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China Telecom (CT), the Beijing-based Hong Kong-listed fixed phone service provider, could possibly merge with mobile phone network operator China Unicom, a CT internal source said.
The source added it was the latest version of the Chinese telecommunication sector’s restructuring plan. As well, China Mobile, another listed key Chinese mobile phone network operator, could possibly merge with key fixed phone service provider China Netcom (CNC), the same source added.
China Netcom and China Telecom formerly were united but split into two in 2002. China Netcom now mainly covers north China while China Telecom dominates the fixed phone business in south China.
The CT internal source also said China Telecom has tried to avoid duplicate coverage in the PHS (Personal Handyphone System) business with China Unicom, suggesting that the two companies could probably merge in time. “China Telecom also wants to get a 3G (3rd Generation) license,” said the source, adding that it was why China Telecom had for a long time been eager to involve or buy a mobile phone network. Recently the demand became more pressing as the 3G license is expected to be awarded soon to each telecommunication service operator by the Ministry of Information Industry (MII), the regulator of China’s telecommunication sector.
The source said China Telecom is quite confident in competing with the operator that would result from a bigger China Mobile and China Netcom after merging China Unicom.
A China Telecom representative said the company has not received any related information regarding the telecommunication industry restructuring plan. He added that merger talk was just market speculation.
Earlier reports said the market had speculated on China Unicom divesting its CDMA (Code Division Multiple Access) network to China Telecom and then merging China Netcom to get a 3G license. China Telecom, after acquiring the CDMA network from China Unicom, will get a 3G license along with China Mobile.
The latest speculation was that China Telecom was in final talks with China Unicom to buy the CDMA network for about CNY 110bn. However, the estimated deal value of CNY 110bn was questioned by Lao Jianhua, the board secretary of China Unicom. Lao said he did not believe China Telecom would pay so much for the CDMA network. Meanwhile Lao also pointed out the CDMA network cannot be sold to China Telecom via free administrative transfer although China Unicom and China Telecom are owned by one state owner.
Under such circumstances, a merger could be a good solution for both China Telecom and China Unicom, an MII expert said.
China Telecom has a market capitalization of HKD 57.31bn while China Unicom has a market capitalization of HKD 228.72bn.
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