China Mobile has laid out $179 million for a stake in Beijing-based telecom software firm AsiaInfo – an unusual step that appears to be an industry cross-subsidy.
It is not unheard for an operator to invest in a supplier. But a more typical case might be Japan's Rakuten taking part in a funding round to support Altiostar, a small but key supplier.
AsiaInfo is a mature listed company with a healthy balance sheet, $77 million in positive cash flow and steady growth. It hiked profit by 10% last year on 9.8% higher revenue of 5.72 billion yuan ($810 million).
What is striking is China Mobile and its two competitors account for virtually all of AsiaInfo's business, which is mostly telco BSS and OSS. Last year they accounted for 95% of revenue, according to AsiaInfo filings.
You'd think the issue of 182 million new shares to China Mobile, announced Tuesday, might drive the other two customers away.
But AsiaInfo said while the deal would "facilitate long-term cooperation" with China Mobile, it would also enable closer ties with its competitors.
That's right. AsiaInfo expects that taking China Mobile on board as a strategic partner will somehow "deepen cooperation" with its two main rivals as well.
AsiaInfo and China Mobile do have some history. Last December they signed a "strategic cooperation agreement," extending their partnership into digital transformation, cloud and intelligent network operations.
But, in reality, the prime purpose of the deal appears to be channeling some of China Mobile's cash hoard into industry development, most likely at the behest of one or more government agencies.
Just as China Mobile's decade spent nurturing TD-SCDMA helped fund China Inc's development of 4G and 5G capabilities, this investment will support AsiaInfo's work on new 5G and intelligent network products and expansion into new verticals.
The software firm said that of the HK$1.39 billion ($178.5 million) expected from the sale of stock, 40% would be allocated to R&D, 35% to acquisitions and the remainder to working capital.
The funds would help "consolidate the company's financial position to provide the group with additional fundings for exploring future development," it added.
The other point to note is that China's OSS/BSS market is totally dominated by local players, such as Huawei and ZTE subsidiary Whale Cloud.
Global vendors such as Amdocs, Cerillion and NEC subsidiary Netcracker have given up on the market. It is many years since a non-Chinese firm last won an OSS/BSS contract.
— Robert Clark, Contributing Editor, special to Light Reading