The break-up of China's largest fixed-line operator China Telecom by the State Council signals further reforms in China's telecommunications industry as the country formally entered the World Trade Organization yesterday.

"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.

A spokesman for the Ministry of Information Industry (MII) confirmed yesterday that the State Council had approved the split up of China Telecom and that MII is authorized to execute the plan.

China Telecom will be split into two companies by regions.

The assets of the present China Telecom in North China's Beijing and Tianjin municipalities, the Inner Mongolia Autonomous Region and Hebei and Shanxi provinces, Northeast China's Liaoning, Jilin and Heilongjiang provinces, Central China's Henan Province and East China's Shandong Province will merge with China Netcom Co Ltd and China Jitong Network Communications Co Ltd.

The new company will be named China Netcom Group Corp.

China Telecom's assets in the other 21 provinces, municipalities and autonomous regions will retain the brand name and intangible assets of the old China Telecom.

Both companies are allowed to build a local telephone network and operate local fixed-line services, and each should provide equal and fair interconnection to the other, the break-up plan dictates.

The new China Netcom will inherit 30 percent of the old China Telecom's national backbone network, with the rest going to the new China Telecom.

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.

The final approval for the split also brings good news to telecom equipment makers, as the delay of the break-up of China Telecom has made some operators postpone progress of infrastructure construction.

The present China Telecom had about 140 million subscribers, 157 billion yuan (US$19 billion) in revenue.

(China Daily December 12, 2001)