Related: China Mobile Announces Acquisition of China Railway Communication

               Telecom Industry Starts Long-awaited Reshuffle

               Jury Out on Dramatic Telecom Restructure

Chinese officials said Saturday that the country aims to issue three licenses for its third generation mobile phone technology (3G) following an industry reorganization beginning Friday.

"Based on the current situation of the telecom industry, we encourage China Telecom to buy China Unicom's code-division multiple access (CDMA) network and China Unicom to incorporate with China Netcom," the Ministry of Industry and Information Technology, the National Development and Reform Commission, and the Ministry of Finance said in a joint statement.

China Unicom has two mobile networks, the CDMA and the global system for mobile communications (GSM).

"We encourage China Telecom to combine the basic telecom services unit of China Satcom and China Mobile Communications Corp. (CMCC) to take control of China Tietong Telecommunications Corp.," said the statement.

China Telecom, China Netcom, and China Tietong are fixed line providers, while China Satcom offers services including satellite, mobile communications and Internet services.

The phone operators were told to work out formal restructuring plans as soon as possible and submit them to the relevant departments.

The statement came one day after the CMCC, the parent of China Mobile, the nation's No.1 wireless operator, announced that China Tietong became its wholly-owned subsidiary.

The move began the long-anticipated industry restructuring.

"Three 3G licenses would be issued to help create three competitive phone companies that have telecom resources nationwide, near equal strength and scale, and can offer both mobile and fixed-line services," the statement noted.

China has promised to provide 3G services for the Olympic Games in August.

The industry overhaul would help to optimize resources and create a market with neither monopolies nor excessive competition and overlapping construction, according to the statement.

The extreme structural imbalance was bad for industry development and the revamp would boost competition by letting all three restructured groups develop a full range of businesses, said Everbright Securities analyst Zhou Liqian.

China Mobile's revenues equaled those of China Telecom, China Netcom and China Unicom combined last year, while its profit was double that of the three together, financial results showed.

Fixed-line operators were having a hard time, since they were losing subscribers to mobile rivals. The number of mobile users jumped 36.2 million in the first four months of 2008 to 584 million, while fixed-line users dropped 5.4 million to 360 million.

Analysts said they also expected the kick-off of the restructuring to give impetus to China's preparation for 3G high-speed wireless services, which require huge investments.

"The reshuffle could speed up the development and application of new technologies," said Wang Feng, wireless service manager at the real estate information website Soufun.com. "It's good news for consumers."

The International Telecommunication Union recognized China's home-grown TD-SCDMA (Time Division Synchronous Code Division Multiple Access) as one of the world's three official 3G standards in 2000. The other two are Europe's WCDMA and North America's CDMA 2000.

China has launched commercial trials of 3G services based on TD-SCDMA in eight major cities. It has said it would give equal status to WCDMA and CDMA 2000 despite its support for the domestic standard.