The telecom industry's restructuring is expected to strengthen China Unicom and China Telecom while weakening China Mobile, market insiders said.

China Mobile's H shares plunged 8.23 percent yesterday to close at HK$114.9. A and H shares of China Unicom and H shares of China Telecom began a trading suspension from yesterday until the detailed merger and acquisition plan is released.

The government said in a joint statement last Saturday it encourages China Telecom to buy China Unicom's code-division multiple access (CDMA) network, and China Unicom should incorporate China Netcom. China Mobile would acquire China Tietong.

The restructuring is expected to be completed this year, and the three Chinese telecom giants will be issued 3G (third-generation) licenses, analysts said.

"China Unicom will strengthen its fixed-line business in northern China through acquiring China Netcom and China Telecom to build up its advantage in fixed-line services in southern China, which may pose a threat to China Mobile's business," said Fu Juan, analyst at Shenyin Wanguo Securities. Statistics showed China Unicom would gain more than 108 million fixed-line users from China Netcom.

In addition, "China Tietong, which has only one-fourth the number of users of China

Mobile, is expected to have little impact on China Mobile in terms of the acquisition. And China Tietong may not enter the listed entity of China Mobile," Zhang Xu, analyst at Qilu Securities, said.

However, analysts also said China Mobile expects to maintain its leading role over the next two years. After the restructuring, the number of China Mobile users is expected to be 399 million, followed by China Telecom's 297 million and China Unicom's 256 million.

Telecom equipment manufacturers are also expected to benefit from the issuance of 3G licenses, which could push the growth of telecom equipment investment to more than 30 percent in the first year the licenses are issued.

ZTE Corporation is the only listed A share company joining in mobile communications' core network construction. "ZTE's income is expected to approach 50 billion yuan this year because of the projected increase in investment in 3G construction," Chen Meifeng, an analyst at Haitong Securities, said.

(China Daily May 27, 2008)