A combination of state-run China Unicom and China Telecom would create a company with more than 590 million mobile phone subscribers making it the world's second-largest wireless operator after China Mobile.
5G is a next-generation high-speed wireless technology whose speeds are up to 100 times faster than the existing 4G service.
China Unicom and China Telecom shares jumped on Tuesday after reports of the merger. The current argument for a merger between the two is based on the ability of a combined company to more easily make the huge investments required to build out a 5G network. That's still a third less than the over 900 million at China Mobile.
Asia, according to telecom industry body GSMA, will be the largest 5G market in 2025 - driven by China, Korea, Japan and Australia.
"5G success is one of the most important goals to China and the merger is the ideal solution to what China wants to achieve", said Edison Lee, an analyst at Jefferies Hong Kong. For example, the US's recent temporary export ban on ZTE, which almost crippled the company because of its reliance on American technology, helped give China reason to make 5G development a higher priority, the proposal argues, according to the people. The state agency that oversees China's state-controlled enterprises also refused to comment.
Earlier this year, the USA government blocked the proposed takeover of Qualcomm by Broadcom, fearing the latter's lack of reputation for research and development (R&D) would see the initiative ceded to Huawei, which is headquartered in Shenzhen, China. Escalating tensions with the United States might expedite the deal. Consolidation will leave only two firms:CT/China Unicom and China Mobile, which also an SOE. China holds a narrow lead over the US and South Korea in 5G readiness, thanks to proactive government policies and industry momentum, according to research firm Analysys Mason.
The United States will not get a second chance to win the global 5G race. The U.S.is the world leader in 5G technologies.
A merger would create the world's second-largest mobile operator, with almost 600 million customers.