[ET Net News Agency, 6 September 2018] A newswire citing insider reported that Chinese
government plans to merge China Unicom (00762) and China Telecom (00728).
Citi Research believes the chance of such a merger is not high in the mid-term, as this
would reduce competition and 5G capex, contradicting other regulatory targets such as
market-driven reform and development of the 5G supply chain in China.
But the research house does not exclude the possibility that regulators may approve such
a plan as the target of boosting China's 5G service development could outweigh other
targets.
If the merger were to happen, it would be positive for Unicom and Telecom, slightly
positive for China Mobile (00941), and negative for equipment/infrastructure suppliers,
Citi said.
Citi believes a merger of Unicom and Telecom would reduce duplicated capex for the two
parties, making the combined entity financially healthier to drive nationwide 5G coverage.
However, synergy of the discussed merger may not be that apparent. SOEs in China normally
can hardly downsize the number of employees after a merger, and it could be time consuming
for the organizational/cultural consolidation. (KL)