China Accelerates Telecoms Opening 中国加速电信业开放

By newsdoug on July 1, 2012

China's telecoms opening After years of protectionism that effectively locked out private investment from the sensitive telecoms sector, Beijing finally looks ready to open up the space with its release of a draft plan detailing new areas for private investors. This latest development follows signs earlier this year that the telecoms regulator was preparing to open up the sector, which many greeted with skepticism due to Beijing’s previous empty pledges to open the industry when it entered the World Trade Organization back in 2001.

Unlike previous times, these latest signals look more sincere to me, and are an acknowledgement that big state-run giants like China Mobile (HKEx: 941; NYSE: CHL) and China Unicom (HKEx: 762; NYSE: CHU) aren’t nimble and innovative enough to make China a leader in telecoms services, and that foreign and homegrown smaller, more entrepreneurial companies are needed to make this sector more vibrant.

That could mean new opportunities could soon be coming for a wide range of companies, from telecoms service providers like Verizon (NYSE: V) to mobile virtual network operators (MVNO) like Virgin Mobile. In a potential sign of things to come, US tech giants IBM (NYSE: IBM) and Microsoft (NYSE: MSFT) have both formed recent joint ventures to build China-based cloud computing centers, ending a past policy that had banned foreign firms from telecoms infrastructure construction. (previous post)

Let’s take a look at this latest development, which has seen the Ministry of Industry and Information Technology (MIIT) announce a draft plan detailing 8 new areas for private investment in the telecoms sector. (English article; Chinese article) The list appears to cover quite a number of areas that would allow both domestic and foreign-funded companies to invest in everything from MVNOs to other telecoms related services like videoconferencing.

In my view, the main driver behind this latest opening is most likely the fact that despite billions of dollars in investment and exclusive access to the world’s largest mobile market, China’s 3 major telcos, all of them state-owned, have done little to transform the country into a leader in the telecoms space over the last 2 decades. Their broader lack of innovation and creative thinking has left all 3 telcos with huge, expensive 3G networks that are now largely underutilized.

This new plan, which the regulator is rapidly rolling out, looks aimed at trying to breathe some new life into the sector by bringing in foreign and private expertise, which could finally help China to take a more leading role in the lucrative, fast-developing global market for data services. Accordingly, look for the regulator to quickly move ahead and formally implement these new rules by the end of this year, which could be followed by a rapid series of interesting new tie-ups involving big foreign players in 2013.

Bottom line: Beijing looks set to open its telecoms sector to a wide range of new private investment by year end, paving the way for a stream of exciting new foreign tie-ups in 2013.

Enjoy this blog? Please spread the word :)