China Testing Private Funding Models for Telecom

China's tightly controlled telecom sector is finding new ways of raising cash and increasing liquidity.

In the past the state-owned operators have attracted billions through public listings, including in New York and Hong Kong, while preserving the management rights of the parents.

Now government policy makers are pushing "mixed ownership" as a means of raising capital.

The plan, currently at the early trial stage, is to add private sector investors on to the share register at a number of state-owned enterprises (SOEs). China Unicom Ltd. (NYSE: CHU), being the most financially fragile telco, is the telecom sector nominee.

Unicom confirmed in November that its parent is "studying" the idea, but said that no decision had been made either by management or the government.

China's Internet giants Baidu Inc. (Nasdaq: BIDU), Alibaba Group and Tencent Inc. -- collectively known as BAT -- have been reported as likely investors. They all have networks-related businesses, offering cloud services and operating as MVNO licensees, and could be powerful industry partners as well as significant investors. They are no doubt reluctant to put resources into a cash-strapped state enterprise, but as players in China's highly regulated Internet market they may have limited say in the matter.

While the SOE reform progresses at a slow pace, the newest telecom enterprise, China Tower Co., is wasting no time in going public to raise cash. The company, formed in 2014 to own and manage telecom towers across the country, is reportedly aiming for an IPO this year.

It has racked up some impressive numbers. Since beginning operations in January 2015, it has invested 95.0 billion yuan ($13.8 billion) in cell sites, saving the industry the equivalent of building just over half a million basestations.

Executives told the company's annual work conference in Beijing last month that the tower sharing rate has risen from 20% to 70%. Where two operators share a cell site they each save make cost savings in the 20-25% range, and where three share a site the saving rate is as high as 35%.

General manager Tong Jilu said the focus this year would be on further saving leasing costs and improving efficiency and -- in an apparent reference to tendering irregularities -- "the integrity of the construction process."

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In another signpost to the future, China Telecom Corp. Ltd. (NYSE: CHA) says it has raised around 10 billion yuan ($1.45 billion) from private investors to support broadband deployment.

Chairman and CEO Yang Jie, interviewed by a Chinese website, did not give details but cited rural rollouts in the southern provinces of Jiangxi and Fujian.

In Jiangxi, the company has raised RMB530 ($77 million) in private funds, 80% of the total invested in the province for rural broadband. In the coastal city of Quanzhou, which had the fastest FTTH rollout in Fujian last year, adding 250,000 FTTH ports, private investors have contributed RMB66.98 million ($9.7 million).

China Telecom has built a back-end system enabling private investors to follow project progress and measure investment performance, Yang said.

He said the company was working on creating "different models for private capital to enter the broadband market."

— Robert Clark, contributing editor, special to Light Reading

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