For years, the giant mainland telecommunications firms have been cosseted by cosy semi-monopolistic markets. That dream run is coming to an end with a restructuring that aims to boost competition and create an industry more along free market lines. However, with growth slowing in the sector, the success of the much-touted shake-up scheduled for completion this month remains uncertain. In fact, the costs of the restructuring means no operators are likely to emerge as big winners from the revamp for a long time. For the first time this year, revenue growth fell to 8.5 per cent in August, below the widely expected 9 per cent average as operators busily dealt with issues related to the restructuring and put less effort into marketing their services. The overhaul merges six state-owned telecommunications firms into three companies providing both fixed-line and mobile-telephone services. Previously, they tended to concentrate on either mobile or fixed line. Under the restructuring, fixed-line provider China Telecom has acquired rival China Unicom's CDMA mobile business while China Netcom Group Corp merged with Unicom's GSM mobile business. Key to the revamp is to curtail the power of market leader China Mobile by building up its rivals. China Mobile also has been mandated to promote Beijing's homegrown 3G technology, TD-SCDMA. That task threatens to burden the giant operator with an untested and troublesome service. The restructuring has been a long time coming. It is the government's fourth attempt to shake up the industry - a drive that began 14 years ago to raise efficiency in one of the world's fastest-growing telecommunications markets. The sector still prevents foreign investors from holding controlling stakes in any firm, meaning new ideas and strategies can be difficult to adopt. China Mobile has been in Beijing's sights for a long time because of its near-monopoly position. The world's biggest mobile operator by subscribers last year generated 356 billion yuan (HK$403.7 billion) in revenue, exceeding the combined total posted by Unicom, Netcom and China Telecom. China Telecom and Netcom have long complained of an unfair playing field. As fixed-line players, they are stuck in a stagnating market compared with the huge expansion of mobile services over the past few years. Investment costs in mobile communication service are also falling compared with the higher costs of providing fixed-line services. In an attempt to address the imbalance, May's restructuring announcement by the Ministry of Industry and Information Technology, Ministry of Finance and the State-owned Asset Supervision and Administration Commission said several 'asymmetrical regulations' would be introduced to improve market efficiency. They include network sharing arrangements, a phone number portability system and a new network interconnection settlement charge to help smaller mobile operators compete against China Mobile's dominant position in the 600 million-strong mobile market. 'China Mobile's profitability in the future may look like PCCW in Hong Kong. It will still dominate the market, but profit margins will be squeezed because of competition,' said Wong Chi-man, an analyst at Piper Jaffray Asia. Beijing is expected to introduce as early as next month number portability where phone users can keep their number when switching service providers, a strategy that has proven successful in other markets in heightening competition. In Hong Kong, it allowed smaller players to strengthen their competitive edge, forcing down tariffs and providing more choice for consumers. 'It is important for the government to implement policies to provide a worry-free opportunity for users to switch service operators,' said Fu Liang, an independent telecommunications analyst. 'However, the effectiveness of companies in attracting new users will still be based on the network and service quality.' Beijing will reportedly introduce the number portability system in a one-way arrangement, meaning only China Mobile subscribers can switch to the two other players, and not vice versa. Unicom chairman Chang Xiaobing said last month that the government planned to trial number portability in Tianjin and Shenzhen. While such policies are designed to pare back the market influence of China Mobile, Beijing still sees a role for the company. 'We believe the government still wants China Mobile to lead the TD-SCDMA development, to push forward rural expansion, and to grow into a global champion,' said Wang Jinjin, a telecommunications analyst with UBS. But China Mobile is not happy about the barriers being placed in its way. Investors are also displeased, putting its share price under pressure even before the financial meltdown of recent weeks. 'We merged with the loss-making China Tietong Group and need to repay the debt this year,' said chairman Wang Jianzhou in August. 