The Chinese government has approved a move to split the country's near-monopoly fixed line phone company into two.

According to the official Xinhua agency, China Telecom will be broken up into two competing companies operating in the north and in the south of the country. The agency said no timetable had been set yet.

The plan to restructure the telecom giant with more than a half a million employees has been under preparation for several months.

The aim is to increase competition in the fixed-line, data and long-distance market, and - many observers believe - as a step towards a long-delayed overseas listing.

Such a move would follow the lead of China Telecom's main domestic rival, Unicom, which is now listed in Hong Kong.

A subsidiary of China Telecom - which incorporates the company's minority stake in Hong Kong's number one operator - is already listed there too.

A share sale was planned earlier this year but a $4-$5 billion flotation was postponed because further restructuring was needed.

Who gets what?

According to the plan, the northern company, covering 10 provinces including the capital Beijing, will merger with two small rivals to form a new firm called China Netcom Group.

The southern segment of the late monopoly will retain the name China Telecom, and deal with 20 provinces in the south and northwest of the country.

Both companies will be free to build local telephone networks and offer local fixed-line services in each other's territory and, as Xinhua puts it, offering each other "fair and mutually beneficial access" to their respective local networks.

The companies will share the existing China Telecom long distance network, with the new China Telecom allotted up to 70% of capacity and the rest going to China Netcom.

Whether or not the two new carriers will extend the same "fair and beneficial" courtesy to other carriers remains to be seen.

While competitors such as Unicom do exist, they are largely limited to the mobile market.

China Telecom is controlled by the Ministry of Information Industry, which guards its charge jealously. Unicom, for instance, may also be state-controlled, but by another ministry, meaning turf wars are the rule rather than the exception.

Open wide

With China's WTO membership, which started officially today, Beijing hopes to attract more foreign investments in its telecom sector. China Telecom is one of the country's largest companies with the reported revenue of 15.9bn yuan ($1.92bn).

The socialist-era telecom giant China Telecom was divided into China Telecom, China Satellite Telecommunications Corporation and China Mobile in 1999.

China is planning to spend more than $120bn over the next five years developing its telecoms and IT industries.

Over the next five years, foreign companies will also be allowed for the first time to own substantial - though minority - stakes in operators. Till now, their direct participation has been limited to infrastructure makers.

Mobile future unclear

It is still unclear whether the new companies will be permitted to enter the mobile market.

Wireless licences were not mentioned in the state announcement.

Earlier this year government officials said that China's mobile operators were to be protected from extra competition.

But analysts generally believe that two new operators will emerge in the nearest future. China Telecom and China Netcom are the likely candidates.

China's mobile market is arguably the biggest in the world with more than 136m subscribers - only 20% smaller than the fixed-line market.

In a country of nearly 1.3bn people, where the fixed-line network is underdeveloped, mobile subscribers are likely to outnumber their landline counterparts by 2005.