Chinese telecoms overhaul
By Paul Budde

For nearly four years BuddeComm has been reporting on the possible restructuring of the Chinese telecoms industry, and it has taken a frustratingly long time to actually get the ball rolling.

However, in typical Chinese fashion, the deal is more bureaucratic than commercial in nature. The reshuffle is not making the industry more competitive or more efficient; nor is it opening up new opportunities for foreign investments or partnerships.

Those who will suffer the most from this will be the Chinese telcos themselves. Telecoms is an international business and China will have to play an increasingly international role. But the reorganisation does nothing to make the companies or their management more prepared to participate in the global marketplace.

Analysing the fallout of the reorganisation, it looks like China Mobile will end up with the white elephant - the Chinese 3G mobile technology (TD-SCDMA).

In order to show the market that China needs to be taken seriously in standard setting, the country went solo on this new technology. However, it took the Chinese far too long to develop it into a commercial product and their window of opportunity to market this new standard internationally is now largely gone.

Sure, they can dump it for next to nothing in some of the African markets, but in the last few years mobile penetration has gone through the roof there also, generating very profitable and hugely successful operators who no longer need cheap Chinese products.

The country has built a whole industry around this technology and it would now be a major face-losing exercise to make the commercially sensible decision of dumping the project and joining the international standards that work - and that will offer international business opportunities for Chinese companies.

But those who know the Chinese culture will understand that such a backflip is simply not possible.

If the decision was made solely on a commercial basis BuddeComm believes that, even in China, it doesn't make sense to introduce TD-SCDMA onto the local market, and it will certainly be interesting to see how the decision is framed by the Chinese government.

We see this as a clear commercial burden for China Mobile. The technology was developed, not by that company, but by the fixed network operator China Telecom. However, at this stage it is highly unlikely that the government will allow China Mobile to select another 3G technology for its domestic market.

If it were up to China Mobile we don't believe that it would voluntarily roll out TD-SCDMA, and there has been some serious tension on this issue between the government and the company. We wouldn't be surprised if, longer term, this creates more distance between the government and the telco industry, but this could easily take another 5 to 10 years.

The restructuring allows all three players to now become full service operators, but it is highly unlikely that China Telecom and China Unicom will be able to challenge China Mobile in the mobile sector, given its 70% market share. Nevertheless building a new network in China will most probably see China Telecom investing close to $10 billion for its rollout.

Paul Budde

For more information see - 2008 Asia - Telecoms, Mobile and Broadband in China

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