China’s Second- and Third-Largest Operators Could Merge for 5G
The ongoing competition for global supremacy in 5G networks, particularly between the US and China, could be pushing one of the largest mobile mergers in history.
According to reports, the Chinese government is considering a proposal to combine two of the country’s top mobile operators, forming a company with up to 585 million total subscriptions. China Telecom has about 302 million subscriptions and China Unicom has around 283 million. To highlight how large the Chinese market is, the combination of the two companies would still trail behind the largest operator in the country and worldwide — China Mobile would hold on to the top spot with its more than 900 million subscribers.
Stories of a merger between these operators have been floating around for years, but the desire to accelerate 5G development and deployment could push this to fruition. The combined entity would benefit from great scale, allowing it to allocate more resources toward investment in 5G networks.
The merger discussions are reportedly still in the early stages, but the current political climate and ongoing trade disputes between the US and China, particularly in the telecom sector, could create a stronger sense of urgency.
Communications technology is part of Chinese president Xi Jinping’s “Made in China 2025” programme to make the country the frontrunner in several hi-tech industries. Unlike in 4G, China is set to be among the pacesetters in the development of 5G services, boosted by proactive government policies and industry momentum. Indeed, CCS Insight’s latest forecast for 5G adoption — published last week — projects huge uptake for the market (see Market Forecast: 5G Connections, Worldwide, 2018-2025 (August 2018 Update)).
A merger would mean that the Chinese government is willing to sacrifice the benefits of domestic competition for faster 5G adoption. Most countries typically have three or more operators to compete on price and coverage to attract and hold customers. However, simply merging two players does not guarantee strong 5G uptake, and a counter-argument is that strong competition acts as the greatest spur of increased investment.
Given the size of these companies and the Chinese market, a deal between China Telecom and China Unicom would alter the scope of the market worldwide. Together the two companies would surpass Vodafone to become the world’s second-largest operator behind China Mobile. This would leave a mark on the global telecom landscape.
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