After years of stagnancy, the Chinese telecom industry is embracing a new surge of acquisitions in 2006, which will mainly focus on three fields, namely the telecom operating market's restructuring and opening- up to foreign capitals, the integration of telecom equipment manufacturers, and the acquisitions of underestimated Internet firms and service providers, according to insiders.
        2006 will witness the issue of 3G licenses in China, which Chinese telecom carriers have waited for such a long time. No matter in the light of value maintenance of state-owned assets or the support to the independently developed TD-SCDMA standard, restructuring will be an inevitable topic in the market.
        In accordance with the promise to the World Trade Organization, China will allow foreign companies to hold no more than 50% stake in firms in the value-added sector this year. This will be a breakthrough point for foreign capitals to enter the Chinese telecom service market.
        Early this year, China Netcom and PCCW carried out reciprocal stake acquisitions, and Spain-based carrier Telefonica made investment in China Netcom, which were considered the prelude to foreign telecom carriers' extensive invasion into the Chinese market.
        It deserves attention that Chang Xiaobing, chief executive office and Chairman of China Unicom, disclosed at the annual meeting for the announcement of 2005 financial results that some foreign counterparts had contacted China Unicom and expected to cooperate in CDMA business. Compared with the most favored Japan- or South Korea-based carriers, America's CDMA carrier Sprint is more likely to become the future partner of China Unicom, the second largest mobile carrier in the country, insiders remarked.
        It can be foreseen that foreign companies will not be granted 3G licenses definitely. So establishing joint ventures or MVNOs (Mobile Virtual Network Operators) will be the way for them to enter the mobile telecom market. This, to certain degree, will affect the current restructuring of telecom carriers.
        Chinese domestic carriers' halt in capital expenditure and the mounting competition in the domestic market compelled China's telecom equipment makers such as Huawei Technology and ZTE to tap into the international market, which brought about success for them and operating plight for UTStarcom.
        The overseas strategy of Huawei Technology and ZTE will accelerate the adjustment in their products, organization structure, and after-sale service. To maintain their competitiveness, they will join hands with or acquire foreign companies to prune uncompetitive products. Huawei Technology abandoned the controlling stake in Huawei-3COM, and established a joint venture with Nortel Networks, which was considered a wise move by insiders.
        As for those telecom equipment makers who are in difficulties, what they have to do is to sell high-cost businesses and retain lucrative ones. The successful cases include UTStarcom's sale of mobile phone business, Harbour Networks' distribution of core router business Siemens, and Siemens' selling mobile phone business to Benq.
        It can be concluded that telecom equipment manufacturers in good condition will carry out consolidations and merges, and those in adversity may become the acquiring subjects of foreign capitals.
        Lastly, underestimated Internet companies and service providers will become the objects of consolidation.
        Sina.com, the most influential portal in China, is underestimated in market value definitely. Similarly, China's other Internet firms, such as Baidu.com, 51job.com, and Shanda Networking, can not be valued through market price to earning ratio as well. The huge growth potential will enable them to become buyers in the market for sure.