26 April 2019

Telecom shakeup will bring more than just profit redistribution

With the rumored plan to halve interconnection fees in the mobile telecommunication sector, people may think that China Unicom (00762.HK) and China Telecom (00728.HK) stand to reap huge profits at the expense of China Mobile (00941.HK). This may be a big misunderstanding.

According to reports, the Ministry of Industrial and Information Technology will soon lower the interconnection fees to entice China Unicom and China Telecom to pursue network construction for the fourth-generation mobile telecom technology which is widely expected to be based on China Mobile’s homegrown TD-LTE standard right from the start.

If interconnection fees among the big three telcos are cut by half, China Mobile may see its profit reduced by 10 percent while the earnings of China Unicom and China Telecom could increase by 50 percent, according to Economy & Nation Weekly, given the fact that China Mobile earns most of the fees as it has the biggest subscriber base.

However, adjusting interconnection fees among telecom operators appears to be just a part of the ministry’s broader plan, which is nothing less than a far-reaching shakeup of the domestic telecommunications industry. A careful reading of the Weekly report would show that the regulator is also considering lifting its ban on China Mobile over fixed broadband.

In 2009, the ministry issued an order prohibiting China Mobile from operating fixed broadband services, which eventually led to a duopoly of China Unicom and China Telecom in the sector. Giving the green light to China Mobile appears to be a reasonable compensation for compelling the country’s largest carrier to concede some profit in wireless communication.

To put the matter into perspective, Beijing wants to fuel competition in the entire telecom market rather than simply redistributing profit among the state-owned telcos. China Unicom and China Telecom may have no choice but to engage in a price war in fixed broadband service if a formidable competitor like China Mobile is allowed to join the fray.

– Contact the writer at [email protected]



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