Following the landmark launch of a probe against them last month for their lock on the domestic broadband Internet market, China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA) have suddenly become quite contrite in their effort to avoid becoming the first major state-run firms to be found guilty of exploiting the masses through monopolistic practices. The Chinese media were buzzing over the weekend with reports that the 2 companies, China’s second and third biggest telcos, were both promising to end their monopolistic ways and to improve broadband speeds and lower prices if the government would end its investigation. (English article) As a customer of China Telecom, I can happily report that my snail-paced broadband service suddenly became much faster during last week, and that I suspect this new pledge to be more consumer-focused is at least partly and possibly completely behind the change. So what does all this mean for China Telecom and Unicom? The answer is probably a moderate hit to revenues and profitability for their lucrative broadband business in the short- to medium-term, as they are forced to put more resources into providing better service while at the same time lowering fees they charge to consumers. Considering that broadband is an important part of their business, this does look like relatively bad news for both companies, and, as I said when the probe was first announced, I would look for some fairly significant profit erosion in the next 1-2 years, especially for Unicom which has struggled to find its footing in the country’s fast-growing 3G mobile market. (previous post) Meantime, China Telecom continues to look impressive in its aggressive push to become a major player in the telecoms space, this time signing an interesting agreement with US telecoms giant AT&T (NYSE: T) to offer wi-fi roaming services in each others’ markets. (Chinese article) Roaming services for traditional voice services have been common for years now, but in the coming age where mobile companies get more and more of their revenue from data services this is exactly the kind of big global deal that China’s telcos need to be pursuing to position themselves as leaders in the new era of high-speed 3G and 4G telecoms services.
Bottom line: China Unicom and China Telecom will see moderate profit erosion after making concessions to try and end an anti-monopoly probe into their broadband services.
Related postings 相关文章:
◙ Telecoms Investigation Signals Profit Erosion 电信联通遭反垄断调查或侵蚀利润
◙ China Telecoms Faces Power Struggle, Half-Baked 4G 中国电信行业遭遇政府监管权利斗争
◙ Anti-Monopoly Regulator Makes Poor Choice in Chasing China Telecom 中国反垄断初试牛刀 选错对象
A barely noticeable news brief on Nissan’s (Tokyo: 7201) electric vehicle, the Leaf, in today’s China Daily provides some insight on how the big foreign automakers see China as an EV market, spotlighting the uphill battle the country faces in developing this technology. Nearly every foreign automaker has announced one plan or another to import or even build its EVs or hybrid vehicles in China, with GM (NYSE: GM) giving plans for its Chevy Volt and Toyota (Tokyo: 7203) and Volkswagen (Frankfurt: VOWG) all announcing their own initiatives. But most of those plans have been vague at best, reflecting both the fact that technology still needs time to mature and also a high degree of skepticism that Chinese consumers are ready to spend big dollars on alternate energy vehicles, which are typically much more expensive than gas-powered cars and require charging infrastructure that most of China still lacks. The news brief hidden on the inside pages of today’s China Daily says that Nissan recently put 15 of its Leaf EVs on the road in the central Chinese city of Wuhan for test driving. A company spokesman further said that Nissan will continue the tests for a full 3 years, which sounds to me like an incredibly long period for this kind of technology if it was really interested in trying to sell these vehicles in China. In fact, there’s a very real possibility that the technology will be obsolete in 3 years or sooner, meaning the Leaf will probably never see any commercial sales in China at all. My guess is that other foreign automakers will proceed with similarly conservative plans for their EV and hybrid vehicles in China, as all wait to see if government incentives and needed infrastructure develop to make a serious effort worthwhile. If that is indeed what happens, look for EV and hybrid auto sales by foreign automakers in China to number in the thousands of units or less for each of the next 2-3 years, while domestic players like BYD (HKEx: 1211; Shenzhen: 002594) are left to make a more serious effort at developing what in all likelihood will be a very difficult market.
