None of China’s virtual telecom operators are making money

For years, China’s telecom industry has been dominated by the three state-owned giants: China Telecom, China Unicom, and China Mobile. So there was a lot of excitement when, last year, it seemed like internet companies would be given the chance to run their own telecom networks. Granted, these new virtual telecom operators would still have lease network infrastructure from one of the “big three,” but many felt that it would still be good to get some new blood in the telecom industry – especially after Xiaomi became one of the companies granted a license.

But half a year into the program, virtual telecom operators have not taken off. Only 26 of the 42 companies with licenses are even offering services; Xiaomi, for example, seems to not be doing anything with its license. The 26 virtual telecom operators actually offering services have a collective 8.2 million subscribers, according to China’s Yicai newspaper, which means they’ve attracted less than one percent of China’s mobile users.

“Although none of the virtual telecoms is losing money, not one of them is making money either,” Chinese telecom expert Mo Guangwei told Yicai. Virtual telecoms were meant to be able to get wholesale prices for services from China’s big three telecoms, but in practice some have complained that the “wholesale” prices they’re offered are higher than the big three’s retail prices. And every time the major telecoms lower their prices, the virtual telecom companies have to go back to the negotiating table and try to get a correspondingly-low wholesale price all over again. The end result has been that virtual telecoms don’t offer the kind of low prices they were meant to be able to, making them unattractive to consumers, and they also don’t offer anything in the way of profits, which makes them unattractive to businesses who have licenses to operate one.

It’s possible that the right operator could, through slick marketing, additional services, or both, create a virtual telecom service that broke through the barrier somehow and actually gained some momentum. But right now, that looks unlikely. It seems that less than a year after it started, China’s virtual telecom experiment might be coming to an end.