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Telecoms split plan a 'bad call'

Business Weekly


The long-awaited breakup plan of China Telecom, reportedly finalized last week, seems to have disappointed many telecoms analysts and experts who warned that the plan may lead to new monopolies while denting the company's competitiveness.
State media reported last week that China Telecom's assets in 10 northern and coastal provinces and cities would merge with China Netcom (CNC).

China Telecom's assets in the 21 remaining provinces and cities in south and northwest China would continue to operate under the name China Telecom.

"It's a bad plan since the split of China Telecom into two companies is not enough," Jay Chen, senior telecoms analyst with Frost & Sullvan's Beijing office, told Business Weekly.

"CNC has always posed as the competitor of China Telecom in data business. With the merger, the competition is simply gone."

Like Chen, many industry watchers are dubious about the effectiveness of the plan, saying it may give rise to new forms of monopolies while harming China Telecom's competitiveness after China joins the World Trade Organization (WTO).

Kan Kaili, a professor with Beijing University of Posts and Telecommunications, warned that it was likely that CNC and China Telecom might become two regional monopoly firms without new rivals.

"This is definitely a questionable plan. Although we're not clear about how the two companies will run their business, it is very likely that the monopoly in the telecoms industry may change from one national monopoly into two regional monopoly companies," he said.

He also said the plan, which scaled down China Telecom's assets, virtually weakens the company's competitive edge after China joins the WTO and allows foreign telecoms giants to compete in China's telecoms industry.

China Telecom has been proposing a series of restructuring plans for the State Council's approval since early this year in a bid to raise between US$4 billion and US$6 billion through an overseas initial public offering (IPO).

An alternative the State Council was believed to have considered was to split the company into three units each engaging in one particuplar business: local fixed-line service, long-distance service and data transmission.

Although it is set to achieve a higher price for the IPO slated for Hong Kong and New York this year, the government had a tough time knowing how to restructure the firm, to break up its monopoly while sharpening its competitiveness.

"I think the split plan will benefit the IPO a little bit. I predict the stock price will pick up a little bit, then it will drop to a reasonable level," said Jay Chen.

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