As a longtime tech reporter, I was intrigued to see that one of China’s longest running M&A deals that never quite seems to happen has once again popped into the headlines, perhaps paving the way for an even bigger and sorely needed consolidation in the foundering microchip sector. Industry followers will know that of course I’m talking about a merger between Hua Hong NEC and Grace Semiconductor, both midsized players that hoped to become major forces in the contract chip-making business but never achieved the scale necessary to do that. The 2 sides, and more importantly their impatient investors, have been talking for years about a merger, but this time foreign media are reporting they have actually reached a deal, which should close by year-end. (
There’s a mini-flurry of news out about online game specialist NetEase (Nasdaq: NTES), as the normally low-key company generate some buzz, perhaps in the prelude to a bigger announcement about the future of its portal business. None of the latest news is that exciting, but it’s all interesting nonetheless. In perhaps the biggest news, the company has joined many of its US-listed peers in announcing a share buyback program worth up to $50 million, a relatively small amount but still significant enough to blip onto investor radar screens. (
What a difference a deal makes. That seems to be the lesson for faded online game developer and operator The9 (Nasdaq: NCTY), whose shares have soared on a new licensing deal some 2 years after it disappeared from investors’ radar screens after losing the rights to its hit game World of Warcraft, or WoW to gaming enthusiasts. The latest development underscores just how dependent companies like The9 and rivals like Shanda (Nasdaq: SNDA) and NetEase (Nasdaq: NTES) are on individual hit titles, which can sometimes account for half or more of a company’s top and bottom lines. Interestingly, this latest development has seen The9 turn away from licensing other people’s games toward the developing its own titles, whose costs are much higher but also offers much bigger potential rewards from outside licensing fees for popular titles. In this case, a Singaporean company called Garena Online is paying a nifty $23 million for licensing rights for 6 years to The9’s self-developed game, “Firefall”, in Southeast Asia and Taiwan. (
Alibaba chief Jack Ma is clearly not someone to take “no” for an answer, as evidenced by his company’s latest effort to assemble a group to buy out its controlling shareholder, Yahoo (Nasdaq: YHOO). There’s not enough detail in a media report (
An interesting test is looming for the struggling solar cell sector, with one of the worst-performing players, LDK Solar (NYSE: LDK) preparing a massive new note offering worth 5 billion yuan, or nearly $800 million, that will test both the market and Beijing in different ways. If market forces prevail and Beijing declines to step in, I wouldn’t be surprised to see this offer collapse completely due to lack of investor interest, potentially resulting in a financial crisis for LDK that could see it become one of the first major victims of the ongoing crisis among major solar cell makers. So let’s have a more detailed look at the situation. Under its new plan, LDK wants to float 5 billion yuan in new bonds, starting with a first tranche worth about $80 million on December 7, or next Wednesday. (
When was the last time you saw Google (Nasdaq: GOOG) or Amazon (Nasdaq: AMZN) spin off one of its units into a separately listed company or inject assets from its parent company into a listed unit? The answer of course is that they never engage in any of these common practices of big China state-run companies, but that hasn’t stopped the country’s booming private Internet sector from becoming increasing masters at such games. The latest machinations in these games have seen Sohu (Nasdaq: SOHU) sell its online game information site, 17173.com, to its separately listed online game unit, Changyou (Nasdaq: CYOU) for a nifty $162 million (
Malaise continues to inflict the overheated Chinese Internet realm, with veteran new media firm Kongzhong (Nasdaq: KONG) falling into the loss column and newly listed children’s website Taomee (Nasdaq: TAOM) reporting a shrinking profit, as both fell victim to stiff competition. I won’t go too much into the reports of these two companies, but Kongzhong reported a $17 million loss, compared with a profit a year earlier, as its Internet games business saw an especially sharp drop. (
I’ll take a break now from all the Internet turmoil to take a look at an area that’s showing much more promise these days, namely the sector that makes video content for TV stations and increasingly Internet video sites. In fact, I’ve already talked about the big potential for this space on several occasions, following landmark licensing agreements this year between some of the major Hollywood studios and leading video sites operated by Youku (NYSE: YOKU), Tudou (Nasaq: TUDO) and Sohu.com (Nasdaq: SOHU). (
