Merger speculation sparks share surge

12 Feb 2015

Shares of all three of China’s mobile operators rose after rumours emerged that the smallest two, China Telecom and China Unicom, would be merged. Barron’s Asia writes that Unicom shares jumped 6.3% in recent trading whilst Telecom and China Mobile saw advances of 6.6% and 3.3% respectively. The speculation was played down by both Telecom and Unicom, with spokespeople for the two firms saying that they were unaware of any merger plans. Despite its impact on the companies’ shares, the rumours have been widely rejected by analysts, given the government’s recent drive to increase competition in the telecoms sector.

China Mobile dominates the wireless market, representing more than 60% of the country’s mobile subscribers at end-2014, and a merger of its two smaller rivals would place its competitors in a better position to challenge its lead effectively. However, such a merger would also create a de facto monopoly in the fixed line telephony and broadband markets at the same time as the government is taking steps to increase competition in the segment. Indeed, TeleGeography’s GlobalComms Database notes that Unicom and Telecom were subject to an anti-monopoly investigation by the National Development and Reform Commission (NDRC) between 2011 and 2014.

China, China Mobile, China Mobile Communications Group (previously CMCC), China Telecom Corporation, China Unicom, China Unicom Corporation (CUCL)