Following the landmark launch of a probe against them last month for their lock on the domestic broadband Internet market, China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA) have suddenly become quite contrite in their effort to avoid becoming the first major state-run firms to be found guilty of exploiting the masses through monopolistic practices. The Chinese media were buzzing over the weekend with reports that the 2 companies, China’s second and third biggest telcos, were both promising to end their monopolistic ways and to improve broadband speeds and lower prices if the government would end its investigation. (English article) As a customer of China Telecom, I can happily report that my snail-paced broadband service suddenly became much faster during last week, and that I suspect this new pledge to be more consumer-focused is at least partly and possibly completely behind the change. So what does all this mean for China Telecom and Unicom? The answer is probably a moderate hit to revenues and profitability for their lucrative broadband business in the short- to medium-term, as they are forced to put more resources into providing better service while at the same time lowering fees they charge to consumers. Considering that broadband is an important part of their business, this does look like relatively bad news for both companies, and, as I said when the probe was first announced, I would look for some fairly significant profit erosion in the next 1-2 years, especially for Unicom which has struggled to find its footing in the country’s fast-growing 3G mobile market. (previous post) Meantime, China Telecom continues to look impressive in its aggressive push to become a major player in the telecoms space, this time signing an interesting agreement with US telecoms giant AT&T (NYSE: T) to offer wi-fi roaming services in each others’ markets. (Chinese article) Roaming services for traditional voice services have been common for years now, but in the coming age where mobile companies get more and more of their revenue from data services this is exactly the kind of big global deal that China’s telcos need to be pursuing to position themselves as leaders in the new era of high-speed 3G and 4G telecoms services.
Bottom line: China Unicom and China Telecom will see moderate profit erosion after making concessions to try and end an anti-monopoly probe into their broadband services.
Related postings 相关文章:
◙ Telecoms Investigation Signals Profit Erosion 电信联通遭反垄断调查或侵蚀利润
◙ China Telecoms Faces Power Struggle, Half-Baked 4G 中国电信行业遭遇政府监管权利斗争
◙ Anti-Monopoly Regulator Makes Poor Choice in Chasing China Telecom 中国反垄断初试牛刀 选错对象
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