It’s a foregone conclusion that China Mobile Ltd. (00941.HK) will be given the go-ahead to operate fixed broadband services in the next round of sector-wide reforms as compensation for halving its network interconnection fees.
On the surface, it doesn’t look like such a good deal for the country’s biggest carrier because the chances of the broadband income making up for the lost river of interconnection fee revenue seem remote.
Nevertheless, a fixed broadband license is of no small value to China Mobile. It could help turn the company into a horizontally integrated telecom carrier on a par with China Telecom (00728.HK) and China Unicom (00762.HK), enabling it to provide fixed broadband, Wi-Fi, 2G and 3G mobile communications services simultaneously.
The strong synergy that fixed broadband operations can create with wireless businesses are often underestimated but the evidence is there in the results of the three telcos in recent years.
The year of 2009 was widely deemed as a watershed in China’s telecom industry. While China Mobile started running out of steam that year, China Unicom and China Telecom succeeded in snapping up a bigger share of the mobile communications market.
The change in the telcos’ strength is most often put down to the costly task of developing homegrown TD-SCDMA 3G mobile phone technology, which fell on the shoulders of China Mobile. Fixed broadband is rarely cited as a factor in the reversal of fortunes.
The Ministry of Industry and Information Technology banned China Mobile in 2009 from providing fixed broadband services, handing a virtual duopoly in household internet connectivity to China Unicom and China Telecom.
Fixed broadband operations may not be as profitable as domestic wireless communications but the services do give China Unicom and China Telecom an edge over China Mobile in the mobile phone market.
For example, People’s Daily reported earlier this year that residents in Hohhot, Inner Mongolia, had no choice but to subscribe to China Unicom’s 3G mobile service just to get fixed broadband bundled in.
Although such tie-ups are not common, they do pop up from time to time where China Unicom and China Telecom have a tight grasp on last-mile broadband access. It also partly explains why the 3G user bases of the two minor telcos have swollen rapidly over the last few years.
China Tietong, a sister company to China Mobile, has a readily available fixed line network with nationwide coverage, suggesting that China Mobile could easily launch bundled wired and wireless services the moment the government gives it the green light.
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