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Sept. 5 (NBD) -- China Unicom told NBD Tuesday it has no knowledge of the reported merger plan with China Telecom, and hasn't received any related notice, in response to a report by Bloomberg that the Chinese government is exploring a merger of the two top wireless carriers to speed up the development of 5G mobile services. 

An insider with China Telecom gave the same reply on the matter to NBD. 

The merger rumor started surfacing in the first half of this year. Whenever there is communications technology upgrading, the rumor pops up, primarily due to the enormous pressure from whopping investment in 5G, one industry insider explained to NBD. 

In addition to an increase in network speed, 5G will deliver features like low latency, high reliability, and massive connectivity, which are necessary to connections between things and between people and things. All these add a lot to network construction costs. 

According to China Securities Co, China will start building 5G networks next year and speed up 5G deployments on a massive scale in 2020. The number of 5G base stations is predicted to be twice that of 4G ones. Investment in 5G networks is estimated to hit up to 1.23 trillion yuan (180.2 billion U.S. dollars), a rise of 68 percent as compared to the expenditure in 4G networks.  

Beyond that, the allocation of frequency spectrum and bands might be another reason for the reported merger, telecom industry analyst Liu Qicheng said to NBD. 

China's three top telecom companies have been vigorously contending for 5G licenses, but word has it that only two 5G licenses will be granted, which leaves room for speculation about the merger between China Telecom and China Unicom. 

Viewing from the industry landscape, neither China Telecom nor China Unicom is on par with China Mobile in size, and some industry practitioners hope the former two can merge with each other to compete with China Mobile, noted Liu.

Industry insider, however, pointed out if the merger went ahead, there would be a lot of obstacles to overcome, reported Securities Times. 

First, the ongoing mixed-ownership reform of China Unicom' listed arm. Last year, the carrier's Shanghai-unit introduced strategic investors like Baidu, Alibaba, Tencent, JD.com, and China Life Insurance Company Limited. If China Unicom is to merge with China Telecom, operations like share swap of listed companies will be required, which is cumbersome and complicated. 

Second, different shareholding structures of China Unicom and China Telecom. The merger will lead to a string of issues like re-pricing of listed units of both carriers and will also involve a great number of government agencies. 

Moreover, long cost-recovery period. If merged, China Unicom and China Telecom will continue operating their networks, but they get paid as a single entity. This means it will take longer for them to recoup the network construction costs.  

Email: lansuying@nbd.com.cn