China Unicom VP's exit draws speculation

Interesting story on the resignation of China Unicom vice president Li Gang has just crossed the wires.

To be precise, 57-year-old Li hasn’t been to work since Chinese New Year in early February and his resignation has just been approved by “higher authorities” (almost certainly the Communist Party organization department).

In January Li was rumoured to be leaving Unicom to head up one of the incoming MVNOs.

While there’s a revolving door between China’s SOEs and the bureaucracy – high-level positions are party appointments – senior execs don’t just leave when they feel like it. 

As Li’s example shows us, they have a few hoops to jump through. Reportedly he’s been on the Chinese equivalent of ‘gardening leave’ since February.

The spectacle of a top official resigning in the middle of a fierce anti-corruption drive has sparked speculation, but so far there has been nothing to suggest anything other than that he is seeking a lucrative exit to the private sector.

On the other hand, China Unicom has made no announcement about Li's departure, which was formally approved on Monday.

Li became prominent in the early 2000s as head of Guangdong Mobile, which under his leadership contributed a third of China Mobile’s profit. He pioneered some of China Mobile’s biggest brands, such as the GoTone postpaid service and the Shenzhou card for mass market users.

After missing out on promotion at China Mobile he jumped to Unicom in 2005.

While nothing links Li to any malpractice, half a dozen China Mobile executives have been convicted for corruption in the last five years. Vice-chairman Zhang Chunjiang received a suspended death sentence in 2011 after his conviction for receiving $1.15 million in bribes. Last year a vice-president, Lu Xiangdong, was convicted over taking $4.1 million in bribes.

Not so fast: FDD licences revisited

This blog pleads guilty to a mild bout of irrational exuberance over the issue of FDD-LTE trial licences on Friday.

For sure the licences give China Telecom and China Unicom the chance to build out FDD in 16 cities. But in each case only two of those cities are tier-1, and it's telling that Beijing is not one of them.

Plus, as Sina Tech notes, the wording of the MIIT announcement is revealing, repeatedly declaring that these were "LTE network integration trials," just to make sure that the trial deployments would include TD-LTE and not just the much-preferred FDD flavour.

So the allocation of the licences is signficant, but the detail suggests the MIIT is not in a hurry to open the gates to full nationwide FDD rollout. TD, the national champion, gets precedence.

FDD is a big deal for the two operators because, to quote Sina again, competing with China Mobile on TD alone is a "dead-end street."

On the other hand, Telecom and Unicom execs will no doubt be planning to take advantage of the hazy definition of just what is an FDD base station or terminal, and just how vigilantly the MIIT will police it. A report at IT Sohu suggests that many of the networks will become "underground FDD" systems - operating commercially under the cover of a TD licence. That wouldn't be the first time in China telecoms.

FDD rollout cities

China Telecom: Lanzhou, Xian, Shijiazhuang, Jinan, Chongqing, Chengdu, Zhengzhou, Wuhan, Nanjing, Hangzhou, Shanghai, Shenzhen, Nanning, Hefei, Nanchang, Haikou.

China Unicom: Harbin, Shenyang, Shijiazhuang, Jinan, Taiyuan, Zhengzhou, Chongqing, Chengdu, Wuhan, Nanjing, Hangzhou, Shanghai, Fuzhou, Changsha, Guangzhou, Shenzhen.

China Telecom, China Unicom get their FDD licences

China's MIIT today issued China Telecom and China Unicom their long-awaited FDD-LTE licences.

Officially the new permits are 'trial licences' for 16 cities to test out FDD-TDD integration. However, precedent suggests the two operators will face few obstacles in upgrading to full commercial service in the next 12 or so months.

Both Telecom and Unicom have been reluctantly pressed into building out 4G using the government-backed TD standard. The first 4G licences, issued last December, specified TD only.

China Mobile has embraced TD-LTE because of the limited acceptance of its TD-SCDMA 3G system. It claims it will have built out a TD network in 300 cities by year-end.

China Telecom has said it would use TD for no more than 30% of its coverage, and primarily in high-density urban areas.

China Unicom has been the slowest to upgrade to 4G because of its desire to extract more value from its W-CDMA network and did not call its first LTE tender until last December.

The go-ahead for FDD will have no impact on vendor contracts and will probably mean little material change in network rollouts. Both companies are still in the early stage of deploying 4G and will have already developed FDD plans ahead of the licence issue.

Ren Zhengfei on finding a successor, going public and US vs China

Huawei’s reclusive boss Ren Zhengfei has opened up on his succession, his reluctance to take the company public, difficulties in retaining staff, and why the Chinese firm is in the US sights.

Yet probably the biggest surprise in his recent interview with Chinese journalists is the revelation that rival John Chambers had consulted him about Cisco’s succession.

The two companies are fierce competitors, and Chambers has reportedly described Huawei as Cisco’s biggest threat.

Asked about retirement and his CEO succession plans, Ren said Chambers, who turns 65 in August, “personally sought my opinion” about his own replacement.  “Although we are competitors, we still have useful exchanges,” Ren said, adding that “of course, I didn’t know who would be the best for their succession.”

He did not say when or where the discussion took place.

