Threatened by the prospects of losing the leading status following the reshuffle in mainland telecommunication sector, shares of China Mobile nosedived yesterday, plunging 8 percent.

But, boosted by the imminent launch of 3G services, network equipment stocks soared yesterday.

The long-awaited reshuffle became a reality last Friday when the telecom regulatory released a joint statement to announce the six telecommunication operators would merge into three.

Under the possible restructuring plan, China Mobile might be awarded TD-SCDMA license, alongside with new China Telecom and new Unicom respectively getting the other two 3G licenses - CDMA 2000 and WCDMA.

Shares of China Mobile were under huge short-sell pressure yesterday on the fears the mandate would significantly undermine the company's dominance. The price tumbled 8.1 percent to end at HK$114.90.

The mainland has unveiled its new chapter for 3G business. Shares of China Unicom, Telecom and Netcom were suspended from trading yesterday. AFP

Celestial Securities Head of Research Eugene Law said investors were worried about the newly-released policy which might be unfavorable to China Mobile, and "rumors spread that the central government could separate the existing business of China Mobile into two portions on the hope to strike the balance of the industry."

However, he predicted the reshuffle would not pose a threat to China Mobile, saying "its leading status will not be challenged over the next 10 years. The company's shares are expected to bounce back at HK$110."

Castor Pang, strategist of Sun Hung Kai Financial Group, said that the China Mobile's market status will remain firm.

"Given the company's widespread network and coverage, its mobile business is unlikely to be affected by the two counterparts," he said.

"Over the long term, the reorganization may cut into China Mobile's dominance, but is unlikely to have much impact on the short-to-medium term," a Moody's report said.

A UBS report gives China Mobile "buy" rating with target price of HK$125. The report expects the execution of restructuring will take a few months and the mainland telecome sector's capital expenditure will enter an upward swing.

Separately, shares of China Unicom, Telecom and Netcom were suspended from trading yesterday.

Law predicted that investors of the three telecommunication companies would offload their stocks to book profits after suspension.

Telecom equipment stocks yesterday soared considerably.

ZTE Corporation rose 1.11 percent to HK$36.35. China Communication Services Corporation surged 19.2 percent to HK$2.85. Comba Telecom Systems Holdings and Centron Telecom International went up 0.44 percent and 6.51 percent respectively, closing at HK$6.80 and HK$2.29.

Pang said that telecom equipment stocks were spurred by the landing of the 3G services, but their prices have already overshot and they would be under correction in the short run.

(HK Edition 05/27/2008 page2)