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.