Ren, who turns 70 later this year, said he had no plans for retirement, citing his “friends” Maurice Greenberg, the 88-year-old ex-AIG chief, and Simon Murray, 74, the storied former head of the Hong Kong Hutchison Whampoa group, who are both still active in business.

He said Huawei’s succession problem was that “we have too many potential successors, not too few.”

Ren, who owns 1.4% of Huawei stock, says he would not allow any family member to take his place as CEO, although he was not asked about the role of his daughter, Cathy Meng, who is CFO and a board member.

The Huawei founder also gave a curious explanation as to why he won’t take the company public.

Huawei executives have said that the privately-held firm can raise all the funds it needs from cashflow and by issuing shares to employees. But Ren said that if it went public Huawei would inevitably “diversify,” and that would “destroy 20-plus years” of growth.

“If we don’t diversify, we will have no cash difficulties,” he said, forecasting that Huawei will spend up to $10 billion on R&D in the near-term to keep pace with technology change.  “[W]e are determined to not enter the capital markets and not to diversify. If our development doesn’t need too great a scale, how could cash problems emerge?”

Talent outflow

Ren didn’t explain what he meant by diversification, but by the standards of western business, Huawei is already an extremely diverse business. Unlike its western rivals it is in every part of the fixed and mobile telecom equipment business, not to mention its flourishing enterprise and device units.

Ren acknowledged Huawei suffered from “an outflow of talent,” especially when one of China’s internet companies is prepping for an IPO. Unlike those internet firms, the size of the company meant “we can’t just incentivise a few people - we need to attract 15,000.”

He said he was “hurt” by the recent resignation of senior handset executive Colin Giles after less than a year in the post but could not hold him back (see Huawei Handset Man Jumps to Lenovo).

“We want to gradually change, but if the world’s best talent won’t enter, how to make [Huawei] the world’s best company?”

Ren said he regarded the US prohibition on Huawei equipment as aimed at China, not the firm.

“The stronger China becomes the more the US will attack it.  “In fact, the US is not attacking Huawei, it’s attacking China, because the US does not want China to become strong, and its always looking for a new point to aim at.”

He also demonstrated himself a proud patriot, expressing himself in just the kind of language an ex-PLA officer might use. Asked if he had a faith, Ren said:

I have a faith, that is I have faith in our country today. We previously thought capitalist society can massively liberate productive forces, but we have discovered that as social inequalities have expanded, problems have emerged, bogging down our development.

The [Communist Party] Third Plenum is on the correct path. Previously we weren’t clear which of the big three continents - the US, EU and China – would rise first. Now we are clear - China will certainly rise first. China has recently encountered some short-term transformation problems, but over the long-term these will certainly be solved, and following that our development will be increasingly strong.

UPDATE: The word translated above as 'diversify' (duoyuanhua) can also mean 'pluralise', which at least one other blogger has used. Under that translation, Ren is saying that going public would mean dilution ('pluralisation') of control of the company - which makes sense - but he is also suggesting that by going public the company would face shareholder demands on earnings which would diminish its R&D effort; a number of untested assumptions. So while it is probably a better translation, the thinking is equally disingenuous.

GFW, China's unique achievement

A few notes on web censorship in China following a week in Shanghai. As a rule I don't bother with a VPN when in (mainland) China, partly because the censorship doesn't hugely inhibit my work and partly because I object to being forced to take the trouble to do so.

There's also the big plus that by forsaking the tunnel through the GFW you can experience the censorship system that is perhaps the unique achievement of modern China. No other country has created such a powerful prophylactic against knowledge.

Sure, the online experience of a foreign knowledge worker hardly reflects that of the vast majority of Chinese internet users, whose interests lean far more to celebrity gossip and foreign TV shows. But you do become familiar with the arbitrary nature of the censorship - surely no accident. As well as being more cost-effective than permanent blocking it is disempowering and underlines the party’s omniscience.

One example: at my hotel in Pudong I was for the most part able to load Facebook on my laptop. But never on my phone. Whether this was a quirk of the hotel VPN or the local telco servers I don't know. Indeed, from my hotel I could access even the 1989 page on the Chinese Wikipedia.

Likewise, I could not load the Electric Speech Twitter account onto my handset, but had no trouble doing so on the laptop. My personal Twitter account was always accessible from both devices. Shrug.

Google Maps - far more useful than Baidu's erratic maps - was rarely accessible. Of the other Google sites, Calendar and Translate were nearly always available. But Google.com and Google.com.hk were extremely unpredictable, especially during the couple of days I spent on the Puxi side. In fact according to Greatfire, Google.com is fully blocked, the HK site is down just 33% of the time.

It was no surprise that I couldn't load the YouTube app on my phone or that the NY Times and Bloomberg sites were permanently out of bounds. I was at first taken aback that bit.ly links didn't work, although on reflection it makes perfect sense from the censor’s point of view. Naturally the English language reports on the detention of Zhao Huaxu were out of bounds. 

Final reflection: the problem with industrial scale web filtering is that it slows down the already-glacial transmission speeds. Indirectly perhaps the GFW has been an accelerant in China’s telecom thaw. As well as MVNOs and a mobile tower company, officials have even talked of opening up broadband to private investment.