 |
| Cracking the Monopoly in China's Telecommunication Industry |
|
|
|
|
Although China's telecommunications industry does have some competition now after several rounds of mandatory consolidation, an effective competition mechanism is still absent. It has even become a monopolistic market structure.
Effective monopoly
The Mainland China telecom industry is currently made up of five companies, namely China Mobile (mobile services), China Telecom (fixed line services), China Unicom (mobile services), China Netcom (fixed line services) and China Railcom (fixed line services). Mr Li Junyi, General Manager of Shanxi Branch of China Unicom, said that China Mobile is now the effective monopoly in the market.
China Mobile's FY2007 revenue figure is estimated to be RMB 358 billion (RMB:US = 7:1), accounting for 48.7% of total industry revenue. And more astonishingly, 92.5% of the industry revenue growth in 2007 is attributed to China Mobile.
In terms of net profits, China Mobile's net profit amount accounts for 63% of industry total and 84.5% of industry total for annual net profit growth. Furthermore, 83.8% new telecom customers belong to China Mobile in 2007.
Mr Li suggested that such a competition structure has given China Mobile tremendous advantages in brand and sales channel building. China Mobile's sales and marketing costs amount to RMB 131billion last year, slightly below 60% of industry total. |
|
|
|
|
|
China Mobile is operating in the most lucrative mobile communication businesses and markets in China. It has a mobile communication network of wide coverage and high operational quality, strong financial and cost advantages, high-value-added customer resources, dominant market shares and user groups, as well as high quantity and quality sales networks in all cities. No wonder it can become the only large-scale and high-growth company in China's telecom market.
The rumoured restructuring plan
In order to change such an unreasonable competition structure, there have been lots of voices and speculations about industry restructuring in recent years. Here comes a more detailed version in 2008: The five telecom carriers will be restructured into three new players. According to this plan, China Telecom will acquire China Unicom's CDMA mobile network division; China Mobile will absorb the smallest player China Railcom; the large remaining part of China Unicom, which is the direct but small competitor to China Mobile, will be merged with China Netcom.
But judging from market share and financial numbers, we can see that apart from name changes, such a plan would not cause any fundamental changes to the telecom industry's competition landscape. China Mobile will still be the monopoly, and the new China Telecom and new China Unicom will still be hard to compete with their much larger rival.
Mr Li also suggested that the cost of executing such a reform plan is uneven among the three players. For the powerful China Mobile, acquiring the smallest player China Railcom is much like a stream into a river, which would not cause much significant effects.
But the impact on China Telecom is rather obvious. It not only has to spend a huge amount on buying the CDMA network from China Unicom, but also needs to separate the control rooms, transmission, power and mobile towers from China Unicom, whose existing 90% CDMA base stations are sharing the same infrastructure with its GSM network. Such an unusual infrastructure separation project is no doubt difficult and costly.
China Unicom will also be painful. After receiving the large scale surgical operation from China Telecom, it then has to merge with China Netcom with all the wounds. The difficulty can thus be imagined.
Looking forward to complimentary regulations
Mr Li thought that in order to solve the unfair competition in China's telecom industry, the Chinese government should introduce complimentary policies to achieve the objectives of the proposed restructuring plan.
First, the government should exercise its shareholder rights over the resourceful China Mobile by requiring explicit cash returns or dividends. The government can then have sufficient financial resources in its coffer to conduct industry reform and support those companies that need regulatory assistance and market support.
Secondly, reform planners need to fully understand some companies' legacy burdens and practical difficulties. China Netcom inherited some of the most difficult assets in early reform years, so it has always been facing funding pressure. China Unicom had received very limited capital injection from the government since its establishment, so it is also facing various operational issues in the past 10 years. The acquisition premium for buying CDMA division from China Unicom should also be reasonable to China Telecom, so that it won't create a heavy burden on the acquirer.
Thirdly, the legislative system needs to be improved, and effective regulatory supervision mechanism should also be established. Even in developed market economies in EU, US and Asia, regulators are still using regulatory means to fine-tune telecom industry developments, so there is no reason why the Chinese government should not do the same. The government should utilise its supervisory power to accelerate the formation of an effective competition landscape, and ensure proper functioning of the market mechanism in telecom industry.
Moreover, the government should create conditions for a fairer competition mechanism in the industry, in order to eliminate certain market and technological barriers. Customers should be offered more choices, such as mobile number portability, inter-network voice, data and value-added services. The regulator should also prevent companies from locking their users with market or technological advantages, such as discriminative network pricing. In addition, anti-competitive sales practices such as abnormally high commission rates should also be discouraged.
Produced by China Business Intelligence: Source: Outlook Weekly
|
|
| < Prev | Next > |
|---|
