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  • Jul 13, 2014
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PUBLISHED : Friday, 16 November, 2012, 10:50am
UPDATED : Friday, 16 November, 2012, 10:51am

China Mobile loses cable war

BIO

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young’s China Business Blog (www.youngchinabiz.com), commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, “The Party Line: How the Media Dictates Public Opinion in Modern China.”
 

The news wires are buzzing today with word that wireless titan China Mobile (HKEx: 941; NYSE: CHL) appears to have lost a major battle to quickly become a major player in the fixed-line broadband space by purchasing a stake in a new national cable TV operator now being formed.

If the reports are true, this development certainly wouldn't surprise me since regulators in Beijing are probably quickly tiring of listening to the constant complaints coming from China Mobile, which believes it was treated unfairly in the country's awarding of 3G wireless licenses 3 years ago.

But before I go any further with my own armchair analysis, let's take a look at this latest somewhat surprising development, which has media reporting that Beijing has approved a plan to form a national cable operator to consolidate the nation's many regional cable TV companies.  The new company's major funding will come via 4 billion yuan, or about US$650 million, from the Finance Ministry, which can be used to buy up regional cable TV networks and to upgrade their lines for fixed-line broadband and video-on-demand (VOD) services.

Other investors are likely to provide additional cash for this new national cable operator, which will need a war chest of US$1 billion or more for the major tasks ahead of it. But at least one media report says that China Mobile has been excluded from participation in this major new capitalization, meaning it is unlikely to invest in the future as well.

China Mobile is China's dominant mobile carrier with about two-thirds of the market, but it has only a tiny share of the fast-growing market for fixed-line broadband services. That market is dominated instead by the duopoly of China Telecom (HKEx: 728; NYSE: CHA) and China Unicom (HKEx: 762; NYSE: CHA), which offer their services over networks that they inherited from the nation's former fixed-line phone monopoly.

 

China Mobile was reportedly lobbying hard earlier this year for Beijing to let it invest in the new national cable operator, which would have provided an instant platform for China Mobile to offer wired broadband services. But these latest reports indicate that Beijing officials have heard China Mobile's pleas, and that their answer to the intense lobbying effort has been a definitive "no thanks".

It's impossible to know what's going on behind the scenes in China's opaque regulatory world, and I have no doubt that Unicom and China Telecom were probably lobbying equally hard to make sure China Mobile wasn't allowed to invest in the new cable operator. But I also suspect that Beijing regulators were probably tiring of hearing China Mobile's constant complaints about how it was forced to build a  3G based on a problem-plagued homegrown technology called TD-SCDMA.

China Mobile was forced to build the network partly to promote homegrown Chinese technologies, but also to create a more balanced market in 3G compared to the more lopsided 2G market that China Mobile had come to dominate. China Mobile has done a lacklustre job developing its 3G network and has lobbied hard for the telecoms regulator to accelerate its awarding of 4G licenses, which should help China Mobile regain some of its lost momentum. 

I suspect that regulators perhaps feel they have already yielded to China Mobile's lobbying by accelerating their 4G timetable, and don't feel like giving the company anymore benefits by letting it invest in the new cable operator. Regardless of what's happening behind the scenes, this exclusion from investment in the new cable operator certainly deals a setback to China Mobile. Instead of buying into an existing fixed-line network, the company will now have to build out its own new network if it wants to offer fixed-line broadband -- a costly process that could take at least 3-5 years.

Bottomline: China Mobile's exclusion from investment in a new national cable TV operator comes as a big setback, and will force it to build out its own network if it wants to enter fixed-line broadband.

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