China Unicom and China Telecom are optimistic about the "merger" for ten reasons

On September 4, market rumors that China is evaluating the merger plan of China Unicom and China Telecom. Affected by this news, China Unicom and China Telecom's Hong Kong stocks have soared. Unicom once rose more than 8% and closed up 5.86%; China Telecom (HK00728) ) Closed up 4.01%, and once rose 6%.

The rumors about the merger of China Telecom and China Unicom revived for a while, and China Telecom and China Unicom both responded, saying that they did not understand the situation.

China Unicom said: The company has noticed media reports on the merger of China Unicom and China Telecom. The company is not aware of the relevant situation and has not received any relevant notifications.

Relevant persons of China Telecom Group responded to the "rumors of merger with China Unicom": the company did not understand the relevant situation and had not received any notice.

In fact, long before this, the senior leaders of China Unicom and China Telecom had expressed their opinions in public to refute rumors. On August 17, at the performance conference, Wang Xiaochu, Chairman and CEO of China Unicom, responded to the rumors of the merger of China Unicom and Telecom, saying that he had not heard any formal notice from the regulatory authorities.

On August 21, when Yang Jie, Chairman and CEO of China Telecom, attended the performance conference, he was asked about the rumors of the company's merger with China Unicom and gave a negative answer. He said that rumors about the company's mergers and acquisitions have been unbroken in recent years, and there are often rumors in the world. He thinks this is good, indicating that the company has a sense of existence.

Although the heads of the two companies publicly denied the news of the merger, they did not stop industry rumors. People in the industry believe that Yang Jie and Wang Xiaochu’s statements did not give too clear answers, and that “not receiving formal notice” is more like a perfunctory effort from his side.

So, is the news about the merger of China Unicom and China Telecom rumored to be groundless, or is it pure nonsense?

At the video conference of the heads of central enterprises and local SASACs held in July, the relevant heads of the SASAC made it clear that in the second half of the year, the strategic reorganization of central enterprises in the fields of equipment manufacturing, coal, power, communications, and chemicals should be steadily promoted. This has brought more room for imagination to the merger of China Telecom and China Unicom.

In addition, the sources of constant industry speculation are: First, the frequent transfers of senior leaders of China Unicom and China Telecom. Lu Yimin was transferred to the position of general manager of China General Motors, and Li Guohua, general manager of China Post Corporation and party leader, became the general manager of Unicom. Liu Aili, executive director of China Telecom, assumed the post of general manager of China Post. Some people think that this is a sign of the merger of China Telecom and China Unicom.

The second is about the issuance of 5G licenses and spectrum allocation issues. There are rumors in the industry that only two licenses will be issued for 5G in China. Therefore, this also provides room for imagination for the merger of China Telecom and China Unicom from another perspective.

Third, the first half-year financial report released by the three major operators has become another major reason. China Mobile has 900 million mobile users and 135 million broadband users, with revenue of 391.8 billion yuan and a profit of 65.6 billion yuan; China Telecom has 282 million mobile users and 141 million broadband users, with revenue of 193.029 billion yuan and a profit of 13.570 billion yuan; China Unicom 203 million mobile users, revenue of 134.4 billion yuan, and net profit of 2.58 billion yuan. Regardless of the number of users, the scale of revenue, and the profit situation, mobile is showing a trend of crushing, and the imbalance of the competitive landscape has also triggered the industry's call for the merger of the two.

Regarding the merger of China Telecom and China Unicom, industry experts also hold different opinions, and many of them are optimistic. In this regard, telecommunications expert Chen Zhigang gave his optimistic view of supporting the merger of the two companies, and listed ten reasons for the merger of China Unicom and China Telecom:

1. Conducive to optimizing the structure of industrial competition, duopoly competition is conducive to avoiding excessive competition and wasting resources;

2. Powerful China seizes the commanding heights of the 5G industry. At present, the operator's 1 yuan bid and 0 yuan bid has seriously damaged the enthusiasm of downstream industry innovation and is not conducive to industrial innovation and development;

3. It is conducive to sharing reform dividends, accelerating speed and fee reduction, and allowing ordinary people to reduce market choice costs;

4. Conducive to reducing supervision costs and reducing system costs;

5. It is conducive to improving the reputation of the industry, enhancing the sense of belonging of employees and enhancing the social status of the industry;

6. It is conducive to expanding and strengthening state-owned enterprises, concentrating superior resources, piercing the sky with one needle, and building the world's top 10 giants;

7. It is conducive to promoting digital transformation, allowing operators to focus on internal management and business innovation;

8. Conducive to reducing market competition;

9. It is conducive to improve the competitive advantage of facing industry giants and Internet giants, and get rid of the quagmire of pure pipeline;

10. Conducive to improving employee benefits.

Citing Bloomberg news, the Chinese government is exploring the possibility of a merger between the two telecom operators, China Telecom and China Unicom, in order to accelerate the development of 5G mobile services and better compete with the United States.

On the contrary, some insiders also expressed that they are not optimistic about the merger of the two. Prior to the announcement of Li Guohua's appointment as the general manager of China Unicom, the author interviewed Xiang Ligang, a senior expert in the telecommunications industry, on the rumors of the merger of China Unicom and China Telecom. Regarding the rumors of the merger of China Telecom and China Unicom (the top executives of China Unicom and China Mobile are rumored to retire at the end of the year, and the telecommunications executives are transferred to China Mobile), in Xiang Ligang’s view, if the industry maintains competition, at least three competitors are needed (three for oil and three for power grids). It is three companies), and this is the basic requirement of competition. If it becomes two companies, there will be the possibility of mutual coordination, which is not conducive to the development of the industry.

Liu Qicheng, editor-in-chief of all media in Communications World, seems to be more inclined to the same point of view. In Liu Qicheng's view, although China Unicom is currently weak and small in scale, from the results of this financial report, the development momentum has been good since the mixed reform. In the first half of this year, China Unicom's service revenue increased by 8.3% year-on-year, leading the industry in growth rate, and its profit increased by 145% year-on-year, the highest among the three. Unicom's mixed reform has just started for one year, and this momentum shows that the direction of the mixed reform is no problem. If you stick to it, the future may be a permit period. Moreover, from another perspective, the merger of China Telecom and China Unicom does not necessarily produce the result of "one plus one is greater than two".

Of course, in addition to this rumors, there are other rumors, splitting the north and south of China Mobile, merging with China Unicom and China Telecom, and returning to the two companies, thus forming a balanced pattern. Of course, since this is the case, the three major operators will inevitably face major internal adjustments, involving many and broader implications.

The merger of China Telecom and China Unicom will inevitably have mixed interests both externally and internally. The so-called two powers take the lesser harm to each other, and the two powers take the more important. Regardless of the national macro-control (corporate restructuring), the 5G global market competition, or the balanced development of the domestic market structure, the merger is bound to have gains and losses. How to weigh the pros and cons and how to balance the pattern should be based on the development of the country and the fundamental interests of the majority of users (the people) as the premise.

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