China is reportedly exploring a mega-merger between two of its three wireless carriers – China United Network Communications Group (China Unicom) and China Telecommunications Corp (China Telecom).
Neither company has confirmed the report on Bloomberg this morning, which was based on sources close to the discussions.
The aim of such a merger would be to speed up the development of 5G services in a race for global dominance between China, the US, and South Korea.
With a combined total of nearly 600 million subscribers, the mega-merger would create a more substantial rival to China Mobile, which has more than 900 million, making China’s resulting two providers the largest wireless operators in the world.
While other countries such as the UK are making good 5G progress, they cannot hope to compete with China on scale and investment – especially outside of the EU.
The proposal – which is at the discussion stage in Beijing, according to the report – argues that the merger would speed up China’s progress in 5G.
However, it would demonstrate that China is willing to sacrifice local competition in its face-off with the US to dominate 5G at scale. It would also give China far greater power to influence global 5G standards, which would trouble Western providers and may raise security concerns.
According to the report this morning, the ongoing trade war with the US has spurred the discussions in China.
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With several Chinese companies caught up in trade hostilities with the US, such as merger would signal that China is determined to take the fight to the US in new technology, even at the cost of losing local diversity.
The discussions come at a tense time in the industry – and not just in terms of the trade war. Earlier this year, Chinese electronics giant Huawei suggested that 5G technologies may be a white elephant.
The company’s chairman Eric Xu said that while 5G may be faster and more reliable than 4G, consumers would find “no material difference between the two technologies”. He added that Huawei would continue to invest in 5G, simply because failure to do so would be bad for business overall.
“If you are not good at 5G, customers won’t buy from youm even for 4G,” he said. “If one [network operator] says, ‘I have a 5G-enabled network’, the rest really have to launch 5G even if it’s just for branding or marketing purposes.”
Huawei’s comments in the Spring would have been acutely embarrassing to BT, which signed a major deal with the company 13 years ago and started joint 5G research and development work in 2016. In March this year, the two companies inked a strategic partnership deal to “ensure 5G leadership for the BT Group and its mobile network, EE”, according to a joint statement.
So what was behind Huawei’s remarks? While 5G networks have been lauded as a critical component in the rise of a range of technologies, including autonomous cars, smart city environments, robotics, and the Internet of Things, a report in the FT earlier this year suggested that the remarks echoed “a broader sense of gloom” among telecoms operators and equipment manufacturers.
“Pessimism about 5G has been growing behind the scenes in the mobile industry,” it said, “but Huawei is the first large infrastructure company to state it explicitly.”
Ben Stanton of Canalys told the FT, “The reality is that 5G will be incredibly expensive for operators to deploy, requiring tens of thousands of new base stations per country. And the industry has yet to uncover a killer-use case for 5G connectivity.”
However, discussions between the Chinese government and its wireless providers reveal that, in a simmering trade war, 5G has real global significance, whatever the commercial challenges may be.