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China’s telecom upheaval shakes investors

China’s major reorganisation of the telecoms market has sent shares in all the major operators tumbling, as investors panic about increased competition and marketing expenditure.

Years in the making, the government this month put into action a master plan that will pave the way for the long awaited introduction of third generation services.

Under the terms of the strategy, mobile market giant China Mobile will acquire small fixed line player China Tietong (formerly China Railcom), and leading fixed line player China Telecom will buy the CDMA network operations of second placed mobile operator China Unicom. China Unicom will maintain its GSM operations but merge with second ranked fixed line operator China Netcom.

All the Chinese players are majority owned by the state, and these latest developments will see large sums of money being shifted around. Unicom is to pay $23.8bn for Netcom, while Telecom is to pay $15.9bn for Unicom’s CDMA unit. Details of China Mobile’s acquisition of Tietong, have not yet been revealed.

The idea, according to the Ministry of Industry and Information (MII), the Ministry of Finance and the powerful National Development and Reform Commission (NDRC), is that the restructuring process will create three strong, integrated operators that would all be allocated 3G licenses.

But questions still remain over the allocation of 3G licences. Although China has expressed much support for its home grown TD-SCDMA standard, evidence of the technology’s maturity is hard to come by.

Nevertheless, senior members of the government likely see the deployment of TD-SCDMA as a political obligation, and it still looks like China Mobile will be bearing this particular burden.

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