China considers merging two major mobile operators in 5G push

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China Unicom said when asked about a possible merger with China Telecom that it has not received any notification from authorities about the matter, according to Caixin.

Bloomberg reported that the country's top leaders are reviewing a proposal to combine China United Network Communications Group Co (China Unicom) and China Telecommunications Corp, adding that no decision has been made and that a merger may not happen. China Unicom's listed unit fell 2.4 percent to HKD9.35 (USD1.19) a share, while China Telecom lost 1 percent to HKD3.85.

The proposed merger would create a telco with 590 million customers, making it the world's second largest mobile operator after domestic rival China Mobile, and provide the revenue and additional operational efficiencies to accelerate rollout.

The government of China could merge two of the country's Big Three operators - the second and third placed China Unicom and China Telecom - as it looks to boost 5G investment.

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"5G success is one of the most important goals to China and the merger is the flawless solution to what China wants to achieve", said Edison Lee, an analyst at Jefferies Hong Kong. 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 reply to queries. The current argument for a merger between the two is based on the ability of a combined company to more easily make the huge investments required to build out a 5G network.

Why it's important: The reason behind the incentive is not just the numbers, it is 5G technology.

Two Chinese telecom equipment companies, ZTE and Huawei, both have run into troubles selling their gear into the United States and, more recently, Australia.

Huawei Technologies, the world's largest maker of equipment for networks, and ZTE were banned from selling their gear to a United States ally, Australia, which cited security concern. And that's before you take into account the ongoing talk of a trade war between the USA and China. Thanks to government policy, China is slightly ahead of developed nations like US, South Korea, and Japan in 5G.

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