China licenses MVNOs, but China Mobile stays on sidelines

Private operators are finally set to enter China's telecom market following the issue of the first batch of MVNO licences.

After nearly a year of preparation, the Ministry for Industry and IT (MIIT) says it has approved trial licences for 11 companies who have signed wholesale agreements with China Telecom and China Unicom.

But missing from the fray is the market heavyweight, China Mobile, along with some of the country's biggest electronics retailers who had been expected to win MVNO licences.

Announcing the licences last Thursday, the MIIT said in a statement that China Mobile had identified a number of MVNO retail partners and was now in the “contract signing period.”  But the statement confirmed the MIIT had not received any licence applications from Mobile partners.

Other reports said that China Mobile, which has 62% of the market, feels it has the most to lose from the entry of the new players and fears a price war.

By comparison, the two smaller operators have decided that the MVNO market could open up new retail channels for them. China Telecom appears especially enthusiastic. Of the 11 who have been awarded licences, nine are with China Telecom. Reportedly, China Telecom has signed up 16 MVNO partners and China Unicom 14.

As for China Mobile, Sina Tech has pointed out that at the MIIT's quarterly briefing in October, a senior official sent what was seen as a wake-up call, remarking that MVNO progress among the operators “is not the same.”

Apart from China Mobile's absence, the failure of major appliance chains such as Suning, Gome and Aisidi to gain a licence has also raised eyebrows.  All of them have spoken enthusiastically about the MVNO business and are probably the strongest challengers to the cellcos. Suning, for example, has 8 million online customers, 1700 retail stores and a 3000-seat call centre.

The MIIT says all those who applied received a licence. Gome told Sina that its application was filed in December and the approval was now “advancing normally.”   Industry insiders and a good number of posters on bulletin boards suspect that the big retailers are being held back because they will compete on price.

However, several retailers did receive licences, as did a number of tech firms. (The full list: retail chains Telephone World, Funtalk, Digitone and Telling, online mall JD.com, OSS/BSS provider SoShare, Alibaba’s domain registrar and web hosting firm HiChina, Tsinghua University-owned Huaxiang Telecom, mobile VAS and platforms firm Bewinner, online mobile recharge service provider Lianlian, and Busap, which provides TV services to trains and buses.)

The other and perhaps even bigger absence here is a framework that will allow MVNOs to compete. The ministry has merely stipulated that the wholesale price must be lower than the lowest retail price in the same geographical market. That doesn’t leave much of a margin.

Under the rules, MVNOs must lease their backhaul as well as access networks from incumbents.

So the entry of virtual operators is hardly likely to upset the status quo, especially as it coincides with arrival of 4G in which China Mobile has almost a one-year break on its rivals.

The importance of privately-owned MVNOs is thus mostly symbolic. Given China’s desperate need for basic telecoms infrastructure, it is possible private firms may eventually be allowed to invest directly in networks. But the door remains firmly shut on foreign telcos.

Telstra sells out of CSL

One thing we can say for certain about Telstra’s exit from CSL: that’s the last foreign-controlled telco we will see on Chinese soil.

Telstra’s 76% stake in CSL not only seemed an anomaly in Hong Kong, it seemed anomalous to Telstra. The business fell into its hands as part of the disastrous Reach JV back in 2001 as Richard Li threw assets overboard to stay afloat. 

Unlike Telenor or SingTel, Telstra never made any serious attempt to build offshore mobile business group. Now, on its umpteenth global strategy, it’s focusing on the enterprise/cloud/managed services market. CSL remains the odd man out.

The sale price of $2.43bn (A$2.73bn) is well down on the A$4 billion it paid back in the day, though it represents a A$600mn profit on the marked-down book value.

The other, more striking point in this is HKT’s offer to surrender all of its 3G spectrum in 2016. That includes its own 2x15MHz as well as that of CSL.

HKT says it can do that because it now has access to sub-1GHz frequencies, including 850 MHz and 900 MHz, as well as 1.8 GHz, 2.1 GHz and 2.6 GHz. Additionally, it says it will no longer have to pay the accompanying spectrum fees.

This comes hard on the heels of Ofca's unpopular (with operators at least) instruction that Hong Kong operators to surrender a third of their 3G spectrum for re-auction in 2016.

Whatever the reason, this generosity, surely a first in the history of mobile, does a favour both to Ofca and in particular China Mobile by ensuring a discount on the auction price. Happy Christmas to both of them. 

China spammers’ latest weapon: fake base stations

When your blogger lived in Beijing I used to turn my phone off at night so as not to be disturbed by spam texts for massage services and fake receipts.

That was six years ago. Not much has changed.

