As new customers opt for and existing subscribers switch to mobile services, fixed-line carriers have seen their demand slump in recent years, especially after the two mobile operators put an end to the two-way charging scheme and began to charge only the callers last spring. China Telecom, for example, said in its annual report on March 31 that income from its voice business fell 7.9 percent from the year before, contributing to a nearly 13 percent drop in its net profit last year.

Because 3G services represent the future of telecommunications, it will be necessary to grant fixed-line operators licenses to offer both fixed-line and mobile services, Yang said. He believes that the industry's restructuring will help invigorate competition, promote technological innovation within the sector and enhance the competitiveness of local operators.

And the winner is

The biggest winner of the restructuring will be China Telecom, said Chen Yunhong, an analyst with Sinolink Securities Co. Ltd., in an interview with China Securities Journal. As the country's largest fixed-line operator, it will obtain a variety of new services and technologies in a short time when it acquires the CDMA network and secures licenses for both fixed-line and mobile services, he said. Chen also believes China Telecom's new and incremental services will develop much faster this year than those of the other two dual-network operators.

After taking over the CDMA business, China Telecom will see additional revenue of at least 27.7 billion yuan ($4 billion) and 41.8 million more customers, based on China Unicom's CDMA revenue and user figures from last year, said Li Jinliang, former chief engineer at China Electronics Technology Corp.

China Mobile no longer will enjoy absolute dominance in the market, although its revenue will not likely shrink after the reshuffling, Chen said.

The world's largest mobile operator may see a drop in its market share, but its overall profitability will stay intact, Chen said, because "China Mobile is the most competent among China's major telecom carriers in terms of investment acquisition, overseas investment and business range."

Unlike China Mobile's acquisition of Tietong, in which the latter could be allowed to operate independently, China Telecom, China Unicom and China Netcom have to address tricky problems in their networks, businesses and personnel integration to compete with the industry's number one, said Zhang Peng, an analyst at the private investment bank China eCapital Corp.

The integration has been particularly difficult for Unicom and Netcom, Chen said, because they are both "number two" respectively in mobile services and fixed-line services in China and "roughly equal in size and strength."

"China Telecom and the newly formed China Unicom will be left far behind in three years if they merely rely on existing resources and services without innovations after the restructuring," said Shi Wei, an NDRC official, in an article in 21st Century Business Herald.

Equipment makers rejoice

Besides encouraging effective competition in the industry, another goal of China's telecom restructuring is pushing through the long-awaited release of 3G licenses. China has one of the world's biggest mobile markets, but it will be one of the last countries to launch commercial 3G services. Deng Shoupeng, Director General of the Economic Development Research Center of the State Council, says China will invest 600 billion yuan ($85.7 billion) in the first six years after it launches commercial 3G services on a trial basis.

Of the three major 3G mobile communi-cation standards, W-CDMA dominates European and Japanese markets, while American and Korean customers prefer the CDMA2000 standard. China has its homegrown TD-SCDMA standard. China Mobile has been developing services for its own platform for a couple of years. With China Unicom's CDMA network, China Telecom will be able to offer CDMA2000 services, while the new China Unicom will merge with China Netcom to co-develop WCDMA services.

Of the global telecom equipment providers, Ericsson Corp., Nokia Corp., Siemens Corp. and Huawei Technologies Co. Ltd. support the WCDMA standard. Alcatel-Lucent Corp. and ZTE Corp. have chosen the CDMA 2000 standard of which Qualcomm Corp. holds key patent rights and has raked in excessive royalties from each CDMA-enabled handset. Major supporters of TD-SCDMA are local equipment providers such as ZTE, Datang Telecom Technology Co. Ltd. and Shanghai Potevio Co. Ltd.

Despite that Nokia and Ericsson have already established 3G research centers in China, local equipment providers have secured the lion's share of 3G purchase orders from Chinese telecom operators. Multinationals have had to enter the Chinese 3G market by cooperating with local providers. Ericsson, for example, has managed to stick its finger in the 3G pie here by teaming up with ZTE to deliver TD-SCDMA solutions on an original equipment manufacturer basis.

Ericsson has made a huge investment in the research and development of 3G technologies, which accounted for 15 percent of its total revenue last year, said Jiang Hao, Vice President of Ericsson (China) Co. Ltd., in an article in 21st Century Business Herald. By this April, Ericsson had provided 144 WCDMA commercial networks to the global market, accounting for 53 percent of total WCDMA networks worldwide.

Local provider ZTE is one of the pioneers in developing 3G mobile services in China. It has developed a variety of products based on CDMA 2000 technology. Its market share for TD-SCDMA terminal equipment is more than 35 percent.

ZTE holds nearly 50 percent of China Mobile's orders for TD-SCDMA system equipment. Datang and Alcatel-Lucent together have 30 percent, while Huawei and Siemens both have 10 percent of the network equipment orders, according to a report in Economic Observer weekly on May 12.