China's Telecom Restructuring: A
Preliminary Assessment August 20,
China's Ministry of Industry
and Information Technology (MIIT) data shows that for 1H 2008, China's
national telecom services completed a total of 1.1 trillion Yuan of
revenues, up 25.9% YOY, while telecom operating revenues were 398.79 billion
Yuan, up 9.2% YOY. The gap between revenues continue to widen, as telecom
service prices continue to fall and competition intensifies.
There was a significant difference in market share of
telecom service types.
China's mobile communications services is still a major
driver of overall telecom growth in 1H 2008, garnering a market share of
53.6% and 15.9% YOY growth. Data communications (broadband access) had the
fastest growth at 40.4% YOY and a share of 9.4%. The shares of local and
long distance fixed-line services continue to decrease.
Telecom Services Market Share, IH08
Source: miit AND CCID Consulting ANALYSIS, July 2008
Restructured "new" China Mobile has become
China Mobile is stronger in 1H08. After China's telecom
reorganization, the three new restructured telecom operators (which include
China Telecom and
China Unicom) have similar asset scale, but their business
development results continued to differ widely. For example, the graph below
shows 1H08 month-by-month GSM mobile communications subscriber numbers for
China Mobile and China Unicom.
Mobile Communications Subscribers, in thousands
Source: Annual Reports of China Mobile and China Unicom; and CCID Consulting
Analysis, July 2008
Note that subscriber and revenue gap widened between China
Mobile and China Unicom. By the end of June 2008, China Mobile subscribers
numbered 414.6 million, an increase of 45.25 million new subscribers; while
China Unicom numbered 127.6 million with an increase of 7.0 million new
subscribers. China Mobile's 1Q08 operating revenues exceeded 93 billion
Yuan, up 19.7% YOY; while China Unicom's revenues were just below 26 billion
Yuan, up 6% YOY.
THE FUTURE: MORE CHANGES TO COME
The ultimate goal of China' recent telecom restructuring
is to have the three reorganized entities of China Mobile, China Telecom,
and China Unicom, each having nationwide resources, full service
capabilities, strong competitiveness, and relatively equal scale and
strength. The desired result is to have a strong, vibrant, and competitive
telecom industry in China.
Source: CCID Consulting, May 2008
All three telecom operators, and only these three, will
have mobile communications licenses; however, in the short term, China's
rapid mobile communications market favors China Mobile. Moreover, China
Telecom and China Unicom are facing integration issues that affect their
ability to compete effectively in mobile communications with China Mobile.
Given these issues, and ensuing reorganizations, China's
telecom market will experience more changes in next one to two years.
The government may institute asymmetric regulatory
measures to level the playing field of the three telecom entities. In
particular, policies may be aimed at China Mobile, such as heavier taxes.
However, CCID Consulting has seen that such policies in the past have been
ineffective and disruptive in China. The emphasis would be more on
penalties, rather than incentives.
An approach worth examining is that of South Korea and its
telecom industry. This approach involves executing unidirectional wireless
number portability, to level the subscriber base of all three telecom
entities. Subscribers are free to keep their wireless phone numbers when
they switch their service, say, from China Mobile to another entity, but not
There would then be incentive for all three entities to
have competitive service levels and products; China Mobile would need to
improve services to keep customers; while China Telecom and China Unicom
would need to do the same to attract customers.
There are factors to consider in implementing such a
portability policy in China:
Wireless number portability coverage in China is about
60%, and this rate may go down slightly relative to the high overall
growth of China's mobile communications.
There are technology limitations to consider, and
China's telecom infrastructure is still regionally unbalanced.
China Mobile's TD-SCMA is a consideration for
asymmetric wireless number portability.
By the end of 2008, Mobile, China Telecom and China Unicom
will be obtaining their 3G licenses. 3G and B3G are becoming more developed,
and relative to 2G networks, it offers future mobile communications with the
Internet as the core.
Each of the three entities have a different 3G emphasis.
China Unicom with WCDMA is the most mature. China Mobile with TD-SCDMA is
supported as a national China standard. China Telecom has gone ahead with
its CDMA2000, which could be targeted towards more high-end users. Each
operator has its own advantages, and execution of their standards and
technology will be important variables in the near future.
Commercial Customer Development
Each of the three operators has had to confront average
revenue per user fluctuations. As a mitigating factor for such fluctuations,
China's commercial sector is considered a new growth area for the three
telecom operators. However, addressing the commercial markets is still
early, where requirements differ from the consumer. In short,
operators are not able to effectively integrate into the commercial users'
All three operators are at parity when it comes to
addressing the commercial markets, although China Telecom does have a slight
advantage. It has steadily increased its commercial user base. China
Unicom's (China Netcom's) commercial user base has declined in 1Q08. China
Mobile can leverage its strength in mobile communications into the
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Unless otherwise specified,
all information provided is sourced from CCID Consulting.