CHINA Mobile Ltd, the world's largest phone company by users, lost more than US$26 billion in market value in Hong Kong trading yesterday after the government said it will merge smaller operators to increase competition.

The shares fell 8.2 percent to close at HK$114.90 (US$14.72), the biggest drop in more than six years. The stock was the largest contributor to the MSCI Asia Pacific Index's 2.1-percent fall, Bloomberg News said.

The nation's two biggest fixed-line companies will also provide wireless services under the government plan, threatening China Mobile's dominance of a market with 583.5 million customers. Goldman Sachs Group Inc cut its rating on the carrier, which has two-thirds of the country's users, to "sell" yesterday.

"The government wants to balance the telecom industry instead of having just one dominant player," said Teresa Chow, who helps manage US$1.1 billion at RBC Investment Management Asia in Hong Kong, including China Mobile shares. "The move is positive for the two fixed-line operators and will broaden their revenue."

Balanced market

Under the plan, the parent of fixed-line carrier China Telecom Corp will buy a mobile phone network from China Unicom Ltd's parent, which in turn will merge with the firm that controls China Netcom Group Corp, the Ministry of Industry and Information said in a statement last Saturday.

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

The government said it plans to create a more balanced market structure via the reorganization and new rules, according to a statement jointly issued by the Ministry of Finance and the National Development and Reform Commission.

After the revamp, China will issue three licenses for third-generation high-speed mobile services.