As part of the break-up, the north sector will merge with China Netcom, sources with the Ministry of Information Industry (MII) told China Daily yesterday.

The north sector will inherit China Telecom's business in 10 provinces and municipalities, including Beijing, Tianjin, Hebei and Shandong.

The south sector will continue using the name China Telecom and will include 21 provinces and municipalities in the southern and northwestern regions, sources said.

A MII spokesman refused to comment.

The break-up had been under consideration for half a year. It was finally agreed to by the State Council in a recent conference.

China Netcom managers refused to comment on the coming merger.

The plan came as a surprise to some business insiders.

Zhang Xinzhu, a telecom researcher with the China Academy of Social Sciences, said the chosen plan is not the best one among the three proposals for China Telecom's reform.

The other two proposals for China Telecom's reform are dividing the company into three businesses - fixed-line, long distance and data - or leaving China Telecom untouched.

China Telecom is applying for the country's third mobile telecom license, and the government may give it to the south sector as compensation, Zhang said.

But Yang Peifang, a researcher with the China Academy of Telecommunications, said the chosen plan is mutually beneficial.

"The two new companies will monopolize the local phone business and become competitors in long-distance calls and data transmission," Yang said.

The going public plan of China Telecom, which ceased after the government decided to split it up, will be picked up soon, and the north and south sectors could both be listed in the stock market, he said.

(China Daily 10/16/2001)