A pedestrian walks past the headquarters of China Datang in Beijing.

New firm will be the third-biggest telecom equipment manufacturer

BEIJING: The government has decided to merge two State-owned telecom equipment makers - China Datang Corp and Potevio - by the end of this year, sources from Datang said on Wednesday.

The merged entity is expected to become the third-biggest telecom equipment maker in China after Huawei Technologies and ZTE Corp, the source said.

"The government has cleared the merger as it wants to reduce the number of State-owned enterprises and boost the development of TD-SCDMA, the home-grown 3G standard," said the source, who declined to be named.

The merger has been initiated by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), and will in all probability take place "by the end of this year or early next year."

Datang is a large power generation company and one of the key promoters of the TD-SCDMA standard in the nation.

China Potevio is a leading IT equipment manufacturer and service provider. Its main businesses span the manufacture of telecommunications products, the application of telecom products, and the informatization of broadcasting and TV.

The government had considered a merger of the two companies in 2007 as they were struggling to make profits.

"But the plan was postponed after the two companies started to fare well," the source said.

Telecom carriers have been investing huge amounts to set up 3G networks in the nation after the services were launched last year. That in turn also helped revive the sagging fortunes of Datang and China Potevio.

But the growth has not been that much in terms of users. The number of 3G users in China has been lagging behind market expectations and the TD-SCDMA has been languishing, said Li Zhongzhi, an analyst with Ping An Securities Ltd.

China Mobile, China Unicom and China Telecom had earlier this year said they will reduce network investments over the next few years. By merging the two companies, the government intends to increase their competitiveness, said Li.

According to data from the Ministry of Industry and Information Technology, the number of 3G users in China had risen to 21.9 million by the end of May this year. But figures from China Mobile and China Telecom showed that the growth of 3G users has been slowing since April.