Like giant pandas in a well-run national park, enjoying tender bamboo leaves yet unable to change their destiny, large Chinese telcos enjoy surging subscribers and profits but are left to ponder their fate.  In China the fate of big business is solved only by the upper heavens.  The rumors of China Unicom, China’s second largest mobile operator, being split into two entities, with its CDMA business going to China Telecom and its GSM part united with China Netcom, fueled a wave of speculations just a few months ago.  Everyone, from telecom analysts and media to the Chinese government officials kept whispering this “news” to me during the Broadband Forum in Beijing.

However, Professor Xie Linzhen was adamant. “There are absolutely no reasons to divide China Unicom,” he told me at the Shenzhen Mobile Conference. “Think about it, this is the third largest operator in the world! And we need to be careful and not rush with final conclusions when we are talking about such large companies!” Looks like Professor Xie turned out to be right.  We’re hearing next to nothing about the split today.  And with the Beijing Olympics around the corner, it seems that the China Mobile – China Unicom status-quo will remain the same until further notice from the State Council.

Let’s glance briefly at the history of telecom restructuring in China.  How did China Telecom, China Netcom, China Mobile and China Unicom evolve?

It all began back in 1994 when the Ministry of Post and Telecommunications (MPT) lost its monopoly.  China’s State Council decided to split monstrously large China Telecom incumbent company into two entities, China Telecom and China Unicom, also creating China Jitong, the operator dealing with data transmission services.  In 1999 newly coined Ministry of Information Industry, combined from MPT and the Ministry of Electronic Industry, moved even further by pulling the wireless business out of China Telecom and creating China Mobile.  At the same time satellite communications went to China Satellite.  Later in 1999 another fixed operator, China Netcom, was born out of China Telecom, while the Railway Ministry formed China Railcom (later transformed into China Tietong).

In 3 years China Telecom gave away another portion of its authority.  The State Council limited its coverage area to 21 provinces and municipalities in southern China.  China Netcom and China Jitong shaped China Network Communication Group, in charge of the fixed telecom business in 10 northern provinces.  In the same year by a merger of dozens of remaining telecom assets China Telecom Corporation was created.  In April 2004 China Netcom began its preparation for an IPO in Hong Kong and therefore formed China Netcom Corporation.  Since that time the operator’s status-quo has not been challenged, despite the huge disparity between major market leaders, like China Mobile in the mobile sector and China Telecom on the fixed market.  “Yet despite the fact that 10 years have passed since the split of China Telecom, this former monopoly still holds the lion’s share of  the fixed telecom market,” added Fang. “China Netcom has to constantly rush to get to the competitor.”  Similarly, China Mobile plays big in the wireless arena, with China Unicom far behind. 

Nevertheless, none of the six major Chinese operators have been truly independent.  Their herd is closely watched by a range of powerful government institutions.  For example, the China State Commission on Development and Reforms was established in 2004 and covers macroeconomic policy issues.  The State-Owned Assets Supervision and Administration Commission (SASAC) plays a key role in managing all six of China’s largest operators.  The Department of Information of the State Council is tasked with strategic tasks.  MII takes care of telecom and IT sector regulation.  Finally, the State Bureau on Radio, Cinema and TV takes care of cable TV matters.  Quoting a frustrated Western consulting company representative, who wanted to remain anonymous, and said “it’s hard to work in the sector, where even the sound of a ringback tone has to get approval from the State Council!”