China Telecom (00728.HK), one of the nation’s big three telecommunications carriers, is seeking to turn itself into a hosting platform for a wide range of Web-based services, leveraging its loyal customer base to avoid getting marginalized in the mobile internet era and an intense 4G battle.
The strategy is further proof that the firm, led by chairman Wang Xiaochu, wants to skirt a cut-throat price war in the market as rival China Unicom (00762.HK) has launched a 4G service with monthly packages priced as low of 76 yuan and bigger player China Mobile (00941.HK) also upping its game.
China Unicom’s 4G entry price is very close to what China Telecom reaped last year in average revenue per user for its 3G service – 71.5 yuan. That means a new 4G network may not help China Telecom boost its service fee revenue. Incidentally, China Mobile has slashed its 4G service entry price to 58 yuan per month after Unicom’s announcement.
Given a government mandate to bring down the 3G/4G service fee, China Telecom is expected to see slower growth in related revenue. Its average revenue per user (ARPU) has already fallen from the 2012 level of 71.8 yuan. Amid the decline in core service revenue, the company needs new revenue sources to bridge the gap.
Towards that end, China Telecom is establishing a platform for various new services, aiming to leverage its huge user base.
The company has announced a plan to enter new businesses such as data traffic operation, Internet applications, informatization services and cloud computing, as well as internet finance services. The telecoms titan aims to generate half of its total revenue from these new businesses by 2017, up from 25 percent last year.
Some new services in particular look promising.
The payment business –Best Pay — is one of them. This third-party payment service integrates China Telecom’s communications and internet technology, providing a platform for payment, wealth management and financing services.
Best Pay has linked with more than 60 million bank accounts and 40,000 merchants, and transaction value reached 130 billion yuan last year, double from previous year. China Telecom profits by charging service fee on each transaction. With the service fee set at 0.78 percent, China Telecom secured around 1 billion yuan of revenue from Best Pay platform. As it is still a new business, the revenue contribution could become higher once more merchants and users join the platform.
China Telecom also developed its own mobile chatting app, YiChat, with in cooperation with NetEase (NTSE.US) and secured 60 million users in six months after launch. YiChat, which offers similar features as Tencent Holdings’ (00700.HK) Weixin app, is positioned as the mobile internet portal for China Telecom to promote games, applications and mobile commerce.
China Telecom, which had been the dominant player in the fixed-line telecoms market, has been undergoing massive transformation since it acquired a mobile license from rival China Unicom (00762.HK) in 2008. Since then, the company has been relying on mobile, broadband and data services for growth, in order to reduce the reliance on traditional fixed-line voice business.
The transformation is bearing fruit as fixed-line voice revenue only accounted for 12 percent of its total revenue in 2013, compared with 52 percent in 2008. Growth businesses, which include mobile, broadband and data, accounted for 88 percent of the total revenue last year.
Based on the financial figures, we can say that China Telecom has successfully transformed itself to a integrated telecoms network operator with a focus on broadband and mobile services. However, given that it is a state-owned entity, its business strategy cannot go too far away from the central government policy. That poses a challenge for the firm to maintain the strong revenue growth momentum amid Beijing’s directive to keep telecoms service fees at more affordable levels.
While the battle is a long-haul process, China Telecom has at least shown that it is willing to reinvent itself once again to overcome the challenges.
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