IT was, to say the least, an unusual brand-recognition campaign. Amid the
ruins of towns and villages of Sichuan province, the big Chinese telecoms
operators had set up shop alongside rice kitchens and rows of blue tents to
provide a service as vital as food and shelter.
The mobile phone came of age in China last month when a devastating earthquake
ripped through Sichuan province. Its vital role showed why the Chinese
government has recently ordered a radical restructuring of the telecoms
industry to prepare for the next generation of technology.
Victims used their phones to call for rescue, soldiers used civilian networks
to organise supplies, families used text messages to exchange news of
survival or loss and an increasingly angry group of citizens spread word of
protests against corruption and lax building standards. The national
conversation kept going thanks to a military-style logistics operation by
the rival phone companies.
Tramping through the muddy streets of Mianzhu, a wrecked city of 500,000,
journalists travelling from the provincial capital of Chengdu passed
generator lorries, satellite dishes and relay stations brought in to replace
damaged facilities.
Sturdy entrepreneurs were already hawking cheap mobile phones on stalls next
to vendors selling such necessities as spicy chicken feet, shoes, plastic
buckets and children’s clothes.
So integrated is the mobile communications device into Chinese society that
the authorities have been puzzling for ages over the best way to channel
investment for the future.
The thought of leaving it to a free market was ruled out. Chinese regulators
jealously guard the role of the state in directing industrial policy - and
the key players remain majority state-owned.
The big three that emerged from the reshuffle were China Mobile - the world’s
biggest phone company by market value, with 399m mobile subscribers - and
its two rivals, China Telecom and China Unicom.
The government’s stated aim was to intervene in the interests of competition
and to provide for the arrival of so-called third generation (3G) high-speed
mobile services.
Fast internet access, games and multimedia content, from music videos to
financial information, will all become available to Chinese users, promising
a level of mobile-technology use to rank alongside Japan or South Korea.
Chinese market analysts instinctively saw the changes as a move to weaken
China Mobile, which has profited from a 70% share of the market.
“I believe this restructuring will reduce monopolistic tendencies in the
telecoms market,” said Wang Yiwen, general manager of Shanghai Deding
Investments. “It means the government will introduce an asymmetrical
regulatory system to help China Telecom and China Unicom to compete with
China Mobile.” The reforms should ultimately open the door to greater
foreign investment by companies such as Vodafone, which owns 3.3% of China
Mobile.
The arrival of 3G in China could lead to billions of dollars in orders placed
with global manufacturers as the Chinese operators invest in new network
equipment.
“Handset demand will be very large,” said Tang Jie, analyst at Hongkou
Securities in Shanghai.
The makers already poised to benefit from their Chinese operations include
Nokia, Motorola, Siemens, Ericsson and Nortel.
“The investment in 3G and its infrastructure will be the keystone of the new
networks,” said Fang Lu, a researcher at Shenyin & Wanguo
Securities. “Once 3G licences are issued to the three new groups there will
be huge market demand,” he added.
The State Administration for Radio, Film and Television has already issued
five licences for mobile television services to a privileged group of
state-owned broadcasters, including China Central Television (CCTV), the
Shanghai Media Group and the Southern Media Group.
These will sell content to the mobile operators, ensuring political censorship
over the free flow of multimedia content. Whatever the format, the Communist
party has given no sign it intends to relax its vigilance over what Chinese
viewers can watch.
China Mobile, which is the official mobile provider to the 2008 Olympic games,
will play safe by offering live sports coverage among its first broadcasts.
Before the inevitable wrangles over content begin, the Chinese operators need
to rationalise the nation’s confusing technological standards.
Most Chinese subscribers use the global systems for mobile (GSM)
communications network standard.
A minority, though - numbered at more than 40m - subscribe to systems based on
code-division multiple access (CDMA) technology, developed in China.
The realisation that significant investments will be needed led investors in
Hong Kong to sell off the stocks of all the big three.
China Mobile fared best, rebounding after initial losses. Investors reacted to
its potential loss of market share before realising that it would continue
to dominate the scene, dealers said.
The company is to acquire the fixed-line business of China Railcom, a legacy
from the eagerness of Chinese government enterprises to rush into the first
wave of telecoms modernisation.
China Unicom, the smaller rival to China Mobile, fell sharply as investors
digested its agreement to spend $24 billion (£12 billion) in a stock-only
deal to buy China Netcom, a fixed-line broadband provider with most of its
business in northern China.
Analysts at Citigroup, Credit Suisse and Morgan Stanley marked down the stock
in the belief that Unicom had paid too high a price.
Unicom’s chairman, Chang Xiaobing, said the deal was a rational one. “Actually
this restructuring will bring China Unicom a lot of business,” said analyst
Tang Minjun in Shanghai, “It is getting a fixed-line network and will
receive a lot of capital support. I think that investors are still unsure
about the future demand for 3G services, and so the benefits are unknown.”
In the third orchestrated move, China Telecom, the largest fixed-line
operator, said it was acquiring Unicom’s mobile-phone assets, which are
based on CDMA technology, for more than $15 billion.
That, too, drew a critical response from the market. Goldman Sachs said in a
note to clients that CDMA suffered from unfavourable economics and its
higher equipment prices made it hard to compete with GSM in a ferociously
cost-conscious market such as China’s.
Wang Xiaochu, the general manager of China Telecom, was quoted by the China
Securities Daily as admitting that the deal was too expensive.
“We had to accept it because we do not want to have endless negotiations,” he
said.
Undaunted, China Telecom announced it would launch an aggressive marketing
drive aimed at capturing 100m customers over the next three years compared
with its present base of more than 43m subscribers.
The focus is now turning to the significant capital expenditure that all three
companies are expected to need to launch new services.
A broader issue is that the Chinese authorities do not appear to have resolved
their view of so-called “digital convergence” in which the flow of
information and images to consumers may multiply the audience for news –
both good and bad.
On one hand, the Communist party has updated classic propaganda techniques to
counter criticism over Tibet and the Olympics, using the internet and video
technology to criticise the western media and to allow militant patriots to
air their chauvinistic views.
The party also turned the widely admired rescue effort for the Sichuan
earthquake into a relentless exercise in spin to promote the virtues of
local officials and state leaders. However, in the ruined towns and muddy
tent cities of the earthquake zone, the discontented and the bereaved have
used the same methods to spread their own messages, demanding inquiries and
punishments.
The government may soon discover that regulating the telecoms providers is a
minor challenge compared with controlling the citizens who will ultimately
use their services to communicate with each other.
