China Telecom To Be SplitMonday November 26, 9:59 PM
China says telecoms giant to be split north and south
By Tony Munroe
HONG KONG (Reuters) - State fixed-line giant China Telecom will be split into northern and
southern carriers, China's top telecoms regulator said in an interview with a state broadcaster
released on Monday.
Under a plan that Ministry of Information Industry (MII) chief Wu Jichuan said would bolster competition in China's
fast-growing telecoms sector, smaller carriers China Netcom and Jitong Communications will be merged with China
Telecom's 10 northern provincial operations.
The newly formed firm will be called China Netcom Jitong Co.
The southern 20 provinces will retain the China Telecom name, Wu said in an interview with China Central Television
(CCTV) that was published on its Web site on Monday.
Wu's remarks are the highest level public statements to date on how China's long-expected telecoms restructuring will look.
He said the planned geographic split, which was decided by the policy-making State Council, does not include the
provision of new cellular licences.
Investors in China's two Hong Kong-listed mobile giants China Mobile (Hong Kong) and China Unicom Ltd have fretted in
recent months that China will soon issue more mobile licences.
Wu did not say when exactly the split would take place.
"The work has to be started now. The issues on the overall personnel changes, asset split and the transfer of network
assets are still being thrashed out," he told CCTV.
SPLIT WAS ANTICIPATED
The north-south split, with China Netcom merged into the northern unit, had been widely anticipated. The fate of Jitong,
which scrapped a planned Nasdaq initial public offering last year, had been less clear.
China Netcom is a wholesale carrier whose investors include Goldman Sachs and Rupert Murdoch's News Corp. Its
backers include the son of Chinese President Jiang Zemin.
Beijing had hoped this year to launch an IPO for China Telecom worth potentially US$4-$6 billion. But that plan had been
delayed as regulators laboured over the restructuring and market conditions took a turn for the worse.
One banker close to China Telecom on Monday said the southern carrier may in the next few weeks renew talks with
bankers aimed at re-launching an IPO.
The task of splitting China Telecom is expected to be massive and time-consuming. The company employs 530,000
people, had 171 million subscribers at the end of September and posted first-half revenue of 87.3 billion yuan (US$10.5
billion).
Regulators had also considered dividing the company along functional lines, with separate firms handling local,
long-distance, and data services.
FOSTERING COMPETITION?
While the geographic split essentially creates two new local near-monopolies where one existed, analysts have said
competition will likely take place in data services. Analysts have also said that two carriers would allow for head-to-head
comparison on service quality and financial performance.
"By doing this we will have two telephone networks competing with each other, creating the benefits of competition," Wu
said in the CCTV interview.
Nomura International telecoms analyst Kelvin Ho said he was not surprised that the China Telecom split does not address
the issue of new mobile licences.
"The fact that the split doesn't involve the mobile business and whether the government will give mobile licences to the
companies in the future are separate issues. I think the government wants to take one step at a time," he said.
Craig Watts, an analyst at Beijing telecoms consultancy BDA China Ltd, said the restructuring would better position
China's telecoms industry -- long dominated by academics and engineers -- following the country's accession to the World
Trade Organisation (WTO). Under the WTO, China will gradually allow foreign firms to buy minority stakes in its telecoms
firms.
"We're moving into the next phase and it fits with the WTO where you need business people who are making decisions on
investments," he said.