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Bloomberg
China is exploring a merger between two of the nation’s three wireless carriers to speed up the development of 5G mobile services amid a race with the US over the technology, according to people familiar with the matter.
The country’s top leaders are reviewing a proposal to combine China United Network Communications Group Co. and China Telecommunications Corp. but no decision’s been made and
a merger may not happen, said the people, who asked not to be identified discussing a private matter.
At stake is the ability to shape and control 5G, the high-speed wireless technology billed as the key to revolutionising how we use everything from home appliances to cars. Concerns that China could get the upper hand led to US. President Donald Trump to block Broadcom Inc.’s bid to buy chipmaker Qualcomm Inc., in what would have been the biggest-ever acquisition in the technology industry.
The Hong Kong-listed vehicles of the two state-run companies, both of which trail China Mobile Ltd. in scale, surged on Tuesday. China Unicom (Hong Kong) Ltd. climbed 5.9 percent, the biggest gain since November 2016, while China Telecom Corp. rose 4 percent. Their combined market value increased to more than $77 billion.
Unicom said it isn’t aware of a merger. China Telecom didn’t immediately respond to a request for comment. The State-owned Assets Supervision and Administration Commission, which oversees China’s state-owned enterprises, and the Ministry of Industry and Information Technology didn’t immediately reply to queries.
The combination of Unicom and China Telecom would create a carrier with more than 590 million mobile-phone subscribers, a number that would be second only to China Mobile among wireless operators worldwide.
The proposal being reviewed argues that a merger could speed up the government’s ability to push through its 5G ambitions because a combined company could make the necessary investments more easily than separately, the people said.
Merger Speculation
A deal may not be a total surprise to analysts such as Jefferies Hong Kong Ltd.’s Edison Lee, who’s been flagging the possibility of a merger between the two companies since July and as recently as last month. Chinese media has also speculated on a possible merger, though executives at Unicom and China Telecom have played those down as recently as last month at their earnings briefings.
The Chinese government has been considering the merger of the two carriers for years but escalating tensions with the US have raised the urgency of the matter, the people said. For example, the US’s recent temporary export ban on ZTE Corp., which nearly crippled the company because of its reliance on American technology, helped give China reason to make 5G development a higher priority, the proposal argues, according to the people. A merger would also signal that the Chinese government would be willing to sacrifice the benefits of local competition over the speed of 5G adoption by reducing its number of phone operators to two. Most markets worldwide have three to four carriers.
Communications technology is part of President Xi Jinping’s “Made in China 2025†programme to make the country a leader in a range of high-tech industries. China holds a narrow lead over the US and South Korea in 5G readiness, thanks to proactive government policies and industry momentum, according to a report by research firm Analysys Mason.