Private firms shake up China's mobile market
State telecoms monopoly is broken with private firms given licences to enter mainland market, amid hope that move will encourage investment
The Ministry of Industry and Information Technology (MIIT) yesterday handed out the first batch of licences to 11 private enterprises, including a unit of Alibaba Group, to sell mobile services, breaking the monopoly of state-owned firms in the telecommunications sector.
The licences allow the firms to lease mobile communication services from bigger companies who have their own networks, repackage them and sell them to users from early next year.
The new players could offer traditional services like voice calls and text messages as well as proprietary value-added services such as mobile games.
The telecommunications regulator said that the licences will "strongly encourage private investment, spur creativity and competition in the telecommunications sector".
The move will not open the industry to foreign capital, however. Foreign equity is only allowed in joint ventures related to "value-added market segments", such as data centres. Foreign investors are not allowed to hold more than 49 per cent of a joint venture, according to Huang Meng, executive director of Eagle Stone Investment, an investment firm focusing on telecommunications and internet businesses.
Though the telecommunications industry is under pressure to raise its game as a result of new platforms such as Tencent's WeChat, analysts said the traditional mobile business is still stable, with a lot of private investors wanting to enter the sector.
"Like electricity and energy, telecoms is a state infrastructure industry and remains highly regulated," said Huang. "Profitability of these sectors is not only stable but also very good as they are monopolised."
The first private companies allowed a slice of the growing telecommunications pie include Net.cn a subsidiary of e-commerce giant Alibaba; its rival Jingdong; Dixon, a mobile phone retailer; Busap, a leading new media and mobile internet company; and Nasdaq-listed Funtalk, according to MIIT.
Huang said a second batch of "virtual carriers" can be expected, though not soon.
"It's like an experiment and MIIT will wait and see the result before granting licences to more operators. Besides, there are few examples of successful virtual operators worldwide," he said.
Xiang Ligang, the chief product officer at telecommunications industry portal cctime.com said the virtual carriers would not affect the business of the "big three" providers - China Mobile, China Telecom and China Unicom - because the new entrants would have to lease resources from them, weakening their pricing ability. Still, analysts see the new policy as an opportunity for private firms to share profits with state-owned operators.
Xiang said though the three main operators have their own distribution channels, virtual operators will resell mobile communications services under their own brands rather than on behalf of the primary providers.
"Let's assume that the 11 virtual operators will altogether take up 2 per cent of the market," Xiang said. "That would translate into an annual revenue of 20 billion yuan [HK$25.34 billion]."
Seventy companies bid for the first batch of virtual licences. The mainland's top two home appliance retailers, Suning and Gome, had also joined the bid but failed.
Xiang said the winners have nearly 2,000 shops nationwide and it would be easy for them to market their services: "It will be easy to set up the business. The investment will be limited while the revenue quite significant."