Why a Massive China Telecom Merger Matters to the US

China Unicom and China Telecom

China Unicom and China Telecom

China Unicom said when asked about a possible merger with China Telecom that it has not received any notification from authorities about the matter, according to Caixin. The State-owned Assets Supervision and Administration Commission, which oversees China's state-owned enterprises, and the Ministry of Industry and Information Technology didn't reply to Bloomberg's requests for comment.

CT/China Unicom and China Mobile will be allocated different spectrum so as to allow both firms to aggressively develop the 5G technology. Verizon's 5G fixed wireless will launch in four USA cities; AT&T will begin its millimeter wave commercial deployments this year; Sprint will launch in the 2.5 GHz band while T-Mobile's 600 MHz 5G launch will take place in 30 cities. That's still a third less than the over 900 million at China Mobile. The current argument for a merger between the two is based on the ability of a combined company to more easily make the huge investments required to build out a 5G network.

Earlier this year, the USA government blocked the proposed takeover of Qualcomm by Broadcom, fearing the latter's lack of reputation for research and development (R&D) would see the initiative ceded to Huawei, which is headquartered in Shenzhen, China.

Having just two operators in the Chinese market would indicate that the government is more concerned about pushing Chinese exports than fostering domestic competition, with most markets having at least three major operators.

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Market sentiment was also curbed by a likely escalation in the Sino-U.S trade war. Most markets worldwide have three to four carriers. While the company has resolved the issue, Huawei is also unable to sell telecoms equipment in the United States due to security concerns, and Australia has banned both countries from tendering for 5G contracts.

The deal would have left "an opening for China to expand its influence on the 5G standard-setting process", the Committee on Foreign Investment in the United States, or CFIUS, wrote in a letter dated March 5.

Not everyone is cheering a potential merger. "Instead, we believe a merger of the two could disorder the industry's competitive landscape and restore monopoly and inefficiency". China holds a narrow lead over the US and South Korea in 5G readiness, thanks to proactive government policies and industry momentum, according to a report by research firm Analysys Mason. (China Unicom), two of China's largest mobile-phone carriers, will be merged into one mega-carrier to lead China towards dominating the world with its 5G technology.

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