One recent study concluded that 200 billion spam SMS were sent to Chinese mobile phones in the first half of the year – that’s more than 180 for each user, or one a day. In big cities like Beijing and Guangzhou, that rises to around 2.5 per day.

The economics of this might seem puzzling, given the cost of sending SMS. But not if you have your own base station. 

The Beijing News recently related the tale of a professional spammer who roams the Chinese capital with a small cell transceiver in his van, charging 1,000 yuan ($164) to reach thousands of users within several hundred metres.

The spammer, Guo Peng, said he had five GSM small cells, each costing around 50,000 yuan ($8,220), with which he earns up to 5,000 yuan a day. He can send out 6,000 messages in half an hour via the China Mobile or China Unicom networks. Guo said he knew at least 20 others in the business in Beijing, each with multiple base stations.

Reportedly, Guo’s spoof base station shields the operator's signal for up to 20 seconds at a time, during which it transmits to handsets in the area. Anyone who is on the phone at the time will lose their call – in some cases they may even have to reboot the phone to get their signal back. 

Guo said he used the China Mobile recharge number as his transmit number – “it’s a lot more credible.” 

The story emerged from a Beijing News journalist who teamed along with a businessman friend who had hired Guo to promote his local supermarket.

Guo picked them up in his van on a street in southern Beijing and drove to a seafood market near the supermarket. Guo’s colleague in the backseat fired up the small cell through a laptop and within 20 minutes had sent 2,593 texts.

In the half hour while he was sending spams, he took ten phone calls, all apparently from prospective customers. Clients included travel firms, real estate developers, even gun dealers and spammers themselves – they like to eat their own dog food, which surely makes them not hard to find. 

An official at the Beijing Communications Bureau said base station spoofing was on the rise but “very hard” to investigate.

Guo says he once had a call from a police officer about a text he’d sent, but he explained it away as “a joke”.

Guo and other spammers are helped by bureaucratic boundaries. The police are not interested unless it involves illegal activity, so the relevant authority is the State Administration of Industry & Commerce, which regulates commercial activity.

The scale of the problem also underlines the indifference of operators to their customers, not to mention  the limited competition between them.

The journalist even tracked down a store that specialised in selling unauthorised small cells. A staff member, Ms Li, said the biggest buyers were large shopping malls – yet somehow this store and its customers are too elusive for China’s well-resourced bureaucrats.

Cisco brings its biggest & best to Beijing

Two points of interest in this short C114 story on China Mobile showing off SDN at a Beijing industry event yesterday.

First, almost a quarter of the China Mobile booth is taken up with SDN – a sign of intent if nothing else. Staff on the stand cited a script that referred to SDN as a way for China to "solve network congestion.”

Second, prominent on the stand was Cisco, showing off its NCS 6000 router - reportedly the only one of its kind in Asia-Pacific.  Given that this is a high-profile event organised by China Mobile, the largest industry player, and the telecoms and IT ministry, this surely scotches the idea that Cisco has become persona non grata in China because of the Snowden disclosures.

Sure, the fact that it brought along its biggest and best new router shows it's working hard to impress. But that also reminds us that Cisco has gear that China needs, and as long as that's the case it will make sales.

China Mobile faces $2b bill over interconnect change: report

The MIIT is considering cutting the mobile interconnection fees for China's two smaller cellcos, China Telecom and China Unicom.

A ministry research report has recommended halving the fee Telecom and Unicom pay China Mobile because its dominance has “unbalanced” the market, ENN Weekly reports (in Chinese).

In return, the ban on China Mobile to entering fixed-line broadband should be lifted, the study suggests. China Mobile’s role in the market has been unclear since the prohibition formally ended in Dec. 2011.

Currently the three operators pay 6 fen (just under 1c) a minute to each other to deliver calls. MIIT recommends cutting that to 3 fen (still using calling party pays system).

ENN Weekly estimates that under the plan China Mobile’s mobile interconnection payments will increase by more than 12b yuan ($1.96b) a year.

The timing is interesting. Last financial year, China Mobile’s profit towered over its rivals, as it has every year for the past decade, posting 129b yuan in earnings, more than eight times the combined profit of the other two.  Yet it increased income by just 2.5% in the second quarter and is on track to post its first full-year decline in 14 years.

By contrast, thanks to the faster speed and quality of their networks, and the availability of the iPhone, China Telecom and China Unicom are in the mobile data sweet spot, knocking up profit gains of 21% and 41% respectively.

Next year the market will take a fresh turn when 4G comes to town. China Mobile has been the most aggressive in its rollout.

China Mobile’s stock price fell $1.46 to $55.14 in the wake of this news breaking last Thursday.

The ministry will hold hearing on the issue before it makes a decision.