UPDATE 4-China begins telecoms revamp with leadership changes

(Adds details, analysts' and companies' comments)

By Vinicy Chan and Judy Hua

HONG KONG, May 23 (Reuters) - China has kicked off a long-awaited overhaul of the world's largest telecoms industry, orchestrating a series of leadership changes and directing the parent of China Mobile (0941.HK) to take over a smaller rival, sending telecoms stocks soaring on Friday.

China Mobile will take over fixed-line peer Railcom while absorbing executives from rivals, the opening act of an overhaul that is likely to culminate in fixed-line operator Netcom (0906.HK) merging with wireless player Unicom (0762.HK), analysts and a source briefed by top management at one of the firms said.

Sources with direct knowledge of impending moves said the government is also orchestrating management changes at the country's other telecoms providers, including moving Unicom's president, Shang Bing, to fixed-line leader China Telecom (0728.HK) as its party boss.

A sector revamp could unleash billions of dollars in spending for gearmakers such as Motorola (MOT.N) and Nortel NT.TO as newly merged firms expand networks to compete, and leave China with three giants offering wireless and fixed-line services.

"The next step will be a reshuffle of Unicom and Netcom," said DBS Vickers Securities analyst Steven Liu. "Looking at the management changes ... it's most likely the reshuffle will regroup five firms into three."

China Telecom and Netcom will benefit if they gain entry to a fast-growing wireless market with around 575 million subscribers -- more than the combined populations of the United States, Japan Britain and Germany -- and where China Mobile has a two-thirds share.

Shares in Unicom, China Mobile's sole rival, and Netcom jumped 11-12 percent before they were suspended from trade. China Telecom rose 7 percent.

In Shanghai, China United Telecommunications, part of the Unicom group, gained 5.1 percent before it was suspended. China Mobile closed down 3.8 percent as competition fears weighed.

DEVIL IN DETAIL

Market watchers were initially sceptical as a restructuring has been discussed and debated over the past three to four years.

"There's been a lot of market talk already, and the shares did shoot up," said ABN AMRO analyst Wendy Liu. "But the overhang is still that the listco revamp will not happen right away. It's a complicated and time-consuming process."

An overhaul of the sector, dominated by four players that have evenly split mobile and fixed-line services, precedes the issuance of licences to offer faster third-generation services -- a potential boon for global equipment vendors.

But analysts said it could be at least a year before Beijing gives out 3G operating licences.

"The additional spending will come from 3G, but that's still years away," said Gartner research director Sandy Shen.

For users, allowing three providers offers more choice as the country moves toward adopting 3G technology, which enables faster wireless Internet access and multimedia streaming.

"It's good news for consumers. With more products, lower telecoms fees are inevitable," said Richard Wu at consultancy Analysys.

For now, investors will need to grapple with the specifics of a government blueprint that begins with personnel changes, moves on to policy, and culminates in acquisitions that will likely link investment banks, government officials and corporations.

Beijing has already decided to merge Netcom and Unicom, a source briefed by top management at one of the firms but not authorised to speak to press told Reuters, creating a full-service provider to compete directly with China Mobile.

Analysts said Unicom might end up selling one of its networks, which ABN AMRO valued at HK$40 billion ($5.13 billion), to China Telecom as part of an eventual deal.

The parent of China Mobile will take over Railcom, a nationwide fixed-line carrier, Railcom spokesman Guo Xiaozhao told Reuters. The firm will continue to operate as an independent firm, but a fully owned unit.

China Mobile Chairman Wang Jianzhou will head the combined company. China Mobile will also take in Zhang Chunjiang, chairman of Netcom, the smaller of China's two fixed-line carriers, as its new party boss, Xinhua said, a political appointment.

Li Zhengmao, a Unicom vice president, will be vice-president at the larger company, Xinhua said, adding that Netcom Senior Vice President Zhang Xiaotie also joins China Mobile.

For profiles of telecoms execs, please click [ID:nHKG269178]

A China Telecom source told Reuters the firm will issue a statement later on Friday that will touch on personnel changes. A source with listed China Mobile said its parent was working on a separate announcement, without elaborating.

China Railway Communication Co Ltd has assets of 42.4 billion yuan ($6.11 billion) and employs 72,000 staff across China.

The firm grew revenue 7 percent to 16.6 billion yuan in 2007, but profit plunged 96 percent that same year to 10 million yuan because of heightening competition, Railcom's Guo said. ($1=6.945 Yuan) ($1=HK$7.801) (Additional reporting by Doug Young in Taipei, Zhou Xin in Beijing and Alison Leung in Hong Kong; Writing by Edwin Chan; Editing by Anne Marie Roantree and Lincoln Feast)