TELECOMS: China Telecom Displays Aggression, Unicom Conservatism

Bottom line: China Telecom’s aggressive bidding for a government contract highlights its more entrepreneurial style, while Unicom’s latest announcement on its private ownership plans reflects it conservative, bureaucratic style.

Unicom mixed ownership program crawls ahead

Two of China’s trio of wireless telcos are in the news today, reflecting an effort by Beijing to breathe some life into these laggard state-run behemoths that always seem unable to realize their potential. The first headline has China Telecom (HKex: 728; NYSE: CHA), the smallest of the nation’s 3 carriers, making an aggressive bid to essentially provide services  for free to a government agency in northeast Liaoning province. The second has Unicom (HKEx: 762; NYSE: CHU), the second largest carrier, disclosing some more details on its plan to introduce some private capital to the company.

As a longtime China watcher,  I can add the interesting note that these two developments underscore a long-held belief I’ve had that China’s three carriers seem to have their own distinct personalities that don’t really change. China Telecom is always the scrappy company that is probably the most imaginative of the trio, while Unicom is perpetually bogged in bureaucracy. China Mobile is the giant that uses its huge size to dominate the market without being too innovative.

Those personalities are once again on display in these latest developments, even after the leaders at China Telecom and Unicom switched places about a year and a half ago, and then the former head of Unicom got deposed in his new job at China Telecom due to corruption. None of those chief executive changes seems to have altered either of the companies, with China Telecom continuing in its scrappy ways.

That’s my interpretation with the latest news, which has China Telecom offering to perform work for the information office in the Liaoning city of Liaoyang for the paltry price of just 0.01 yuan, or less than a penny. (Chinese article) Under the 10-year deal, China Telecom has agreed to provide not only hardware for a new system being built by the agency, but also maintenance services.

This story actually looks quite similar to another one that made headlines last month, only in that case it was private Internet giant Tencent (HKEx: 700) that offered to provide similar services for free to a government agency in southern Fujian province. In both instances, the companies made such offers that would obviously lose money for them due to their belief that they could make much bigger money by providing additional products and services to their government partners over the longer term.

In this case it’s interesting to note that China Telecom is joining a club of aggressive bidders like Tencent and Alibaba (NYSE: BABA) in bidding for such contracts, highlighting its desire to be more like these private sector companies. Of course each of these deals is different and there are probably many more we simply don’t read about because they don’t get reported. But at least this shows that China Telecom is trying to become more like a private company and shed some of its bureaucratic roots.

Disappointing Announcement

Next there’s Unicom, which had all of us eagerly awaiting a major announcement yesterday when it suspended trading of its shares in Hong Kong and a Shanghai affiliate. The background is that the company was selected to take part in a government mixed-ownership pilot program, which would presumably allow it to pick one or more private-sector partners and sell them a stake in either the whole company or one of its major units.

But given Unicom’s uninspired nature, it should come as no surprise that after the suspense the company has issued a rather bland announcement simply saying it may change its shareholding structure as a result of the reform. (Chinese article) There’s no mention of when an actual announcement on its actual partner choice might be coming, and obviously no word on who the partner or partners might be.

Sadly, this is totally typical for Unicom, which is perpetually mired in an administrative muddle that it never seems able to emerge from. Many are getting excited about this pilot program, which could see Unicom partner with one or more of China’s top 3 Internet companies, Alibaba , Tencent or Baidu (Nasdaq: BIDU).

But it’s worth noting the only reason Unicom is in the program to begin with is because it was selected by Beijing, not due to any initiative of its own. I expect we will finally see an announcement on Unicom’s partner selection in the next month or two. But I also expect the company will take a bland approach and choose all 3 of the big Internet companies as partners, and give them very limited ownership and operational oversight in its usual uninspired and bureaucratic way.


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