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China Telecom buys Beijing Telecom

Intensive competition from mobile phones and the problematic fixed-line market in China have led to a major consolidation in that country.

As mobile telephony makes its presence increasingly evident in China, fixed-line operators are being challenged with a real threat to their market position or even their very existence. China Telecom has witnessed substantial decline in voice revenue in recent years. It will not, however, sink without a fight. To consolidate its role in the fixed-line voice market, China Telecom has now acquired Beijing Telecom for US$793 million.

Even before the acquisition, China Telecom possessed around two thirds of the country's fixed-line network. The company is at least aware of what is happening: "Due to intensifying mobile substitution, China Telecom experienced negative growth in access lines in service for the first time (in 2007), and voice business revenue decreased by 7.9% from 2006." Of course, Beijing may well come across to China Telecom as an office-based market where there is little physical movement during normal hours and so there would appear to be little difference between fixed and mobile. Whether there is really the case will be decided one way or the other over the next few years.

One sympathetic analysis comes from Charice Wang, an analyst at research firm Ovum: "China Telecom's traditional voice business has been [declining in] recent years...In its annual report for 2007, China Telecom's fixed voice subscribers fell 2.71 million to 220 million, and net profit was $3.20 billion, a year-on-year increase of just 1.1%...It is a good move for China Telecom to boost its bottom line and enlarge its service coverage via the internal integration...It is not a new strategy for China Telecom to absorb the good performance arms of its state-owned parent, China Telecom Group. Back in 2003 and 2004, it acquired six and 10 provincial arms respectively to achieve coverage of [the whole of] South China."

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