China Starts Revamping Its Telecom Industry

China has kicked off a long-awaited overhaul of its telecommunications industry, the world’s largest, orchestrating a series of leadership changes and directing the parent of China Mobile to take over a smaller rival, sending telecom stocks soaring on Friday.

China Mobile will take over its fixed-line peer China Railcom while absorbing executives from rivals, the opening act of an overhaul that is likely to culminate in the fixed-line operator China Netcom merging with the wireless player China Unicom, analysts and a person briefed by top management at one of the companies said.

A sector revamp could unleash billions of dollars in spending for mobile-phone makers like Motorola and Nortel, as newly merged firms expand networks to compete and leave China with three giants offering wireless and fixed-line services.

"The next step will be a reshuffle of Unicom and Netcom," said Steven Liu, an analyst with DBS Vickers Securities.

China Telecom and Netcom will benefit if they gain entry to China’s fast-growing wireless market, which has 575 million subscribers, of which China Mobile now has a two-thirds share.

Shares in Unicom, China Mobile’s sole rival, and Netcom jumped 11 percent to 12 percent Friday before they were suspended from trading to limit sharp fluctuations in price. China Telecom rose 7 percent.

In Shanghai, China United Telecommunications, part of the Unicom group, gained 5.1 percent before it was suspended. China Mobile closed down 3.8 percent amid competition fears.

Observers were initially skeptical as a restructuring has been discussed and debated in recent years.

"There’s been a lot of market talk already, and the shares did shoot up," said Wendy Liu, an analyst with ABN AMRO.

An overhaul of the sector, dominated by four companies that have evenly split mobile and fixed-line services, precedes the issuance of licenses to offer faster third-generation, or 3G, services – a potential boon for global equipment makers.

But analysts said it could be at least a year before Beijing gives out 3G operating licenses.

"The additional spending will come from 3G, but that’s still years away," said Sandy Shen, a research director with Gartner.

For users, allowing three providers offers more choice as the country moves toward adopting 3G technology, which enables faster wireless Internet access and multimedia streaming.

"It’s good news for consumers," said Richard Wu at Analysys, a consultant firm. "With more products, lower telecoms fees are inevitable."

For now, investors will need to grapple with the specifics of a government blueprint that begins with personnel changes, moves on to policy, and culminates in acquisitions that will most likely link investment banks, government officials and corporations.

Beijing has already decided to merge Netcom and Unicom, creating a full-service provider to compete directly with China Mobile, according to a person briefed by top management at one of the companies but not authorized to speak to the news media. The person declined to be identified.

The parent of China Mobile will take over Railcom, a national fixed-line carrier, said a Railcom spokesman, Guo Xiaozhao. The company will continue to operate as an independent firm, but a fully owned unit.

China Mobile’s chairman, Wang Jianzhou, will head the combined company. China Mobile will also take in Zhang Chunjiang, chairman of Netcom, the smaller of China’s two fixed-line carriers, as its new Communist Party chief, the official news agency Xinhua said.

Li Zhengmao, a Unicom vice president, will be vice president at the larger company, Xinhua said. The agency also reported that Netcom’s senior vice president, Zhang Xiaotie, would join China Mobile.