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Investors Hang Up on China’s Telecom Companies After Management Reshuffle

| Aug 25, 2015 09:56 PM EDT

Customers try mobile phones at an exhibition hall in Beijing, China, Jan. 7, 2009.

Shares of the three state-run telecom carriers went to a freefall Monday following announcements of major management reshuffling.

Shang Bing, vice minister of Industry and Information Technology, will replace the retiring Xi Guohua as the chairman of China Mobile, the country's biggest telecom operator by subscribers, the State-owned Assets Supervision and Administration Commission (SASAC) posted on its Weibo microblog on Monday.

China Unicom chairman Chang Xiaobing and Wang Xiaochu of China Telecom will also swap positions, the post said.

After the announcement, shares from the Hong Kong-listed China Mobile plummeted by 7.93 percent to HK$92.35 ($11.9). China Unicom closed by 2.03 percent at HK$10.6, while China Telecom's shares slid by 6.45 percent at HK$4.35.

Xiang Ligang, CEO of telecom news portal Cctime.com, said that the drop indicates that investors are not confident that the reshuffling will do much for earnings.

"The growth slowdown is a structural problem. Telecom carriers can only find new growth points and compete with scrappy Internet companies in the era of the fifth-generation network after 2020 when the Internet is used to connect all things together," Xiang told the Global Times on Monday.

The reasons for the reshuffling were not disclosed to the public, and none of the companies could be reached for additional comment as of press time.

The periodic rotation of top bureaucrats at state-owned companies is a normal practice in China, as it is used to prevent political networks from becoming entrenched and discourage corruption, according to a report from the Global Times.

The last reshuffle in China's telecom industry occurred in 2004, and also involved the same three managers.

Wang, who was deputy general manager of China Mobile, became general manager of China Telecom, while Chang, the deputy general manager of China Telecom, took the chairmanship of China Unicom.

Meanhwile, Shang was appointed China Unicom president, while China Unicom's general manager Wang Jianzhou became China Mobile's general manager before leaving the company in 2012, the report said.

The 2004 rotation was reportedly aimed at preventing excessive competition among the three companies.

But this time around, analysts said that the move comes as the three carriers attempt to boost revenue from data services to offset the decline in text messaging and voice calls, as more Chinese consumers flock toward Internet-based communications applications.

According to interim results posted by China Mobile on Thursday, the company's revenue rose by 5 percent year-on-year, but net profit fell 0.8 percent to 57.3 billion yuan ($8.95 billion). In comparison, the smaller China Unicom posted a 4.5 increase in net profit year-on-year, while the third largest carrier China Telecom saw the biggest drop in net profit of 4 percent to 10.98 billion yuan over the same period.

Both Fu and Xiang said that the new management strategies and reforms will be introduced into the telecom industry along with the leadership changes.

As for China Mobile, Shang may help boost its data services through the domestic TD-LT standard, said Fu, noting that one of Shang's former responsibilities was to popularize that standard.

Shang, who has formerly held management positions in China Unicom and China Telecom, has been with China's IT ministry since 2011.

In May, the ministry announced its plans to develop domestic 4G networks with the aim of adding 600,000 4G network base stations across China by the end of the year.

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