Why are there constant news about the merger between China Telecom and China Unicom? The reason is related to this matter

China Mobile is too powerful. Do China Unicom and China Telecom need to merge to compete with it?

Some time ago, netizens often complained about China Mobile's "expensive data and old users being unable to sign up for new packages." Many China Mobile users switched to China Unicom and China Telecom. However, when the interim reports of these three companies came out in recent days, people realized that the size of China Unicom, China Telecom and China Mobile was so different.

According to the financial report, China Mobile's revenue in the first half of the year was about 1.2 times that of China Unicom and China Telecom combined, and its net profit was 4 times as much. Faced with China Mobile's dominance and the huge cost of building 5G networks in the future, it is no wonder that there are news reports from time to time that China Unicom and China Telecom are going to merge.

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Merger rumors clarified

Earlier, Bloomberg reported that China is evaluating the merger of its two major telecom operators, China Unicom and China Telecom. On September 4, China Unicom officially responded to a reporter from the National Business Daily (WeChat ID: nbdnews) that the company has noticed media reports about the merger of China Unicom and China Telecom. The company is not aware of the relevant situation and has not received any relevant notification.

An insider of China Telecom also told the reporter that he had not heard of the relevant news, and said that the merger and reorganization of national basic telecommunications enterprises are often decided by the National Development and Reform Commission. Influenced by the merger rumors, China Unicom's Hong Kong shares rose nearly 8% during the session, and China Telecom's Hong Kong shares rose more than 6%.

Industry insiders told reporters that whenever communication technology is updated, there will be news that China Telecom and China Unicom are going to merge. The reason for the media reporting the merger this time is the pressure of future 5G network construction.

Changes in senior management of both parties

Rumors about the merger of China Telecom and China Unicom began to circulate in the first half of this year, and senior executives of China Unicom and China Telecom have repeatedly denied it. On August 20, Yang Jie, chairman of China Telecom, said at a performance briefing in Hong Kong that "rumors about mergers and acquisitions have not stopped in recent years. Rumors are common in the industry, which is actually good, as it shows that telecom companies have a strong presence."

Earlier on August 15, China Unicom Chairman and CEO Wang Xiaochu said at an earnings conference that he had not heard any notification from the regulatory authorities regarding the merger.

The reporter noticed that just recently, China Unicom and China Telecom made several changes in senior management. Liu Aili, general manager of China Telecom Group Corporation, was appointed as general manager and party secretary of China Post Group Corporation, while Li Guohua, general manager of China Post Group Corporation, was appointed as general manager of China Unicom Group. Lu Yimin, general manager of China Unicom, was transferred to the position of general manager of China General Technology.

On August 19, the reporter learned from an insider of China Unicom that China United Network Communications Group Co., Ltd. plans to start the capital reduction process, and the 11 small shareholders of Unicom Group will gradually reduce their holdings of relevant shares of Unicom Group. However, the insider also denied to the reporter that the small shareholders' withdrawal of shares was related to the rumored merger of Unicom and Telecom.

In addition, at a video conference of the heads of central enterprises and local SASACs held in July, the relevant head of the SASAC clearly stated that the strategic restructuring of central enterprises in the fields of equipment manufacturing, coal, electricity, communications, and chemicals should be steadily promoted in the second half of the year. The merger of central enterprise communications companies was mentioned.

From the perspective of the operator landscape, China Mobile is the only dominant player, and China Telecom and China Unicom are no longer on the same level. Telecom industry analyst Liu Qicheng told reporters that there have been voices in the industry that hope that China Telecom and China Unicom will merge to form a market balance with China Mobile.

According to the financial report, as of the end of the first half of the year, China Mobile had 900 million mobile users, 135 million broadband users, main business income of 391.8 billion yuan, and net profit of 65.6 billion yuan; China Telecom had 282 million mobile users, 141 million broadband users, main business income of 193.029 billion yuan, and net profit of 13.57 billion yuan; China Unicom had 203 million mobile users, 78.91 million broadband users, main business income of 134.4 billion yuan, and net profit of 2.58 billion yuan.

5G construction is under great pressure

In addition to the changes in senior management, the reason why the market continues to speculate on mergers is mainly because operators need huge expenses for 5G construction. In addition to continuing to increase network speed, 5G will also meet the low latency, high reliability and high density performance required for communication between people and things, and between things, and finally usher in the era of "Internet of Everything". All these have caused the cost of 5G construction to increase sharply compared with the 4G era.

Data provided to reporters by the communications industry analysis department of CITIC Construction Investment Group shows that my country is expected to officially start 5G construction in 2019 and start large-scale construction in 2020. It is expected that the number of 5G base stations will be twice that of 4G in the future, and the main investment of operators in 5G network construction may reach 1.23 trillion yuan, an increase of 68% over 4G investment.

Liu Qicheng told reporters: Another driving force behind the merger of China Telecom and China Unicom is the upcoming 5G "battle". Since spectrum allocation and frequency band division directly involve the issuance of several 5G licenses, the three operators are also competing openly and secretly. There are rumors in the industry that only two 5G licenses will be issued in China, which also provides room for imagination for the merger of China Telecom and China Unicom from another perspective.

The reporter noticed that in 2015, during the 4G construction period, news of the merger between China Telecom and China Unicom was often reported.

Another operator told reporters that 5G construction is at the strategic level of national economic development. In order to improve my country's competitiveness in the next generation of communication technology, it is possible to deploy China Unicom and China Telecom to jointly build a 5G network.

The global 5G competition is heating up. On September 4, multiple foreign media reported that South Korea's three major telecom operators, SKT, KT and LG U+, said they would start commercial transmission of 5G signals on December 1, 2018, which means that South Korea will become the first country in the world to commercialize 5G. The United States is focusing on deploying fixed wireless access in 2019. According to the plan of the Ministry of Industry and Information Technology, my country is expected to achieve pre-commercial use of 5G wireless networks in the second half of 2019.