What is prompting the Chinese government to order management changes at some state-owned telecom carriers? And what do the moves portend for the broader industry?
There are the questions being raised by observers after news broke last week of a reshuffle in the top ranks of at least two big telcos.
As per an announcement, China United Network Communications Group — commonly known as China Unicom — is getting a new general manager, Li Guohua, who was earlier with China Post Group.
Meanwhile, China Telecom will also see a senior-level change as its chief operating officer, Liu Aili, has resigned from the company as he was asked to take up Li’s former position as head of the national postal service.
The personnel changes at China Unicom and China Telecom have set tongues wagging that the decisions may be related Beijing’s plans for 5G network rollout.
Analysts and industry experts are also wondering if Chinese authorities are perhaps laying the ground for a new round of telecoms sector restructuring in preparation for launch of the next-generation wireless networks.
The speculation is understandable given that China’s previous large-scale industry overhaul took place a decade ago when the focus was on issue of 4G licenses. At that time, China Unicom merged with China Netcom to for a new Unicom Group, while Unicom sold its CDMA mobile network to China Telecom.
The moves led to the formation of three full-service operators in the market.
Still, the smaller two players are a far way off from challenging the dominance of China Mobile in the mobile sector. Also, even in fixed-line broadband China Mobile is catching up with China Telecom.
According to some industry observers, China Mobile could surpass China Telecom in the next few months as the nation’s biggest home broadband service provider.
The disparity in market strengths among the big three telcos is a concern for authorities, prompting them to seek ways to reduce the gap.
While China has had three full-service telecom operators for the past decade, the fact is that the government has been adjusting its telecom policies in a bid to achieve a policy goal of providing widespread and cheaper services to end-users.
Authorities saw policy intervention as the main tool to drive prices down, rather than market competition.
For example, the government had ordered the operators to cancel domestic roaming fees in both mobile voice and mobile data services, as well as local cross-province long-distance call fees.
The moves were aimed at simplifying the tariff structure of the telecom sector, but operators found that it was getting tougher for them to make money from services and invest in networks.
Playing a key role in tariff restructuring, the government sought to send a message to the public that it is acting as a protector of their interests, and that the big three telcos are merely executing the policies laid down for them.
Given Beijing’s ambitions for the sector, it won’t be surprising if the government decides to simplify the telecom market structure further.
The moves taken in relation to creation of infrastructure entity China Tower should serve us as a reminder of such policy approach. China Tower was formed by the big three telcos through the pooling of their transmission towers and other infrastructure assets.
The motive behind the formation of China Tower — which is currently undertaking a Hong Kong IPO worth as much as HK$78.3 billion — was to curb excessive and duplicated investment in telecom infrastructure
Speaking of the big three telcos, authorities may want to do even more that could help reduce costs in the industry and facilitate faster and cheaper 5G rollout.
It is possible that Beijing may even contemplate a merger between China Telecom and China Unicom, as some media reports have speculated after the news last week of management changes at the two firms.
Further industry consolidation may be seen desirable as Beijing rethinks policy options, with such efforts likely to gain momentum amid trade tensions with the US
Investment bank Jefferies Group said in a note last week that the trade war “may have prompted China to change its mind to accelerate 5G rollout at a lower cost,” the Wall Street Journal reported.
According to some rumors, a merged entity of China Telecom and Unicom would be led by Unicom’s Chairman Wang Xiaochu. The mega-merger theory has been floated amid speculation that authorities may decide to issue only two 5G licenses.
As per that theory, only China Mobile and another player would be able to provide 5G services. If China Telecom and China Unicom remain separate, it would be difficult for the authorities to judge which among the two should get the 5G license.
To get around the problem, why not merge the two players and let the new entity compete with China Mobile?
This is, of course, all in the realm of speculation for now, and one can’t say for sure what will happen in the coming months.
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