Some 4 years after disappearing from the headlines, a fourth telecoms carrier formed from China’s numerous regional cable TV companies is finally making a formal debut with its receipt of an official license to offer telecoms services. That means the new company, China Broadcasting Network Co (CBN), could theoretically shake up China’s laggard telecoms services industry that has been monopolized for years by the trio of state-run giants, China Mobile (HKEx: 941; NYSE: CHL), China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA).
But anyone hoping for big change shouldn’t get too excited, since CBN is cut from the same cloth as the existing 3 state-run telcos. What’s more, the new company is likely to be plagued with internal power struggles, at least initially, since it was created from a patchwork of provincial cable TV companies whose former stakeholders may still try to exert some influence.
All that said, I have to at least commend Beijing for finally completing its decade-old plan to merge the nation’s many provincial cable TV companies into a single national one. Such consolidation happened long ago in many western markets like the US, giving rise to a new group of national operators that now compete directly with traditional telecoms carriers.
But in China, the process was complicated by provincial governments that were usually the direct or indirect stakeholders in most of the regional cable TV companies. Such local stakeholders never really cared that much about profits, and were just as interested in using their cable TV operations as a propaganda tool to promote their own local agendas.
Despite that resistance, CBN was formally established in 2011 (previous post), and now 5 years later it has received a formal license from Beijing to offer telecoms services. (English article; Chinese article) The license will allow CBN to offer most services now available from the existing 3 telcos, including voice, texting and broadband. It will obviously also be able to continue offering video services, which most of the other telcos also now offer.
Telecoms Deja Vu
Long-time industry watchers will find a certain sense of deja vu in this latest development, since China previously had 4 major national carriers after a major restructuring more than a decade ago. But 2 of those were later merged to form the current Unicom, and there was even talk last year that Unicom and China Telecom might get merged to better compete with industry heavyweight China Mobile.
All that history shows the indecision and also some frustration that China’s telecoms regulator, the Ministry of Industry and Information Technology (MIIT), feels towards this group of state-run giants. That’s because the trio have failed to innovate despite their huge monopoly, and instead have lost valuable business opportunities to private names like Tencent (HKEx: 700), which offer popular smartphone apps that work on the mobile Internet.
So, what can we expect from this new company, and what are the bigger implications for the existing 3 carriers and a bigger field of smaller privately-owned virtual network operators (VNOs)? The answer is probably that CBN will embark on an aggressive spending campaign over the next year to upgrade its network, which could mean big new business for network equipment suppliers like Huawei and Ericsson (Stockholm: ERICb).
We’re also likely to see CBN make a multibillion-dollar IPO to raise cash, most likely in Hong Kong and also possibly concurrently in Shanghai. Once its network is upgraded, in about a year, we can probably expect to see some aggressive pricing plans as CBN tries to sign up new mobile subscribers. But I wouldn’t expect anything innovative from this new company in terms of new products and services, and instead it will simply look and behave much like the 3 existing 3 carriers.
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