State Council Approves China Telecom's North-South Split Plan

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Last updated at: (Beijing Time) Wednesday, December 12, 2001

State Council Approves China Telecom's North-South Split Plan

A spokesman for the Ministry of Information Industry (MII) confirmed Tuesday that the State Council had approved the split up of China Telecom and that MII is authorized to execute the plan. The break-up signals further reforms in China's telecommunications industry as the country formally entered the World Trade Organization.

China Telecom's North-South Split Plan

The State Council recently approved China Telecom's restructuring plan, under which the telecom giant is to be divided into the north sector and the south sector.

Telecom enterprises in North China, (Beijing, Tianjin, Hebei, Shanxi and Inner Mongolia), northeast areas (Liaoning, Jilin and Helongjiang) and Henan, Shandong belong to the north sector of China Telecom. The rest belong to the south sector. The north sector will regroup with China Netcom and Jitong to become a net communication group company. The south sector maintains the name and credit of "China Telecom", as well as its intangible assets.

After reorganization, the two groups will retain the existing business scope of China Telecom, and are allowed to set up local network and handle fixed-line business in areas under each other's regime. They can provide each other mutually beneficial services such as equal accession.

The north and south sectors own respectively 70 percent and 30 percent property rights of China Telecom's national trunk line transmission network in accordance with the quantity of optical fibers and channel capacity, as well as all local telephone network under their respective jurisdiction. The Ministry of Information Industry is responsible for carrying out the above-said plan.

Signal for Further Opening

"The announcement came at a special time and may be a signal of further opening up to the world,'' said Renee Gamble, a senior telecom analyst with the worldwide IT research firm International Data Corporation (IDC) Asia-Pacific.

"Chinese telecom operators have been keen on listing overseas, and the split will enhance their competitiveness and make them more attractive to foreign investors,'' she added.

The restructuring is aimed at sharpening the competitive edge of the two operators and curbing the profit declines.

"There will be tough competition between the two companies, so new services will be very important to them,'' Gamble said.

She also pointed out that since both companies can build networks and operate in each other's areas, they will also set an example for the interconnection of all telecom operators. That has been a major headache for smaller companies such as China Railcom.

Gamble predicted the restructure would also solve a major obstacle for the listings of both companies. Yet given the complexity of the implementation of the break-up, their listing might not be possible for at least a year, she said.

China Telecom, China Mobile and China Unicom reduced investment in fixed assets by about 6 per cent quarter-to-quarter to 61 billion yuan (US$7.4 billion) in the third quarter mainly due to the delays, according to statistics from the IT research firm CCID Consulting Co Ltd.

The present China Telecom had about 140 million subscribers, 157 billion yuan (US$19 billion) in revenue and about 15 million Internet users as of the end of November.

Backgrounder -- China Telecom

In 1994, China Telecom was established as an independent legal enterprise under the Ministry of Posts and Telecommunications (MPT). It has been responsible for development, construction, operation and maintenance of the public telecommunications network, operating most voice, data and paging networks in the country.

During the period of January-July 2000,the telecom turnover was accumulated to 97.905 billion yuan,increased by 17.47% and the revenue was 96.936 billion yuan,increased by 17.96% over the same period of 1999,Some 21.11 million new subscribers got access to the fixed public switched telephone network(PSTN),raising the total to 129.80 million,among which,85.30 million are urban subscribers,accounting to 65.71% of the whole,and residential subscribers accounted for 81.76%. More

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