Last year China Telecom, one of China’s three state-owned mobile carriers, announced plans to sell its own mobile services to Chinese living in the UK. The company has since announced similar operations in France, Germany and Italy which will all launch next year.
What the Chinese carrier has done is sign a deal with Everything Everywhere, a joint venture between France Télécom and Deutsche Telekom, paying a fee to use its network and become a virtual provider. The business model was first made popular by Virgin, which launched its own branded mobile service as early as 1999 in the UK.
The same concept is now coming to China too, although in this case China Telecom will have to defend its existing share from newcomers, rather than try to grab new business for itself.
The Ministry of Industry and Information Technology (MIIT) has announced that it will soon grant licences for virtual telco operators as part of an effort to introduce more competition for the three state-owned operators.
That is, China Mobile, China Unicom and China Telecom will all be required to partner with at least two virtual telecom operators, selling them bandwidth. The idea is that newcomers can then piggy-back on existing networks and hardware, reselling their own service to customers under their own brands.
Large appliance chains like Gome and Suning have been quick to express interest in the proposal. They are logical candidates to become virtual operators: they have well-known brands, they are already selling large numbers of handsets through their retail outlets, and they also have expansive customer service operations.
Dixintong, China’s largest specialist retailer of handsets, has also revealed ambitions to set up in a similar way.
The market for virtual network operations could be sizeable. Century Weekly reckons that the reseller market could breach annual revenues of Rmb20 billion ($3.25 billion). So perhaps it shouldn’t come as a surprise that 21CN Business Herald is reporting that as many as 60 companies have talked about applying for a licence.
There are some unexpected candidates. Even the coal barons in Shanxi are keen, says the newspaper. It isn’t the first time that coal bosses have tried to get into the telecoms industry. WiC reported back in issue 156 that one coal baron was manufacturing cheap handsets because margins in his traditional mining business were shrinking. Nonetheless, it’s difficult to see how even the most nimble of coal bosses could compete with a retailer like Suning, especially when the market for mobile phone services in China is relatively saturated. As of the end of February, there were already 1.13 billion mobile subscribers, which means that virtual operators will need to grab business off one another, rather than unlock an underserved market. They will also face fierce resistance from the incumbents, who will fight to defend their existing customer relationships.
Still, Beijing’s move to encourage smaller entrants could help China become more of a global leader in telecoms services in future, writes Doug Young, author of Young’s China Business Blog. The state-owned carriers have largely been followers of global trends, banking on their status as a protected ‘tri-opoly’ rather than taking risks in developing new products and services. That could change as competition heats up and consumers get a wider range of choices.
Chang Xiaobing, chairman of China Unicom, has tried to strike a more positive tone about the reforms, resorting to a Western culinary reference to make his point. “Through virtual operators or other forms of cooperation we can work together to serve consumers better and grow the pie bigger,” Chang told 21CN. “But we can’t just keep cutting the pie and not make a bigger pie,” he warned. “Otherwise we might have something to eat today but no pie for tomorrow.”
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