20 June 2019

The road ahead for virtual carriers

China wants the information sector to be one of the major domestic consumption engines in the coming years. To realize that goal, authorities have taken a key step by issuing the first batch of virtual carrier licenses.

Eleven private companies can now lease network capacity from the big three state-run carriers and provide services to end-customers, according to an announcement Wednesday from the Ministry of Industry and Information Technology.

The license winners include units of major e-commerce players Alibaba and Jindong, as well as several handset retailers.

But wholesale pricing will only leave a thin margin if the virtual carriers simply act as an agent for big telcos, experts have said. So, what business models would be feasible for them?

Combining e-commerce and telecom services could be one option. Customers can earn bonus points from purchases of goods and use them to cover tariff charges, the National Business Daily noted.

By targeting specific market segments, virtual carriers can also flexibly repackage leased services into set menus of different data, voice and value-added services combos, differentiating themselves from the limited generic offerings from large telcos.

It is believed that the second batch of licenses will be announced soon as the government seeks to invite more private sector players into the industry. With no clear limits set, the number of licensed virtual carriers could keep expanding in the coming months.

As new business opens up, players may not all have concrete business plans given the lack of experience. Perhaps the best way to find out what would work is through actual product launches. Alibaba has been quoted as saying that it has already designed a few service packages to test the market.

Some license applicants, however, may only be rent seekers. With sketchy operating plans, they are more interested in reselling licenses in a couple of years and making easy profit. The plans are based on the assumption that the licenses would appreciate significantly in value.

– Contact the writer at [email protected]



EJI Weekly Newsletter

Please click here to unsubscribe