China's largest mobile communications company, China Mobile Communications Corp., announced on May 23 that it would acquire China Railway Communication Co. Ltd., also known as Tietong, a smaller fixed-line carrier. The move kicked off the long-awaited restructuring of the country's telecommunications sector.

The next day, the newly formed Ministry of Industry and Information, the National Development and Reform Commission (NDRC) and the Ministry of Finance jointly issued the final restructuring plan. Under the plan, the country's six major fix-line and mobile network operators will be merged or split into three new operators and offer both mobile and fixed-line services. At present, Chinese fixed-line operators are split along geographical lines and are only licensed to offer fixed-line services, while mobile operators are permitted to offer only cellular services.

Following China Mobile, the country's biggest fixed-line carrier China Telecommunications Corp. (China Telecom) will acquire the CDMA (Code Division Multiple Access) mobile network from China United Telecommunications Corp. (China Unicom), the country's second largest mobile network carrier. China Telecom also will acquire the basic telecommunication services of China Satellite Communications Corp. (China Satcom), which offers satellite-based communications services. China Unicom will retain its GSM (Global System for Mobile Communication) network and merge with the second biggest fixed-line operator China Network Communications Group Corp. (China Netcom).

When the top four operators complete the restructuring, China will issue 3G licenses, according to the joint statement. The statement did not give a deadline for when the restructuring would be finished, but a Xinhua News Agency report estimated it would take 12 to 18 months.

Some telecom analysts widely believe that China Mobile will get the license for offering 3G services based on the TD-SCDMA (Time Division-Synchronous CDMA) standard. They say China Telecom will get the CDMA2000 license and China Unicom the WCDMA (Wideband-CDMA) license, triggering real competition for 3G services after the telecommunications landscape in China is reshaped.

The lay of the land

China topped other countries in the world last year in terms of the number of subscribers for fixed-line and mobile services. From 2001 to 2007, its telecom industry revenue increased more than 11 percent annually from 371.9 billion yuan ($53 billion) to 728 billion yuan ($104 billion). The number of subscribers increased by around 100 million every year during this period from 326 million to 913 million at present, of which 547 are mobile phone users.

But the Chinese telecom market is not a solid one.

"The sound development of the telecommunications industry needs sufficient and effective competition among a few big corporations," said Yang Peifang, Secretary-General of the Telecom Economists Panel under the Ministry of Industry and Information, in an interview with China Central Television. "The development of the telecom industry can benefit customers only when its resources are properly distributed."

In this market, China Mobile is the unquestionable winner and has left the other three operators far behind in terms of performance. Its revenue last year hit about 357 billion yuan ($51 billion), up 20.9 percent from the previous year. China Telecom's revenue was 178.66 billion yuan ($28.4 billion); China Unicom's 99.54 billion yuan ($14 billion); and China Netcom's 84 billion yuan ($12 billion). China Mobile's net profit last year was 87.1 billion yuan ($12.44 billion), an increase of 31.9 percent from the previous year and almost double the net profit of the other three operators combined, which stood at 45 billion yuan ($6.4 billion).

The main problem with China's telecom industry is "the structural imbalance between fixed-line operators and mobile operators, which has contributed to the shrinking of the fixed-line business," said Lu Yuanjie, Dean of Economics and Management School, Beijing University of Post and Telecom, in an interview with China Central Television.