China may merge the four leading state-owned phone companies into two to avoid the cost of duplicated networks and boost their competitiveness.

　　The Ministry of Information Industry, China's telecommunications regulator, plans the merger before overseas operators enter the market in 2006, the Hong Kong-based Ming Pao Daily said yesterday.

　　But a senior ministry official told the Shanghai Daily the transition wouldn't happen soon and the public would be immediately informed when it was approved.

　　Under the plan, the country's two mobile operators would each be combined with one of the two fixed-line operators.

　　Industry insiders said the ministry promoted the merger to help the operators save money on network construction, especially in front of the licensing of third generation (3G) telecommunications.

　　China is expected to issue 3G licenses next year.

　　"Under the original plan, China would issue a license to each of the four telecom giants," said Lei Yun, an analyst at CCID Consulting Co Ltd, a research arm authorized by the ministry.

　　"So the two fixed-line operators would have to invest heavily to establish mobile networks covering the whole country.

　　"If the merger was approved, it would save a huge amount of money for fixed-line operators as they need not build networks mobile operators have already."

　　After that, the Chinese companies will become strong enough to withstand the overseas giants' invasion in 2006, when China will start to open its core telecom business to overseas players, according to World Trade Organization commitments it signed in 2001.

　　But such a move will also curb recent efforts for the country to make its state-controlled telecom companies more market-oriented.

　　China Telecom used to be the monopoly telecommunications company covering both fixed-line and mobile business.

　　To encourage competition, the government started to break it up four years ago.

　　China is drafting a telecom law to regulate the national telecom market and make handset fees more transparent.