China Mobile shares lose $25bn

China Mobile, the world's largest phone company by users, lost more than $25 billion in market value in Hong Kong trading after the government said it will reorganize the industry to help smaller operators.

The shares fell 7.5 per cent to HK$115.70 as of the midday trading break, the biggest drop in more than six years. The stock was the largest contributor to the MSCI Asia Pacific Index's 1.7 per cent decline.

The revamp threatens the dominance of China Mobile, which controls two-thirds of the nation's wireless-phone market, as the mergers help smaller carriers strengthen their ability to compete for the nation's 1.3 billion people. Goldman Sachs Group today cut China Mobile's rating to “sell” on the government plan.

Under the government plan, the parents of fixed-line carrier China Telecom will buy a mobile-phone network from China Unicom's parent, which in turn will merge with the company that controls China Netcom, the Ministry of Industry and Information said in a statement on May 24th.

China Mobile Communications, the state-owned parent of China Mobile, will take control of fixed-line carrier China Tietong Telecommunications.

The government said it plans to create a more balanced market structure through the reorganization and new regulations, according to the statement jointly issued with the Ministry of Finance and the National Development and Reform Commission. The statement didn't give details of the rules.

The new regulatory regime may “seriously threaten” China Mobile's advantages, said Goldman Sachs analysts Helen Zhu and Lucy Liu, who cut the rating from “neutral” and lowered the 12-month share-price estimate to HK$105 from HK$135.

After the revamp is completed, China will issue three licenses to offer third-generation high-speed mobile services. China had 583.5 million mobile-phone users at the end of April, exceeding the combined populations of the US and Japan.


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