THE shares of Chinese telecommunications equipment firms, including ZTE Corp and China Communications Services, have dropped dramatically over the past few days, as investors showed concern about a new regulation restricting carriers' spending on phone networks.
The latest policy of infrastructure sharing, which aims to avoid duplicated network construction, will probably bring negative influence in the long run to those firms who build telecoms infrastructure, industry insiders said.
ZTE, the biggest public Chinese telecommunications equipment maker, dropped more than 20 percent in the Shenzhen market over the past four days.
Yesterday, ZTE dropped the full 10-percent daily cap to close at 22.81 yuan (US$3.20). The Shenzhen market dropped 1.4 percent overall.
China Communications, the nation's largest builder of phone networks, climbed 14.8 percent to close at HK$3.72 (48 US cents) yesterday. But it had dropped 32.5 percent on Wednesday, the most since the stock first traded in December 2006.
"It's no doubt (the new regulations) are bad news for related firms," said Sandy Shen, an analyst at US research firm Gartner. "The question is how much the government takes it seriously."
The central government recently ordered telecoms operators to share and co-build infrastructure to avoid duplicated construction. China Mobile, China Telecom and China Unicom are required to promote sharing and co-construction. Existing telecom towers and lines must open to rivals. If conditions are not ready for sharing, operators must expand and adjust their technologies, according to the new regulation.
The policy will cut the amount carriers spend on construction, which will have a large impact on homegrown equipment firms, such as ZTE and Huawei, said Shanghai-based Shen.
Merrill Lynch has downgraded ZTE's rating because of the influence of the new policy.
In a recent overhaul of the telecoms industry, China Telecom bought China Unicom's code--division multiple access network and China Unicom merged with China Netcom, while China Mobile took control of China Tietong.
The carriers had previously announced that they would invest billions of dollars to upgrade networks, which had been seen as a windfall for equipment makers such as ZTE, Huawei and Alcatel-Lucent. But the new regulations will slice that infrastructure spending.