Caixin
Sep 10, 2019 05:36 AM
BUSINESS & TECH

China Unicom, China Telecom Link Up on 5G Construction

Telecom carriers are seeking partnership in 5G network construction to ease spending pressures. Photo: VCG
Telecom carriers are seeking partnership in 5G network construction to ease spending pressures. Photo: VCG

Two of China’s top three state telecom companies linked up to build the next generation 5G mobile network, a move that could save billions of dollars in spending on the new infrastructure.

China Unicom said Monday that it signed a cooperation agreement with rival China Telecom to jointly build and share a 5G network nationwide. The accord followed the government’s call for major telecom carriers to collaborate on building, operating and maintaining the next-generation wireless networks to reduce costs.

The cooperation between China Unicom and China Telecom will focus on the access network, which connects subscribers to their service provider. The two companies will remain independent on the construction and operation of their backbone networks, the core part of the telecom network architecture, according to the agreement.

China Unicom and China Telecom will take the lead in building the sharing network in different provinces based on their business strength. In general, China Unicom will handle construction in eight northern provinces including Liaoning, Jilin, Shandong, Hebei and Henan, while China Telecom will build the network in 17 southern provinces including Fujian, Guangxi and Sichuan.

The two companies will share construction under an agreed ratio in big markets including Zhejiang, Guangdong, Beijing, Tianjin, Shanghai, Chongqing and Hangzhou.

The partnership will not cover remote, sparsely populated regions of Xinjiang and Tibet. An industry source said telecom carriers have yet to develop a plan to construct 5G networks in the two regions in consideration of investment return. Most areas in Xijiang and Tibet still mostly rely on 3G services.

Under the agreement, each company will be responsible for investment and maintenance of the part of network it builds. But the two companies will keep the network planning, construction and services under the same standards, China Unicom said in the statement.

Although there were debates on how resources should be shared in a jointly built network, China Unicom and China Telecom eventually struck an agreement on the partnership under mounting cost pressures, sources close to the matter told Caixin. But there will still be issues to test their partnership and coordination ability, they said.

China has been pushing forward the rollout of the new 5G services aggressively in hopes of securing a competitive edge in the new technology, which will power cutting-edge services like telemedicine and autonomous driving. In early June, the industry regulator issued the first 5G business licenses to the three state telecom carriers and state-owned broadcaster China Broadcast Network Corp.

But the urgency to build new networks also sparked worries among investors that carriers might sharply increase spending to meet the government’s targets. Analysts said the carriers will need to spend more than 1 trillion yuan ($140 billion) to build 5G networks with coverage equivalent to the existing 4G network.

Earlier this year, China Telecom said it planned to invest 9 billion yuan this year in 5G construction, while China Unicom projected spending of 8 billion yuan. The larger rival China Mobile said it would invest 24 billion yuan this year.

Last month, China Unicom Chairman Wang Xiaochu said network-sharing could save 200 billion yuan for each company and said the company was in talks with rivals on a sharing network. Wang’s comment pushed up shares of all the three companies the next day.

China Telecom Chairman Ke Ruiwen later confirmed the talks with China Unicom to cut costs. China Mobile also said it held similar discussions with China Broadcasting Network.

Despite the partnership, both China Unicom and China Telecom are still likely to cooperate with China Mobile in certain areas of 5G network construction, analysts said. The Monday agreement said neither party should damage the other’s interest when it seeks network cooperation with a third party.

China Telecom’s Ke said in August that the company was also in talks with China Mobile and other carriers for possible partnerships. Ke said there were discussion of the possibility that the three companies could cooperate to build networks in remote regions.

China Unicom’s Shanghai-traded shares surged 2.26% Monday while its Hong Kong-listed shares gained 0.63%. China Telecom closed up 0.84% in Hong Kong.

Contact reporter Han Wei (weihan@caixin.com)

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