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China mulls Unicom-Telecom merger to advance 5G

China mulls Unicom-Telecom merger to advance 5G

The government of China could merge two of the country’s Big Three operators – the second and third placed China Unicom and China Telecom – as it looks to boost 5G investment.

Bloomberg reported that the government is currently only weighing up a proposal for the merger and that it is by no means definite, but noted that if the two state-run operators were combined it could position China to compete more effectively with the US in terms of 5G development.

China Unicom claimed to be unaware of the proposal when contacted, while China Telecom made no comment. Additionally, neither the country’s Ministry of Industry and Information Technology nor the Assets Supervision and Administration unit – which effectively controls state-owned companies – made any statement.

According to the companies’ operating data, China Unicom had 302 million subscribers at the end of Q2 2018, while China Telecom had 282 million. Despite these numbers, both operators are substantially behind the market leader China Mobile, which has 906 million subscribers.

Combining the two operators would create an entity with over 590 million subscribers, which – while still smaller than China Mobile – would nonetheless be the second largest operator in the world, with a value of over $77 billion (based on an increased market value following Bloomberg’s report).

A merger between China Unicom and China Telecom could make 5G investment more attractive and easier, making the government’s 5G goals more attainable. This is not the first time that a merger between the two operators has been mooted, but the government has never decided to deliver on the idea. However, a fomenting trade war with the US has made expediting 5G development a priority.

Chinese vendors are currently under fire in the US, with ZTE having to wind up its operations after an import ban ordered by president Donald Trump left it struggling. While the company has resolved the issue, Huawei is also unable to sell telecoms equipment in the US due to security concerns, and Australia has banned both countries from tendering for 5G contracts.

"5G success is one of the most important goals to China and the merger is the perfect solution to what China wants to achieve," said Edison Lee, an analyst at Jefferies Hong Kong. "As we head into another step up in the U.S.-China trade war, we believe the State Council would be more eager to think fresh and more radically about how to accelerate 5G rollout."

Having just two operators in the Chinese market would indicate that the government is more concerned about pushing Chinese exports than fostering domestic competition, with most markets having at least three major operators.

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