China's top economic planning agency, The National Development and Reform Commission, confirmed on Wednesday it was investigating China Unicom (Hong Kong, P.R.C.) and China Telecom Corp Ltd (Beijing, P.R.C.) for monopoly violations, sending shares of both companies down by more than 3%.
The Commission confirmed it was investigating the two Chinese telecommunications giants for suspected monopoly violations in the broadband access business, state media CCTV and Xinhua news agency said. The commission's investigation is the first anti-monopoly case involving large enterprises since China implemented its first anti-monopoly law in 2008.
The Hong Kong shares of China Unicom fell as much as 3.6%, while China Telecom's stock lost as much as 4.3%. Unicom's shares closed up 2.48% and Telecom's shares closed 0.4% lower.
"The market is confused about what is happening. It's odd for the government to talk about monopolistic behavior when they set up the monopoly," says Paul Wuh, an analyst with Samsung Securities.
Some analysts said they questioned the reason why such an investigation made sense since broadband ARPUs (average rate per user) have been under pressure over the past few years. The rate would have risen if a company was monopolizing the industry, they said.
The probe was first reported in a Chinese magazine in September.
The two companies, which together account for 90% of the country's broadband business, may be fined 10% of their annual revenues from internet services, Xinhua reported, quoting Li Qing, deputy head of the NDRC's price supervision and anti-monopoly department.
If more effective competition is introduced to the market, Chinese internet users would be able to save some $1.6 billion to $2.3 billion per year, the reports said.
China Telecom said it will cooperate with authorities in the investigation.
"The company has always provided broadband services strictly in accordance with the relevant laws and regulations. The company will fully cooperate with the relevant regulatory authorities on the investigation," China Telecom spokesman Jacky Yung said in an emailed response to Reuters.
A spokesman at China Unicom said the company was aware of the report, but it would not comment.
China Telecom's revenues from broadband business amounted to around $7.9 billion annually, while China Unicom's revenues for the service totaled almost $4.7 billion, Xinhua quoted Li as saying.
From January to September, China's number of broadband internet users rose by 23.6 million, bringing the total number to 149.9 million, Xinhua quoted official data as saying.
In the first nine months of this year, China Unicom had revenues totaling $24.5 billion, while China Telecom's operating revenue totaled $28.7 billion.
(Reporting by Vikram Subhedar, Charlie Zhu and Lee Chyen Yee; Editing by Chris Lewis, Jonathan Hopfner and Matt Driskill)