28 October 2016
A shakeup in China's telecom industry is looming, with Unicom and China Telecom likely to strike a major network sharing agreement next year and could ultimately merge in 2017. Photo: Reuters
A shakeup in China's telecom industry is looming, with Unicom and China Telecom likely to strike a major network sharing agreement next year and could ultimately merge in 2017. Photo: Reuters

Did Unicom just flag a shakeup in the telecom market?

Wireless carrier Unicom (00763.HK; CHU.US) is giving the clearest signal yet of a coming shakeup in China’s telecoms space, with disclosure that it’s exploring a potential pooling of infrastructure resources with other companies.

Word of the move comes in a bigger announcement from Unicom trumpeting the launch of its new 4G+ service as it plays catch-up to archrival China Mobile (00941.HK; CHL.US), which has been offering 4G service for nearly two years now.

Industry watchers are more likely to focus on Unicom’s network-sharing part of the announcement, which comes toward the end of the carrier’s brief new stock exchange filing.

That’s because the disclosure marks the latest signal of a looming reorganization for China’s three state-run telcos after rumors that began in the summer following a leadership shuffle.

That shuffle saw the heads of China’s two smaller carriers — Unicom and China Telecom (00728.HK; CHA.US) — change places.

Such a move would be unthinkable in any western country but is actually quite normal in China’s big state-run companies where top positions are often training grounds for Communist Party officials and bureaucrats.

The change prompted some to speculate a shakeup could be coming that would see Unicom and China Telecom merge to better compete with industry giant China Mobile.

Such a move made sense because the smaller telcos only controlled a third of China’s massive market collectively while China Mobile held the rest.

That ratio has remained roughly unchanged for much of the past five years despite Beijing’s best efforts to create a more level playing field.

Let’s look at Unicom’s latest network-sharing plans hidden at the bottom of a bigger announcement for the launch of its 4G+ service under its Wo brand name.

We’ll skip that part of that announcement, which is mostly fluff, and go straight to the bottom where Unicom announces the potential for sharing network resources as a sort of afterthought.

Unicom says it will accelerate the construction of its 4G network and “concurrently explore the expansion of co-building and sharing of infrastructure facilities to optimize resources allocation”.

No names are given in the announcement but the most obvious partner for such resource sharing would be China Telecom, whose current chairman, Chang Xiaobing, is intimately familiar with China Unicom after spending years at the head of the company.

This particular announcement provides confirmation from November reports that Unicom was studying a plan for network sharing with China Telecom.

The reports cited Unicom confirming such a plan was being crafted, though this new filing marks the first time the company has issued a public statement on the matter.

China Telecom declined to comment at the time of the earlier reports and hasn’t issued any new comments to date.

Now that we’ve covered the latest developments, the bigger questions are: What’s next and how will shareholders of the companies be affected by future developments?

At this point, it’s still not really clear whether Beijing plans to merge Unicom and China Telecom or just force them to work more closely together to better utilize their resources.

My best guess, based on years of following these companies, is that the Ministry of Industry and Information Technology (MIIT) has yet to make a final decision on the topic.

Accordingly, this network-sharing plan is likely to move ahead and will probably result in a formal agreement sometime next year.

The two sides will probably be pressured to integrate their operations after that, with the result that an outright merger could come sometime in 2017 if things go smoothly.

But all that said, there’s still no clear signal that things will go according to plan and Beijing could even worry that reducing the field of carriers from three to just two might stifle competition.

To offset those concerns, MIIT has recently launched a number of pilot programs including one that is letting private companies such as Alibaba (BABA.US) and (JD.US) offer telecoms services by leasing network capacity from the big state-run carriers.

If those trial programs start to gain some traction in the next two years, it’s quite possible the regulator could gain enough confidence to move ahead with a consolidation for China Telecom and Unicom into a single company.

In terms of what the move would mean for shareholders, the answer is still a bit unclear.

A merger deal would probably offer shareholders a premium for their Hong Kong and US-listed stock but that could still be at least two years away.

In the meantime, anything is really possible for the stocks of all three carriers as they aggressively promote 4G services in a Chinese telecoms services market that is becoming increasingly saturated.

Bottom line: Unicom and China Telecom are likely to strike a major new network sharing agreement next year and could ultimately merge in 2017 if several pilot programs to liberalize China’s telecoms services market gain momentum.

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A commentator on China company news and associate professor in the journalism department of Fudan University in Shanghai. Follow him on his blog at

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