China Telecom cloud unit takes on new investors in $628M revamp

China Telecom's fast-growing cloud subsidiary Tianyi is taking on board four state-backed investors, increasing its capital base and positioning it as the preferred secure cloud partner for military and government users.

The new shareholders are two electronics conglomerates, China Electronics Technology Group Corp (CETC) and China Electronics Corp (CEC), and two financial investors, China Reform Holdings and China Chengtong Holdings.

China Telecom announced the new shareholder framework but did not disclose the size of the investments.

Figure 1: Blue skies: China Telecom's cloud subsidiary Tianyi is now the preferred secure cloud partner for military and government.
(Source: Newscom / Alamy Stock Photo)

But Tianyi Cloud, which was established in March, has just expanded its registered capital more than fourfold from 900 million yuan ($141 million) to 4 billion yuan ($628 million).

It reported a stellar first half, with revenue more than doubling to 14 billion yuan ($2.2 billion), accounting for more than a quarter of sales in China Telecom's industry digitalization segment.

Friends in high places

The expansion of the shareholder register with these powerful firms appears to be a way of both strengthening Tianyi Cloud commercially and also positioning it as the government's cloud provider of choice.

The tighter linkage to China's two biggest military electronics manufacturers, both of whom also have their own cloud businesses, guarantees the operator will grow its share of the military cloud market.

It has also become the safe choice of cloud partner for government agencies, and the only choice for those seeking high security.

China Telecom ranks fourth behind Alibaba, Tencent and Huawei in the national IaaS and PaaS market, with a share of around 11% in both.

Analysts note that the new investor partners are unlikely to significantly expand China Telecom's market share. But none of its rivals can match Tianyi's credentials as a secure cloud provider.

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The two new manufacturer shareholders – who are similar in name, scale and business scope – will likely ensure tighter cooperation on military and national security-linked projects and the development of new specialized capabilities on Tianyi platforms.

CETC is said to be China's biggest military electronics manufacturer, with nine listed subsidiaries and 179,000 staff. It is no 354 on the Fortune 500 with $34 billion revenue.

CEC is a major military and civilian comms and electronics player and the owner of listed mobile network vendor Nanjing Panda. It is 334th on the Fortune 500 with $36 billion in revenue and 180,000 employees.

The other new shareholders, China Chengtong and China Reform, are state-controlled asset managers and investment companies. Their presence, besides providing some financial heft under Tianyi, is a signal of intent about improving its governance.

China Chengtong specializes in helping streamline government enterprises. China Reform operates multiple investment funds, and also helps state owned enterprises modernize and improve efficiency.

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— Robert Clark, contributing editor, special to Light Reading