Lost in China's euphoria over its successful Olympic bid is a wave of deregulation. This summer, after a strongly worded Ministry of Information Industry report urged the government to "break the monopoly and introduce competition," China began planning a breakup of China Telecom, the country's fixed-line telephone monopoly. China's State Development Planning Commission is now weighing several options.

At stake is an opportunity to provide communications services to more than 1.2 billion people who have only 165 million fixed-line accounts, but who also represent the world's largest wireless market, with about 120 million subscribers, according to BDA China, a Beijing-based telecommunications consultancy. Add to that the new opportunities for companies to meet the wireless, data, and broadband needs of a country whose accession to the World Trade Organization is all but assured, and the excitement filling Beijing's silicon alleys is palpable. "It's going to be a feeding frenzy," predicts Duncan Clark, managing director at BDA China.

One scenario likely to prevail: China Telecom is split into companies licensed to offer services to the northern and southern regions; about 30 provincial companies are also created, equivalent to the Baby Bells in the United States; and a combination of long-distance, local-service, wireless, data, and broadband licenses are meted out to each of the new companies.

Waiting on the sidelines are upstarts that could compete or partner with the former monopoly. One of the most visible proponents of the market's liberalization is Edward Tian, the CEO of China Netcom and Red Herring's top entrepreneur of 2000. The government-backed company offers IP telephony services for voice and data traffic and raised $325 million last year from News Corporation, Goldman Sachs, and other foreign investors.

Another likely scenario would create a new company, China Telecom North, and merge it with China Netcom, potentially transforming the latter into a giant telco. For the first half of 2001, China Netcom claimed just 1.5 percent of all IP traffic, compared with 76.5 percent for China Telecom. China Netcom's revenue could also use a boost: during the same period, it reported sales of only 0.18 billion yuan ($21.5 million), while China Telecom brought in 78.59 billion yuan.

The small carriers wouldn't be the only beneficiaries of a breakup. Local and foreign network-equipment and software providers would also gain from the increased need to connect existing networks and to create new wireless and broadband services. Already, companies like Lucent Technologies and Qualcomm have a strong presence in China and would profit from de-monopolization.

Startups and VC firms also stand to benefit. VC firms like U.S.-based V2V Ventures and Chengwei Ventures that specialize in backing Chinese companies say the most fertile opportunities lie in infrastructure and value-added services.

At this point, a breakup is imminent. "It's like watching a glass fall to the ground, and right now it is frozen in midair," says Bo Feng, founder of Chengwei Ventures. "It's only a question of how many pieces it will break into."