China to create Telecom giants

China’s phone companies will merge into three large groups in a long awaited government restructuring of its giant telecoms market that could lead to billions of dollars in new orders for foreign equipment suppliers.

A plan announced over the week end calls for energizing competition by bringing together mobile and fixed line operators. Once mergers are complete, licenses for next generation services will be issued, a step that would require heavy spending on new equipment. But no timeframe was announced for merger, but they will take place as quickly as possible.

The plan is aimed at creating more robust competitors to China Mobile Ltd, which dominates China’s market and is the world’s biggest carrier by number of subscribers, with more than 400 million accounts.

The merger would result in three groups based around the parent companies of China mobile and fixed line carriers, China Telecom and China Netcom.

The competitive environment will dramatically change over time, but China Mobile is unlikely to lose its dominance for at least one two years.

Fixed line carriers have no takers and struggling to attract new business at a time when first-time customers are passing up traditional service in favour of mobile phones. China Mobile’s smaller rival, China Unicom is having trouble attracting users.

The merger plan highlights the communist governments continued dominant role in the industry even after an earlier restructuring that broke up China’s phone monopoly into smaller competitors.

The plan released by China’s telecom regulator, the ministry of information industry, directly applies to the state-owned parent companies of Chinese carriers.

The new move will affect subsidiaries that have public shareholders abroad and create new commercial opportunities for equipment vendors such as Sweden’s AB LM Ericsson, Franco American Company, Alcatel Lucent SA, China’s Huawei Technologies Company and Nokia Siemens Networks, a partnership between Finland’s Nokia Corp and Germany’s Siemens AG.

The plan would have no direct effect on foreign carriers, which are barred from competing in China’s Telecom market.

The mergers would set in motion the awarding of licenses for third generation, or 3G, service, that supports wireless video, web surfing and other services the government statement said. Nokia and other suppliers are anticipating billions of dollars in orders for 3G equipment. China has the world’s biggest population of mobile phone users with some 520 million accounts.