12 December 2018

Letting freedom ring in mobile pricing

A big day has finally arrived for Chinese telecoms operators — they now have the right to set their own service fees. The central government has relinquished its final say over the charges, a move that could mark the start of price cuts in the most competitive markets — to the ultimate benefit of customers. The authorities are also allowing new mobile virtual network operators do the price limbo to lure new users, adding ever-more competition to the market mix.

The government’s surrender on telecom service fees was part of the State Council’s decision last week to scrap another 82 government administrative approvals. It is the fifth time the cabinet has cut red tape since the new leadership took office last year.

It comes as a batch of mobile virtual network operators prepares to start making their presence felt in the market. The new players, mostly from the private sector, are allowed to lease network capacity from the three state-owned network operators and are expected to have a new take that should shake up the government-controlled sector.

The free hand on fees is a big gift to the new players because it will let them show their ability to innovate as well as their commitment to consumers. That’s because the new players should be able to better customize services for users by introducing novel pricing schemes such as unlimited voice minutes and data usage, as well as application-based data traffic plans.

China Unicom’s customised plan for Tencent’s WeChat service is one example of that kind of innovative pricing. China Mobile has signalled that it, too, is willing to offer cheaper 4G services to hold on to its users. The big three will be able to think more outside of the price plan box now that they no longer need government approval for charges.

Competition has already been heating up in mobile telecoms in the five or six years since China granted 3G licenses to the three state-owned operators — China Mobile (00941.HK), China Telecom (00728.HK) and China Unicom (Hong Kong) (00762.HK). China Telecom and China Unicom have used lower monthly tariffs, as well as calling-party-paid pricing to draw users from China Mobile. The result has been a more balanced sector, with China Mobile holding 40 percent of the 3G market at end-2013, China Unicom 30 percent and China Telecom 28 percent. Pre-3G, China Mobile had more than 80 percent of the market.

Since then, the government has been stepping away from the sector and leaving the market to determine pricing in several areas. But it has still played a key role in eradicating cut-throat competition, reserving the right to force operators to end some particularly aggressive promotions in the interests of industry order. It’s still unclear whether the authorities will hold on to such powers.

Nevertheless, the official commitment to smaller mobile players is very much evident. In December, the government decided to lower the wholesale network termination fees providers pay China Mobile. This was designed to level the playing field and is expected to reap China Telecom, the smaller mobile operator, an estimated 3.14 billion yuan (US$513.14 million) in savings annually. Similar intervention could be on the horizon in the new approval-free era.

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EJ Insight writer

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