China’s Virtual Telecom Market May Be Worth $11 Billion

C. Custer
9:00 am on Jan 22, 2013

Recently, China’s Ministry of Industry and Information Technology (MIIT) announced a plan to permit telecom companies to lease out their networks to virtual telecom operators, opening the doors to the telecom industry for private companies that have until now been shut out out the market. And what a market it is! Estimates indicate that if the market for virtual telecoms develops properly it could be worth more than 70 billion RMB ($11 Billion) in 2015.

A virtual telecom operator is a private company that leases the right to use telecommunications hardware owned and controlled by another company (in this case, one of China’s “big three” state-owned telecoms). Getting a virtual telecom operator license would allow Baidu (for example) to lease rights to use telecom equipment owned and operated by China Mobile (for example) to operate its own Baidu-branded telecom services. So, in the future, instead of signing up for China Mobile, users would sign up and pay for Baidu Mobile, but their calls would still be routed through China Mobile-owned hardware, it’s just that Baidu would be paying China Mobile for the privilege of leasing it.

Although you would expect internet companies like Baidu and Tencent to be foaming at the mouth at this kind of opportunity, China Mobile Internet Industry Alliance operations director Li Yi told Investor that in actuality, the companies most actively pushing for and pursuing virtual mobile telecom operator licenses so far had been tech retail giants like Suning and Gome. “It’s a very interesting phenomenon,” Li said.

Of course, there’s a chance that none of this will matter. MIIT’s proposal is still open for public debate. After that period ends on February 6, authorities will make a final decision about whether or not to actually grant virtual telecom operator licenses. If they do decide to go through with the plan, the first licenses will be awarded this June.

It’s a groundbreaking policy initiative that would allow private companies and private investment into the state-controlled telecom industry for the first time ever (though state-owned firms would maintain control of the telecom hardware). But it will also be interesting to see what companies are able to make a dent in what’s expected to be a massive market when and if the ball really gets rolling. Everyone expects internet companies to be the virtual telecom giants, but could retail leaders like Suning really be swooping in faster? If MIIT approves the plan, there will be a very interesting race coming, and probably some very competitive battles for market share in the newly-opened space.

(Investor via Sina Tech, image source)

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  • Kevin

    Good news. Hopefully one of them will offer a decent data package that doesn’t need you to buy thousands of voice minutes you’ll never use.

    The part about Gome and Suning makes sense too – they both sell a lot of phones, so they’re in an ideal position to sign up new customers. Europe has had MVNOs for a while, and a lot of the successful ones are operated by retailers, e.g. the biggest UK MVNO is Tesco Mobile. In fact, I can’t think of a single internet company that operates an MVNO in Europe, so I’m not sure why so many people think they’ll be the market leaders in China.

  • One Who Knows

    Internet companies have minimal customer care capability and no channels, so the retail brands make sense.
    The $11b figure doesn’t. There just aren’t the protections in place to guarantee competition and so far the MIIT has only promised a laughably high wholesale rate. There’s nothing to stop established players engaging in predatory pricing, handset subsidy wars, and general obfuscation that happens in a deregulating telecom market.

  • Kevin

    So what happened about this? June has been and gone, is the MVNO plan dead or just delayed?

  • Kevin

    I just looked it up myself: apparently Suning, Gome and another 10 companies applied to operate MVNO services, and the MIIT says the current operators each have to approve at least 2 MVNOs by the end of October, with insiders expecting the services to launch by the end of the year. But like “one who knows” said the restrictions on wholesale prices are very weak (the only requirement is that operators can’t charge MVNOs more than they charge end users), so there’s not much chance of kicking off a serious price war. Also some potential MVNOs have applied to all 3 operators, so I reckon there’s a decent chance that the big 3 will collude to make sure that there are only 2 new competitors rather than 6 – maybe that’s just me being cynical though.

    There you go, free reporting. Any chance of an article about the different applicants and their chances? Probably I’m the only one interested though.

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