China Unicom acquired China Netcom last October under a government-driven campaign to restructure and consolidate the telecommunication industry, which saw five major players being merged into three.

However, an official from the Ministry of Commerce (MOC), the main agency in-charged of anti-monopoly review, told the Economic Observer that the above companies had yet to submit pre-consolidation filings to the Ministry.  

Thus, the merger of the two telecommunication giants was suspected to have breached the Antitrust Law, which came into effect since last August, two months before the consolidation took place.

The Law prescribed two thresholds for pre-consolidation filings.

First, if global turnover of the merging companies exceeded 10 billion yuan in the previous accounting year, and with at least two of the companies each saw over 400 million yuan of turnover in China over the same period.

Second, if domestic turnover of all the consolidating companies exceeded 2 billion yuan, with at least two of the businesses each saw 400 million yuan of domestic turnover during the previous accounting year.

Revenues for the above-mentioned companies well exceeded the thresholds. Based on a financial statement issued by China Unicom in late September last year, earnings for China Unicom and China Netcom in 2007 reached over 100 billion yuan and 86.9 billion yuan respectively.

The EO had contacted China Unicom for explanation on the subject, but the latter declined to comment.

When asked if state-owned companies were exempted from antitrust review, the Anti-Monopoly Bureau under the MOC responded in writing that the Law was applicable to all companies in China, and that both domestic and foreign firms were subjected to the same review procedure under similar standard.

The Bureau added that failure to comply with the review would be penalized under article 48 of the Law.

Ren Yong, a lawyer specialized in China's antitrust law, said the penalty for violating anti-monopoly review included a fine below 500,000 yuan, or an order to cease the consolidation, whereby the companies involved would have to dispose their shares and assets within a stipulated time frame to restore to their original state.

However, some senior lawyers in the field said in reality, it would be difficult to penalize central government-owned firms in accordance with the Law, as some of these firms were headed by ministerial ranking official, and that could pose a huge challenge for enforcement.  

The EO learned that the Unicom-Netcom merger was only the tip of the iceberg, and that many state-owned firms that met the antitrust review requirements had merged without submitting pre-consolidation filings.