China Mobile Eyes Pakistan Expansion

By newsdoug on June 27, 2013

It appears that dominant wireless telco China Mobile (HKEx: 941; NYSE: CHL) has discovered a sudden love affair with Pakistan, with word that it’s weighing an acquisition bid to complement its existing operation in the South Asian market. If anyone detects just a tiny bit of sarcasm in my tone, it’s because I find it somewhat amusing that the world’s largest wireless telco is focusing so much energy on such a small market when there are so many more promising ones for its troubled global expansion.

This latest word of China Mobile’s interest in Pakstan’s Warid Telecom comes just a month after China’s dominant and extremely cash rich wireless carrier abandoned a much more interesting bid for a telecoms license in Myanmar. But before I go any further with my look at China Mobile’s largely ineffective global expansion policy, let’s take a look at this latest potential bid in Pakistan.

According to a foreign media report, the Middle East’s Abu Dhabi Group is looking to sell Warid Telecom, one of 5 carriers in Pakistan’s crowded wireless market. (English article) Unnamed sources, which I suspect are bankers involved in the deal, are saying that China Mobile and United Arab Emirates-based Etisalat are likely bidders for Warid. Etisalat confirmed its interest, though China Mobile wasn’t available for comment.

Industry watchers will know that Pakistan is the only place where China Mobile has made a successful acquisition so far outside its lucrative home base, where it dominates with about two-thirds of the market. Its lack of global investments isn’t for lack of trying, as China Mobile has made a number of high profile but failed attempts at other global M&A over the last 7 or 8 years.

Two of those failed attempts saw recent developments just this year. Just 2 months ago, China Mobile said it was finally abandoning a 4-year-old bid to buy a stake in Far Eastone (Taipei: 4904), one of Taiwan’s 3 major wireless carriers. (previous post) That deal looked smart in theory when it was announced in 2009, as the 2 telcos shared many complementary cultural and business links. But China Mobile failed to realize the deal would be far too sensitive due to political factors, and failure to win regulatory approval in Taiwan finally led to the decision to abandon the tie-up.

China Mobile also made headlines earlier this year when it announced it was teaming with European giant Vodafone (London: VOD) to bid for new mobile license in rapidly liberalizing Myanmar. (previous post) Unlike the Taiwan deal, the Myanmar bid looked like smart to me due to the market’s big potential and the strong partnership with Vodafone. But then China Mobile abruptly announced earlier this month that it had withdrawn the bid for unspecified reasons.

This latest Pakistan move looks like a continuation of China Mobile’s confused global expansion policy. On the one hand the move makes some sense, since China Mobile would be able to gain scale in Pakistan by combining Warid with its own locally-based operations, which are marketed under the brand name Zong.

But that said, Pakistan, despite its large population, probably isn’t the kind of market that China Mobile should be targeting for its global expansion. While Pakistan is indeed a developing market like China, its political instability and frequent clashes with its neighbors hardly make it a stable place to do business.

Rather than bid for Warid, I would advise China Mobile to follow Abu Dhabi’s lead and get out of Pakistan and look for more stable markets like Myanmar with better growth prospects. But China Mobile doesn’t seem interested in that kind of strategy, and I expect we may see a continuation of its muddled global expansion program from the past under a new generation of leaders installed at the company last year.

Bottom line: China Mobile’s potential bid for a Pakistani telco reflects a its new leaders’ continuation of a muddled global expansion policy from the past.