China Telecoms Regulator Plays 3G Target Games 工信部制定3G目标

By newsdoug on May 6, 2012

Telecoms regulator sends bad signal with new 3G targets China’s telecoms regulator has just announced an ambitious new 3G target for the country’s three major wireless carriers, continuing a dangerous tradition of pressuring big State-run firms by challenging them with difficult and often unattainable targets set by Beijing. While planning and setting targets are part of any good business practice, such activities should be left to the companies themselves rather than central government officials. The Ministry of Industry and Information Technology (MIIT) announced last week it wanted the nation’s three major mobile companies to sign up more than 450 million 3G subscribers over the next three years, with users of these state-of-the-art networks to account for 36 percent of the nation’s total mobile subscribers by that time. (Chinese article) These targets continue a tradition begun in 1949 when the nation’s economy was centrally planned and officials in Beijing set specific numeric targets for a range of industries under macroeconomic plans created every five years. But such plans have become anathema to today’s more market-oriented economy, and this latest one for 3G will place great pressure on the nation’s three mobile carriers, China Mobile (HKEx: 941; NYSE: CHL), China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA). Setting overly-ambitious targets could actually prove counterproductive if it prompts the three carriers to resort to cutthroat competition and the signing up of fake subscribers. Since starting to build their newest networks in 2009, the three carriers have signed up about 150 million 3G service subscribers, accounting for about 14 percent of the nation’s total mobile subscribers. That means the number of 3G subscribers must triple between now and 2015 to meet the new target, a growth rate that is certainly attainable, but quite ambitious. In the past, Beijing has set similarly challenging goals for many of China’s biggest industries, often with undesirable results. In one of the most glaring cases, the nation’s banking sector was pressured to boost lending after Beijing announced a 4 trillion yuan economic stimulus plan to spur domestic consumption at the height of the global financial crisis. As a result, most of the nation’s banks are now dangerously undercapitalized and facing a potential glut in bad loans, many made to local governments for unneeded infrastructure projects. There are already signs that China’s three wireless carriers may be getting reckless in their zeal to ink more 3G subscribers. Many believe that China Mobile is inflating its 3G figures, possibly by selling large numbers of subscriptions to corporations that don’t really use the service. Meanwhile, China Telecom’s earnings suffered in its latest reporting quarter due to its aggressive 3G marketing strategy. Rather than set numbers for the three operators, the regulator should offer broader guidance and policy support to the companies and let them set their own targets. Otherwise, it could discover the carriers have met their ambitious targets only with the help of inflated figures and at the cost of rampant competition.

Bottom line: The telecoms regulator’s new ambitious 3G targets could force China’s 3 telcos into cutthroat competition and user inflation to meet those goals.

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