed timetable is mentioned.

The restructuring will also attract new players into the market. “Once the 3G licenses are issued, the equipment vendors will be the big winners, and [there will be competitions between the telecom operators] to roll out the best and the fastest 3G network,” Lewis said.

He added that the restructuring could create joint ventures between local telecom operators and foreign players. “If demands for 3G services are weaker than expected, then the operators may face heavy pressure on their share price, which may induce China Telecom or China Netcom to seek out a real foreign mobile partner to create the first basic telecom JV.” But as for now, the telecom market remains primarily a domestic play, he said.

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