All Change in China?

Ray Le Maistre
Shades of Ray
Ray Le Maistre, Editor-in-Chief
8/28/2015



China's fiercely guarded communications services sector looks set for a seismic shift that could involve some market-changing M&A and asset-swapping activity, recent developments suggest.

But, as usual, uncertainty hangs over the direction and strategy of the country's giant service providers and now, more than ever, clarity is needed.

Here's what's going on.

The country has three main operators, all of which are state-controlled: China Mobile Ltd. (NYSE: CHL), the largest by revenues and customer numbers, which has mobile operations only; and China Telecom Corp. Ltd. (NYSE: CHA) and China Unicom Ltd. (NYSE: CHU), which both have fixed and mobile operations.

You can see just how massive these operators are, and how their recent investments in 4G infrastructure have been impacting their businesses, by checking out our recent coverage (including the latest financial and subscriber data) of the country's major players. (See China Unicom Loses Out to Rivals, China Mobile Profit Dips on 4G Costs, Tax, China Telecom Hit by Taxes as 4G Subs Soar, ZTE Profits Rise on China's 4G Boom and Huawei's H1 Sales Grow 30% to $28.3B.)

But following the recent quarterly financial reports, all three operators announced significant updates.

China Mobile is set to acquire fixed-line operator China TieTong Telecommunications Corp. from its parent company, China Mobile Communications Corp. , for an undisclosed sum. The move, stated China Mobile, will enable it to "obtain quick access to fixed-line broadband core resources and enhance our operational and managerial efficiency," and is part of its shift towards "full-service strategic development."

Little information is available about China TieTong (formerly China Railcom), other than it has constructed an optical transport backbone and offers fixed broadband access services: At the end of 2013 it had almost 12 million broadband customers, accounting for 6.2% market share, according to Point Topic.

China Telecom currently has about 110 million fixed broadband customers, while China Unicom has 71 million. While TieTong appears to be way behind, integration into the day-to-day operations of China Mobile Ltd., which is already beefing up its fixed broadband network activities as part of the 'Broadband China' initiative, will give it a growth opportunity like never before. (See AlcaLu Lands $1B+ Deals in China.)

At the same time, Telecom and Unicom may be in for some structural change of their own. They have swapped chairmen -- Chang Xiaobing has gone from Unicom to Telecom, while Wang Xiaochu has jumped from Telecom to Unicom -- which might be a strange move in most other countries, but not China, where such management shuffles are not uncommon.

What is particularly interesting, as this blog by Hong Kong finance house Abridge Enterprises Co. notes, is that the chairmen, who also held the role of CEO in their previous roles, have not taken their executive status with them as they swap jobs. That leaves both China Telecom and China Unicom without a CEO.

The team at Abridge Enterprises believes this could herald a major move -- possibly an asset swap or even a full merger of Telecom and Unicom.

China Mobile also has a new chairman, Shang Bing, but that appointment is less dramatic as he replaces Xi Guohua, who is retiring.

All of this upheaval comes, of course, as China faces economic turmoil that is impacting the global economy.

The Chinese government needs to move quickly to clear up the uncertainty these latest developments have caused and lay out the new path for the country's communication services sector. That will help the operators, which are significant cogs in the country's industrial wheel, and, more importantly, help make it clear to China's enterprise sector how they can best engage with the network operators.

Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

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