Chinese Telecom: Who Wins, Who Loses?

As China's telecom restructuring gathers steam, there is one big question looming for the world's global telecom players: Will China's long-sought-after telecommunications market finally open to the likes of Vodafone (VOD), Telefonica, and SK Telecom, all of which have been limited to minority stakes of under 7% in Chinese telecom operators?

The restructuring looks certain to shift power among the Chinese players. The country's dominant cell-phone operator, China Mobile (CHL), will see stronger competition after China's six telephone operators are merged into three supercarriers. China Mobile will swallow China Railway Communications and take over its fixed-line business.

The country's largest fixed-line operator, China Telecom, will acquire China Unicom's (CHU) CDMA operations and move into the mobile-phone business (BusinessWeek.com, 6/3/08). Weaker rivals China Unicom and China Netcom will become more formidable competitors after their merger (BusinessWeek, 6/2/08).

China Mobile Likely to Remain Top Dog

However, Jonathan Dharmapalan, head of Ernst & Young's Global Telecommunications Center in Beijing, isn't predicting that China Mobile will be unseated from its top spot in the market anytime soon. "China Mobile is a very strong, very capable, well-managed operation," he says. "They will see two stronger competitors in the marketplace, but they've always shown themselves to be able to navigate through that. They do have a head start."

But what does it mean for foreign telecom operators? For the past couple years, China's telecom players have put their investment plans on hold, while China's bureaucrats have bickered over the telecom restructuring plan. Now that it is finally taking shape, network equipment manufacturers like ZTE, Huawei, and Ericsson (ERIC), and handset manufacturers like Nokia (NOK) and Motorola (MOT) are expecting a flood of new orders.

"The restructuring of telecommunication will be the good opportunity for not only China operating companies but also foreign operators who want to invest," says Lee Suk Hwan, CEO of SK Telecom (China) and a member of China Unicom's board of directors who voted in favor of the restructuring. "Before restructuring, there were so many uncertainties."

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