China’s telecom sector in need of consolidation

By Doug Young Source:Global Times Published: 2015-10-26 22:18:01

Recent signs point to shake-up, with private sector set to play greater role

Illustration: Peter C. Espina/GT

The latest sign of a potential shake-up in China's stodgy telecoms sector came late last week, when global networking equipment giant Ericsson attributed reorganization and weak spending by the nation's big three carriers as a major factor behind its disappointing quarterly results. Despite expectations that China's big three carriers would spend heavily on 4G this year, the actual amounts so far have been relatively modest from the trio of China Mobile, China Unicom and China Telecom.

The unexpected spending slowdown could be the latest sign that Beijing is planning an industry overhaul, following reports that first emerged last month of a possible consolidation of the three current mobile carriers into just two. Such a move would reflect Beijing's disappointment at the failure of State-run carriers to become global innovators over the last decade, even after receiving monopoly rights over a market that has become the world's largest for mobile and broadband services.

The telecoms regulator should move ahead quickly with such a consolidation plan if it is really under consideration, and could even consider such a plan if it hasn't yet. Doing so would send a strong signal that the big State-run carriers could ultimately be demoted to simple network owners and operators. That would pave the way for a vibrant field of more entrepreneurial and innovative private companies to offer services, under a series of reforms now in the pilot program stages.

China has become the world's largest telecoms services market over the last decade, in a remarkable transformation that has brought mobile services to most of the country's 1.3 billion people. And yet despite the huge market, the big three carriers have failed to develop many blockbuster products to offer over their networks. Instead, the biggest successes have mostly come from private companies like Tencent and Momo.

The carriers' lackluster record was continuing unabated when the telecoms regulator, the Ministry of Industry and Information Technology (MIIT), engineered a change in August that saw the top executives for China Telecom and Unicom change places. That shuffle was followed a month later by an analyst's forecast that the rotation might be paving the way for a merger of the smaller of China's three carriers into a single company, reducing the number of national operators to two.

Signals from Ericsson last week seemed to provide more evidence that change might be coming. The world's largest telecoms equipment supplier reported third-quarter results that fell short of market forecasts, saying reorganizations at the Chinese carriers had hurt its performance. That came after China's telecoms equipment spending fell 20 percent in this year's second quarter, even though many had predicted the number would rise due to big spending on 4G networks.

Data from the three carriers paints a more detailed picture of the spending slowdown. China Mobile previously said it had budgeted 200 billion yuan ($31 billion) for capital expenditure in 2015, but only spent 69.7 billion in the first half. All those signals seem to point to a major spending slowdown that is probably being engineered by the MIIT. Such a move could be aimed at a future consolidation of the country's network infrastructure, which is already quite vast, and focusing instead on building up innovative products and services to run on those networks.

The MIIT has already shown signs of letting private companies like and Alibaba play a bigger role in the sector with its nearly two-year-old virtual network operator pilot program, which lets private companies sell wireless services under their own brands by leasing capacity from the big carriers.

Such moves show Beijing finally realizes China will need to give a much bigger role to the private sector if it ever hopes to become a global leader in telecoms products and services. A merger of China Telecom and Unicom would be another important step in that direction by reducing reliance on the big State-run companies to provide innovative consumer services. Instead, these big companies could be relegated to the simpler and relatively straightforward business of simply owning and operating big telecoms networks.

The author writes about China's company news at

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