China's MVNOs Hit the Wall
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."
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