Telecoms

Here comes the Batmobile

The red phone is flashing at China Unicom as top tech firms invest

China-Telecoms-w

Set for new investment

Is that Police Commissioner Gordon asking for Batman’s help to save Gotham City? Or is it the Organisation Department of the Communist Party of China telling a boss at one of its state-owned enterprises (SOE) that he will be moving jobs?

In China Unicom’s case it could be a combination of both. Like many of his counterparts, Unicom’s current CEO, Wang Xiaochu, has a red phone sitting on his desk connecting him to high-ranking Party members via an encrypted line (the kind of device whose existence Richard McGregor first revealed to Western readers in his book The Party). This time, however, the caller was the central government, encouraging him to welcome three corporate superheroes (China’s much-vaunted ‘BAT’ – Baidu, Alibaba and Tencent) into his firm.

Late last year China Unicom was selected to take part in a mixed ownership reform scheme (for background on this concept, see WiC251) in which it planned to sell part of its equity to the BAT troika (though the amount has not been made public). This month the State Council reiterated its intention to open up more state enterprises to private investment, giving “free rein to telecommunications companies in the development of the internet”, according to a new posting. As yet, China Unicom’s BAT share sale does not appear to have got the final rubber-stamp, but the prospective deal symbolises the government’s hopes of improving governance and performance in the SOE sector.

Previous attempts to introduce mixed ownership have focused more at subsidiary level. As we earlier reported oil giant Sinopec introduced 25 investors into its retail arm in 2014. China Unicom is taking the process a step further as it is likely to introduce its new investors at listed company level, according to analysts, who believe it will issue new shares in Shanghai where it trades on a higher valuation.

ThePaper.cn says all three of China’s tech giants will become investors. Strategic cooperation agreements are already in place with the state telco. Tencent’s Big King Card allows Unicom customers to benefit from free data if they use products such as WeChat and QQ, for instance. At the end of November, Unicom launched a similar product with Alibaba, allowing customers to earn 10MB of data when they use Alipay. And Unicom has just signed an agreement with Baidu, which will help the telco create a digital presence at Unicom’s 300,000 stores in China, reports Bloomberg.

Elsewhere there are questions about how much value the troika will really deliver at China Unicom. For instance, one tech and telecoms expert notes the three won’t want to undermine their relationships with China Mobile and China Telecom, suggesting that they are taking part in the Unicom exercise more to please the policymakers in Beijing.

The move won’t lead to overnight change – even optimists concede it will take time for the private sector players to get more influence. But they says the medium-term intent is to use more market-oriented practices to hire, fire and compensate management and to develop a more accountable Unicom board.

Perhaps the government’s choice of the telco as the guinea pig was revealing too. It has been given help in the past against market leader China Mobile to foster greater competition. But it has fallen behind, relying on its 3G network at a time when China Mobile has moved into 4G and is looking ahead to even faster 5G services.

In its analysis of the situation, Huxiu.com mentions an industry joke about the fortunes of the big three telecoms operators. China Mobile always spends the year’s profits the following year, it says. China Telecom spends the year’s profits in the same year, while China Unicom spends next year’s profit this year.

ThePaper.cn hopes that the BAT men and women will change this. “They’ll have a voice about the operational direction,” an insider told the news portal. “They also understand consumers better, so in the future Unicom’s products will be what consumers want.”


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