Telecommunications equipment vendor ZTE Corp stands to lose from a new government policy asking telecommunications network operators to share their networks to reduce over-investment, analysts say. Shares in ZTE tumbled 26 per cent last week after the policy was announced. The shares closed at HK$18 on Friday. They have fallen 40 per cent year to date after climbing to HK$40 in June. According to the policy, telecommunications operators China Mobile, China Telecom and China Unicom no longer enjoy exclusivity on the network infrastructure in terms of transmission towers for mobile communications, and backbone trunk networks for fixed-line operations. The government ordered operators to open their own towers and trunk networks to rivals. The market used to believe that the industry restructuring, which merged the nation's six telecommunications operators into three and paved the way to the issuance of 3G mobile licences, would benefit operators who could then spend more than 100 billion yuan (HK$113.8 billion) on building mobile networks. But BNP Paribas analyst Frederick Wong cut his earnings forecasts for ZTE by 8 per cent this year and 16 per cent next year to reflect the negative impact from intensified competition and the network-sharing policy. ZTE provided 50 per cent of the equipment needed for the homegrown TD-SCDMA network to China Mobile last year. The company will also face tough competition from local and foreign players such as Huawei Technologies, another mainland vendor, as China Mobile plans to merge its TD-SCDMA network with its existing 2G network, which requires a higher level of technological know-how. 'Equipment vendors like Huawei and Alcatel Lucent could win over ZTE due to their better knowledge in handling mainstream technology, which could provide better know-how on both TD-SCDMA and GSM technologies,' said Mr Wong. Merrill Lynch also believed ZTE would face intensified competition from Huawei, which could squeeze gross profit margins in both wireless and fixed-line switch products. The bank cut its ZTE earnings forecasts by 14 per cent this year and 26 per cent next year due to the lower than expected profit margin from new orders. The new policy benefits smaller mobile operators as they will spend up to 10 per cent less on capital expenditure in building new network infrastructure. China Mobile, the mainland largest mobile operator, needs to open access to towers and rooftops, with 320,000 base stations installed, to rivals. While China Mobile could lose its cutting edge in network coverage, this could certainly help smaller mobile operators - such as China Telecom's CDMA mobile service and Unicom's GSM service, which own 40,000 and 120,000 base stations respectively - enhance network quality by shortening the time to expand the coverage in rural areas. 'Obviously, the new policy will help all three operators reduce their capital expenditure, operational expenses and depreciation figures in income statement sheets,' said Liu Ning, a senior analyst at telecommunications research firm BDA China. 'But by what percentage it could really cut down capital expenditure of each operator still depends on how fast the process goes. 'China Mobile is depressed in facing the new policy, while Unicom and China Telecom could accelerate their network developments by sharing China Mobile's towers.'