'We are also carrying out commercial trials for TD-SCDMA, a technology which is lagging behind other mature platforms by several years.' The company's Hong Kong-traded shares have lost 43 per cent since early May when the stock reached HK$136.30 on speculation over the shake-up. They fell below HK$130 when the government announced the plan on May 23 and closed last Friday at HK$77.10. Previous attempts by the mainland to deregulate its telecommunications industry have not been a success. Unicom was created in 1994 to break the monopoly held by the then Ministry of Posts and Telecommunications. Two years later, Beijing split the ministry's dual roles of regulator and service provider, creating China Telecom. In 2000, China Telecom was broken into four units, one being China Mobile which assumed the lucrative mobile phone business. By 2002, China Telecom was further divided into two firms - China Telecom for provinces south of the Yangtze River and Netcom for the northern regions. But despite years of reforms, the telecommunications sector still remains monopolistic in nature, especially in the mobile market. Regulators are hoping this restructuring will introduce some real competition. China Mobile, with more than 428 million users, has more than 70 per cent of the mobile market. It accounted for 80 per cent of new users this year, adding more than 7 million users each month. Unicom, the company created to break the monopoly, remains a token force with only 128 million users for its GSM service. Its smaller CDMA network - sold to China Telecom for 110 billion yuan - only had 42 million users in August. The fixed-line market was just as monopolistic before the creation of China Telecom and Netcom. Both those companies have attempted to encroach into others' markets, but have been hampered by the costs required to build networks. The National Audit Office claimed both operators invested more than 50.8 billion yuan for new networks in each other's markets between 2002 and 2006. China Mobile may face more rivalry from China Telecom and Unicom, which have strong fixed-line telecommunications networks and customer bases that give them the edge in building a national next-generation mobile network. China Telecom is widely perceived as China Mobile's most formidable challenger, helped by the fact it is led by former China Mobile chairman and chief executive Wang Xiaochu. China Telecom plans to leverage on its strong presence and fixed-line brand in the southern regions to extend its competitive edge. One possibility would be to bundle fixed and mobile-telephone services for users so they can be reached by the same number anywhere. Facing a saturated mobile market in southern China, China Telecom told analysts it would also migrate more than 30 per cent of its wireless fixed-line xiaolingtong users to the CDMA network. How remains to be seen as these users pay lower tariffs, meaning the company may have to heavily subsidise handsets. 'The price of CDMA handsets in general is still 30 per cent higher than the GSM phone,' said Bin Liu, an analyst at BDA China, a telecommunications research firm. 'China Telecom may need to subsidise users to change phones to boost the subscriber base.' Subsidies are also expected when China Telecom promotes its dual mode CDMA/GSM SIM cards that allow international roaming. 'We regard dual-mode handsets as merely a cause for heavier subsidies, with little benefit,' said Deutsche Bank telecommunications analyst Alan Hallewell in a research note after the company's interim results in August. 'China Telecom will focus on bundling fixed-mobile-broadband services largely in its home southern areas. In northern areas, the company will focus on ensuring smooth roaming services for CDMA users.' The company has also set an aggressive target to add more than 50 million mobile users over the next three years. Fu Liang, an independent telecommunications analyst, said the key was for China Telecom to highlight weaknesses in its competitors' mobile services. 'CDMA should perform better than TD-SCDMA in providing mobile internet services,' he said. Meanwhile, Unicom will try to boost investment in its GSM mobile network coverage to narrow the gap with China Mobile. The operator will put more than 100 billion yuan in capital expenditure into the 3G mobile network based on Europe's WCDMA technology, a perceived trump card to challenge China Mobile. Unicom's expected use of the globally popular WCDMA mobile network in more than 50 mainland cities is scheduled to be launched in the third quarter next year, giving it a convenient advantage over competitors. However, Nomura International analyst Kelvin Ho said Unicom would need deep pockets to fund the 3G investment, an expansion that will pressure net profit growth due to higher asset depreciation charges in the coming years. 'We believe in WCDMA, but Unicom's track record in mobile service offerings has not been convincing in the past decade,' Mr Liu said. 'Moreover, Unicom needs to put lots of resources into the integration with Netcom. Such internal integration, which includes the business, service and also employees, could be the most difficult task for Unicom's management.' Unicom's 2G GSM mobile business, which competes directly with China Mobile, achieved a lower average revenue per user per month of 43.60 yuan, when compared with China Mobile's 82 yuan in the first half. While the upside of China Mobile's TD-SCDMA service is ownership of the patents behind the technology - and less royalties paid to foreign telecommunications firms such as Qualcomm and Ericsson for their systems - the technology's immaturity against offerings from the United States and Europe forced a more than four-year delay of the country's 3G licensing. 'Prospects for China Mobile do not seem that bright when compared with other operators,' Mr Liu said. 'Investors won't feel it in the sales and subscribers numbers, but profitability could be under pressure as competition leads to heavier marketing costs and lower tariffs.' Industry watchers said with more than 400 million 2G subscribers China Mobile was expected to maintain a comfortable lead over the next two years as its two rivals build their networks. But whether that lead can be maintained remains to be seen.