Ownership Reform Won't Save Unicom
China's telecom sector restacks the deck every decade or so, usually to solve a pressing problem. Right now that problem is China Unicom, which is struggling in both broadband and mobile.
Among the three state-owned telcos, China Unicom Ltd. (NYSE: CHU) ranks bottom in revenues, profitability and growth.
Last year its mobile division lost 20 million customers while its broadband group fell behind China Mobile Ltd. (NYSE: CHL) to end up as the market laggard.
It did post encouraging first-quarter results, with earnings up 80% after they had slumped 94% in 2016, but it continues to remain the weakest link in the carefully curated telecom industry chain.
The government's remedy is to bring in private investors under a program called "mixed ownership." It's being tested out in half a dozen state-dominated businesses, and represents the latest half-hearted attempt at reform by an administration that came to power five years ago promising to revitalize state enterprises.
The only confirmed detail is that Unicom's Shanghai Exchange-listed unit, China United Network Communications Ltd, rather than its Hong Kong-listed operation, is to be the vehicle for the experiment.
Big Internet and cloud firms such as Alibaba and Tencent have been widely cited as new shareholders, but to date the identity of the new investor, if it has been decided, has not been disclosed.
Earlier this month Unicom’s chairman Wang Xiaochu spoke of the complexities involved in getting the reform through, saying it would require the cooperation of ten different government agencies.
An even bigger problem is the unattractiveness of the deal.
China Unicom Shanghai is a holding company that does nothing more than own a 20% stake in the Hong Kong-listed operations. As a South China Morning Post columnist pointed out, 20% of the Shanghai-listed company sounds substantial but in reality it equates to a 5% stake in the Hong Kong-listed unit.
If that's not disincentive enough, the new investor-partner would have no say in choosing management. Senior executives are appointed by the Communist Party, not the board.
Then there's the poor track record of partnerships. The Chinese operators have already left a trail of abortive strategic investors behind them. As the SCMP noted: "Spain’s Telefonica SA once owned 9.6% of [Unicom predecessor] China Netcom, South Korea's SK Telecom controlled 6.6% of Unicom, while Vodafone of Britain owned 3.2% of China Mobile. They had board seats as well."
None of these made any impact on the operations and eventually sold out. There is no reason to think that the "mixed ownership" plan will be any different.
— Robert Clark, Contributing Editor, special to Light Reading