21Vianet needs HK mobile partner

With feelings between Hong Kongers and mainlanders running high, now doesn’t seem the most auspicious time for a mainland firm to enter Hong Kong.

But China’s culture wars aren't the biggest problem facing Beijing data centre firm 21 Vianet in its new role as would-be cellco.

It bid the floor price of HK$150 million ($19.3m) for a slice of 2.3GHz spectrum in Hong Kong’s wireless broadband auction on Monday.

Licence-holders can theoretically build out with any technology they like. In reality they are bound to use LTE, and almost certainly the mainland-backed TDD flavour, which works on unpaired spectrum.

China Mobile Hong Kong, one of the other winners, has already announced it will roll out with TD-LTE.

The question is whether 21V (my abbreviation) can make a business in Hong Kong mobile with an unproven wholesale model. 

The key will be to find a local partner - in fact the venture will live or die on the strenght of its partnerships. Chairman and CEO Josh Chen said in a statement that the company:

“..plans to explore potential partnerships with local business partners to combine its own expertise in Internet infrastructure services with its business partners' financial resources, local platform and knowledge.”

There’s no way 21 Vianet will be able to secure several hundred cellsites, let alone build the infrastructure, without local help.

Its choice of partners is limited, though. The most likely are the cellcos with the least LTE spectrum, Smartone and PCCW. Neither was willing to speak about 21Vianet when contacted this week.

PCCW registered for the auction, but dropped out at the last minute. It owns 4G spectrum in a JV with Hutchison, which saw fit to buy more of it this week.  Perhaps a deal is already in  the offing.

For all that, 21Vianet's strength is its liquidity. Its IPO last May may have been derided by Motley Fool as one of the five worst of 2011, but in its last filing it reported $244 million in cash and equivalents. 

Additionally, it has a $30 million credit line from the state-owned China Development Bank (CDB) for the new Hong Kong operation.

It may seem odd that a development bank considers hyper-wired Hong Kong in need of broadband funding, but the cash isn't for Hong Kong. It's for the TDD network. CDB is the main financier for ZTE and Huawei customers, so inevitably one of those will be appointed to supply kit to this project.

As well as the HK$150 million for the frequencies, 21V will have to pay the HK government another $150 million in a refundable performance bond.

But its ability to profitably sell wholesale data in a city awash with connectivity will depend on how well it can make local friends.