MVNOs must meet operator targets or lose their deposits

MVNOs who have signed with China Telecom and China Unicom will lose their security deposit if they don't meet subscriber and business targets for their wholesale partners.

As this report on Sina Tech puts it, the arrangements between new MVNOs and the big three operators suggest they are more like retail partners than independent service providers.

In signing up with an operator, MVNOs must pay a deposit and commit to meeting subscriber sign-up targets and revenue targets.

It seems the interconnection rate is also linked to the MVNO's performance. The infrastructure owners will take a cut of MVNOs' total pre-tax revenue – as much as 40%.  Unicom is reportedly offering network access on a sliding rate on the basis of annual revenue scale.

If the MVNO’s total revenue is below 20m yuan ($3.2m), it gets a 30% discount. This rises to 40% if sales top 200m yuan. China Telecom's rate for the best-performing MVNO result is a 60% discount.

Along with the lack of regulatory protections, these suggest it's not an easy business to be in, even competing against China's high-priced and unloved oligopolies.

But Sina also quotes one MVNO boss who is not deterred. Wang Xianshu, the head of Busonline, points out that for most of the MVNOs, the new service is an add-on to an existing business, such as online retailing, making that business rather than competing directly with the network owners or other MVNOs.

Finally, China Mobile chooses MVNO partners

China Mobile, the latecomer to the MVNO party says it has chosen 17 MVNO partners and is awaiting approval from the MIIT.  After that it hopes to sign agreements with the MVNOs, China’s National Business Daily reports.

China Mobile is months behind rivals China Telecom and China Unicom, whose MVNO partners were issued licences in December. Both Telecom and Unicom say they expect trials to start in Q2, according to the NBD.

China Mobile won’t reveal the names of its MVNO partners, but one small Shanghai-listed telco, Dr Peng Group, said it had applied and was waiting for a response.

A China Mobile spokesperson told the NBD in an email: “We are very willing to cooperate with MVNOs, to launch richer business and services and to satisfy customer demand for personalised and differentiated apps.”

What part of 'virtual' don't they get?

An unusual story crossed the wires at Sina Tech on Saturday, reporting that China's new MVNO licensees are not permitted to build network infrastructure.

The natural response might be: what part of 'virtual' don't they understand?

However, the story suggests some of China's new MVNO licensees may have harboured hopes that they might be allowed to actually own their own kit.  In much of China’s indifferently regulated business environment, that’s a fair assumption.

Without naming any companies, it says “some internet firms [had] hoped to have their own network infrastructure.”  The first batch of MVNO licensees, announced in December, included subsidiaries of internet giant Alibaba and online mall JD.com.

These are politically savvy companies. Did someone in the MIIT really suggest that they might be able to own pieces of the network? A common-sense respone would be that with just three telcos and a clutch of provincial cable guys providing infrastructure for a bandwidth-hungry fifth of humanity, private network investment would be a no-brainer.

This being China, it’s forbidden. Yet talk of economic reform is in the air. So, while most likely this is merely a story confirming what was expected, just maybe it suggests there are thoughts of allowing private players to build and operate small parts of the network.

Still on MVNOs, the MIIT has handed out another eight MVNO licences, this time including heavyweight electronics retailers Suning and Gome (in English here).

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.

Shanghai free trade zone will also open up to telcos

So, the daring plan to let Facebook into the Shanghai free trade zone (reported here, here and here) may also mean the embrace of foreign telcos.

Hong Kong’s scmp.com reported Tuesday that the FTZ would allow access to previously-blocked websites such as Facebook, Twitter and YouTube.

The story adds that the FTZ, the first in mainland China, “would also welcome bids from foreign telecommunications companies for licences to provide internet services within the new special economic zone.”

Given the role of FTZ as a business zone, this surely means some attractive enterprise contracts with MNCs and local firms. The three domestic operators, China Telecom, China Mobile and China Unicom, have all accepted the arrival of foreign competition, the SCMP says.

The 29 sq km zone, located next to the Pudong business district and covering the airport and the Yangshan port, is intended to attract foreign investment and to trial some liberalised financial services. It is being hailed within China as akin to the establishment of special economic zones 30 years ago.

In that optimistic vein, we might see the FTZ, along with the opening of the MVNO market and the continuing talk of economic reform as signs of cracks in the wall around China telecoms.

This Reuters story on the campaign against monopoly abuses by economic reform outfit NDRC points out that:

The agency is also investigating the pricing practices of 60 local and foreign pharmaceutical firms. Autos, telecoms and banks might come next, regulators have suggested.

However, those with longish memories of Chinese telecoms may recall similar excitement accompanied AT&T’s joint venture with China Telecom and the Shanghai city government back in 2000. To quote People’s Daily back in the day:

Analysts said the deal will serve as a role model for foreign investors in the State-gripped market and other foreign firms are expected to follow the AT&T example when China enters the World Trade Organization.

That hasn’t happened. Shanghai Symphony is still the only foreign-invested telco JV in China, and a frustrating exercise for AT&T. 

China’s WTO promise to open up the telecom services sector has been a hollow one, but no surprise. Direct control over telecoms is a sine qua non of party rule, guaranteeing direct control over the net and influence over the entire digital economy. China ranks 173^rd out of 179 countries in the Reporters Without Borders Press Freedom Index and is on the NGO’s list of Enemies of the Internet.

None of this has changed. Rather, the current heavy internet crackdown tells us that, even if foreign operators are admitted to the FTZ, they will go no further.