China eyes mega merger in pursuit of 5G edge

Sources are reporting a potential mega merger on the horizon, combining China Telecom and China Unicom to produce the second largest telco worldwide.

According to Bloomberg, a combination of the two state-owned telcos would make a monstrous provider with some 580 million subscriptions, which would only be second in size to China Mobile which has amassed an eye watering 900 million subscribers. But why would it consider such a bold move?

Merging the two together would create an organization with astronomical buying power. As separate entities the economies of scale are pretty much unrivalled worldwide, but doubling this purchasing power offers a beast of a buyer. With such scale on offer, suppliers around the world would fight energetically to get an introduction to the right person in the procurement department.

Economies of scale of course mean a more efficient business, but also speed of deployment and increased R&D spend. An edge towards the finish line in the 5G race could be gained over the US, although many suspect this advantage already exists. We recently asked Telecoms.com readers who they thought would take a leadership position in the 5G world; 46% voted in favour of China while only 16% selected the US.

The 5G race has already been a heated one and there have of course been consequences and collateral damage from the political posturing between the US and China as a result. ZTE was almost destroyed thanks to US economic sanctions, which subsequently almost results in hundreds of US citizens heading towards the dole queue as the ZTE supply chain was decimated. Qualcomm’s acquisition of NXP was killed by Chinese objections, while the Broadcom acquisition of Qualcomm was quashed in the Oval office over fears it would give China the edge.

Of course being first to market is important, but whether this will be anything more than a PR stunt in the US remains to be seen. The US telcos will likely be the first to offer 5G to customers, though there will be no devices on the market and 5G will only be available in tiny pockets of the country. The first to offer nationwide 5G will be able to stimulate new business models and encourage enterprise investment. Merging two of three largest players in the country will certainly increase the speed of a nationwide rollout.

This is not the first time a merger between the two has been considered, but rising US/China tensions has apparently made the conversation more urgent. China does seem to have the edge, though such a merger could certainly put it more than a head in front of the US.