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China's MVNOs Hit the Wall

Robert Clark
News Analysis
Robert Clark
10/27/2014

It didn't take long: The wheels have already fallen off China's new MVNO sector, which was intended to spark competition and innovation in the sluggish state-dominated industry. (See Year of the Horse: Can China Telecoms Break Into a Gallop?)

The dozen MVNOs that have started service since March have signed up just 400,000 customers -- a rounding error in the massive 1.28 billion-subscriber market and well short of the government's own projections of 1 million by year-end.

Nearly four-fifths of these customers have signed with just four players.

The newcomers' main problem is one that has afflicted MVNOs in many other markets -- high wholesale prices.

According to Zou Xueyong, the head of China's MVNO Industry Alliance, the mobile virtual operators, which offer their services using the infrastructure of one of the country's three major carriers, are being offered a wholesale tariff equivalent to a 35-40% discount to the standard retail price. But the new operators themselves say that in order to at least break even, they need a wholesale price of around 60% below retail.

For those familiar with deregulation in other markets, the MVNOs' woes come as no surprise. There is no industry regulator to protect them, no interconnection regime, and no rules against bundling or cross-subsidies.

The three main mobile network operators -- China Mobile Ltd., China Telecom Corp. Ltd. and China Unicom Ltd. -- are compelled to sign partnerships with at least two MVNOs, but there is nothing to require them to offer viable prices.

The network operators all "see MVNOs as a threat instead of as a partner," said Guang Yang, senior analyst at the global wireless practice of Strategy Analytics Inc. As a result, "they are reluctant to open their networks to MVNOs, even though it is a regulatory requirement."


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It's a far cry from the enthusiasm early this year, as the 40-odd new players collected their licenses and managed to attract some senior talent from the big three.

But in a resignation letter leaked to telecom website C114, an unnamed MVNO executive complained about a lack of realistic planning and of constantly changing objectives.

The letter said some MVNOs' skill seems to be "in getting licence and access to capital" rather than developing a business with paying subscribers. The departing executive added that they could not "see a hope of success."

Yang points out that the newcomers' problems have been exacerbated by the introduction of 4G competition during the past six months. China Mobile in particular has been aggressive in rolling out its LTE TDD-based network. "Their 4G retail prices are even lower than wholesale price to MVNOs," Yang notes. (See China Mobile Adds 9M 4G Customers in August and Nokia Networks Unveils $970M 4G Deal With China Mobile.)

The MVNOs are lobbying the government to regulate the wholesale market, but this will take some time, he adds. "Until the wholesale price reaches a reasonable level, we perhaps can't see real growth of Chinese MVNOs."

— Robert Clark, contributing editor, special to Light Reading

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fredtaylor
fredtaylor
1/13/2015 | 8:44:50 PM
MVNO Business Plan
Launching a MVNO involves a lot of careful planning and an understanding of the competitive threats and opportunities. Understanding the competitive issues and what type of MVNO to launch is key to success.

Perhaps they should have had a better MVNO Business Plan.

For more information, see - 

http://www.mindcommerce.com/mvno_business_plan_with_financial_modeling_spreadsheet.php
atiller
atiller
11/1/2014 | 2:17:00 AM
Re: Can't spell MVNO without NO
Seems like there's quite a few sweeping statements in these comments: China's MVNOs are struggling (just like everywhere else) so that somehow validates everything bad we feel about China (Great Firewall, 'copy/manufacture' culture...).  Actually, as anyone who lives in China will surely know, China is a highly innovative environment these days.  Especially in the mobile internet it's light years ahead of the West.  We will soon be copying...
R Clark
R Clark
10/29/2014 | 8:40:52 AM
Re: Can't spell MVNO without NO
China's expressed aim is to build an innovation economy; it's nowhere near there yet. But I could've just said 'modern economy'. You still need first-class broadband to build a first-class economy of any kind.
Yulot
Yulot
10/29/2014 | 8:06:13 AM
Re: Can't spell MVNO without NO
Albeit China is not exactly an innovation economy, but rather a copy, manufacture and undercut competition type of place. By that I mean you cannot exactly compare it to the Sillicon Valley or Israel, with a culture of individuals going after an idea to develop an innovation and seek funding for a start up project out of own initiative. It is usually big groups, backed up by the Chinese governement, putting several thousand R&D people under one roof to copy Cisco or Ericsson's HW and SW,... even if Huawei for instance has improved a few products quite significantly.
R Clark
R Clark
10/28/2014 | 10:02:04 PM
Re: Can't spell MVNO without NO
Liz is right that it is about the Great Firewall. Telecoms is one of a dozen strategic sectors zoned off for the state only. That's not good for foreign telcos, or Chinese companies who want to invest in telecoms, but it's great for economies competing against China. You can't build a modern innovation economy on second-rate broadband infrastructure with high prices and stodgy services.
Liz Greenberg
Liz Greenberg
10/28/2014 | 4:12:28 PM
Re: Can't spell MVNO without NO
mendyk, I think in this context the two are inextricably linked. It is just the reality of the situation to me.  I can't speak to or for any of the others.  Technology is often affected by politics so this is not that unusual.
mendyk
mendyk
10/28/2014 | 2:14:23 PM
Re: Can't spell MVNO without NO
I thought the original post and comments were about the validity of the MVNO model in this context. Seems like politics is rearing its nasty head in a few LR threads today. Must be the season.
Liz Greenberg
Liz Greenberg
10/28/2014 | 12:59:37 PM
Re: Can't spell MVNO without NO
Exactly, it is a cultural, political, etc. situation in China that literally governs the outcome of anything in China.  Time will tell what will happen but it all strongly relates to the Great Firewall of China - if it comes down like the Berlin Wall then change will happen, without it, not much will change.
smkinoshita
smkinoshita
10/28/2014 | 12:29:04 PM
Re: Can't spell MVNO without NO
"...what can they tack on for services without the government saying NO?  Basically, there is NO in MVNO in China...no real possibility for success."

Liz, that sums it all up right there.  I'd ask "What were they thinking?" but one of the reasons why people dislike regimes is that it's very easy to push through mistakes and let others play the price.  There's a lot more culturual changes that needs to take place at the very top before we'll see changes to the situation in regards MVNO.
Liz Greenberg
Liz Greenberg
10/28/2014 | 12:23:51 PM
Re: Can't spell MVNO without NO
MendyK the part that is capitalistic is the notion that they are really trying to embrace competition within a market or heck, even market forces or pricing.  Based on negotiating with a government entity that controls everything anyway there is no real possibility for MVNOs at all in China.  Even if they were to negotiate prices that enable them to somewhat compete, what can they tack on for services without the government saying NO?  Basically, there is NO in MVNO in China...no real possibility for success.
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