China mobile phone restructuring paves way for 3G rollout

China has hugely restructured its telecommunications industry to pave the way for a roll-out of 3G technology.

A worker talks on his mobile phone while fixing a street light in front of a 2008 Beijing Olympic Games logo in Qingdao
A worker talks on his mobile while fixing a street light in Qingdao

The country's second largest mobile phone operator, China Unicom, sold 43.17m of its subscribers to China Telecom, a fixed-line operator, for 110bn renminbi (£8.12bn). At the same time, Unicom and China Netcom, a fixed-line operator that covers much of southern China, merged to create a company worth £30.2bn.

The deal means that China will have three mobile phone operators rather than two when it rolls out 3G, and that two of those will also have a fixed-line business. China Mobile, the world's largest mobile phone operator with 380m subscribers, is the only standalone mobile company.

"The ministry of information industry has promised that it will grant the 3G licences after the restructuring is complete, probably at the end of this year or the beginning of the next," said Steven Liu, an analyst at DBS Vickers in Hong Kong.
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The roll-out of 3G has been severely delayed in China because of problems with the country's proprietary TD-SCDMA technology.

However, commercial trials have now taken place in 10 cities, including Beijing, Shanghai, Guangzhou and Shenzhen and 3G is expected to be provided for the Olympic Games.

Samsung, an official sponsor, has provided 15,000 handsets to officials at the Games, in a bid to forge relationships ahead of the distribution of the licences.

Although handset makers will have to spend vast sums on creating phones compliant with the Chinese technology, the vast market is too tempting to miss out on.

Unicom has sold its CDMA subscribers, who use a mobile phone technology unique to China and different from the GSM standard used by most of the rest of the world. The company retains its 127.6m GSM subscribers.

Chang Xiaobing, chief executive of Unicom, said the deal would help Unicom to "focus on the development of our GSM mobile business and the building of a solid foundation for our forthcoming 3G business".

He added that the tie-up with Netcom would create a fully integrated telecoms operator, able to provide a "full spectrum" of services.

China Telecom, for its part, has pledged to spend at least 80bn renminbi on its newly acquired mobile network and could pose a decent challenge to China Mobile's hegemony. It has stated an aim of having 100m CDMA subscribers in three years.

Vodafone has a 3.3pc stake in China Mobile, while Telefonica, the Spanish company, will have roughly a 3pc stake in the merged Unicom business.