Bring on the competition

Staff Writer
13 Jan 2006


China Mobile's acquisition of People's Telephone once more underlines the need for telecom reform in China.

People's might be one of Hong Kong's smaller mobile players, but by taking control the mainland giant is in a position to dominate the inbound roaming market.

Inbound roaming amounts to less than 1% of Hong Kong mobile traffic but 16% of revenue, according to OFTA - although reportedly China Mobile represents as much as 90% of all mainland inbound revenue.

Inbound calls from China Mobile's also represents 3% of total Hong Kong cellular industry revenue, and clearly a much greater share of total profit.

To no one's surprise OFTA approved the acquisition.

That decision was correct, despite the complaints from New World Mobility, and despite the inevitable skew to China Mobile's roaming business. We are not going to see a hike in local or inbound call charges, which is the usual result of a decline in competition. Nor are roaming agreements exclusive, so it's not as if the other operators are prevented from roaming to China Mobile or Unicom.

PCCW and SmarTone actually suggested the move would help make Hong Kong more competitive by bringing down roaming charges.

One wonders whether this is merely a brave attempt to put the best face on an inevitability.

In any case, the rub is that while only commercial barriers prevent Mobile or Unicom from setting up in Hong Kong, the territory's operators are effectively barred from the mainland. The same applies worldwide. China Mobile can use its protected home base as a platform to attack the big North American and European markets.

It is no surprise that the US Trade Representative last year put China on notice in its annual 1377 review over its high barriers to entry.

China committed to opening its market progressively to foreign operators when it signed to join the WTO. Theoretically, the market has opened, but the MII has set a number of hurdles clearly designed to keep them out.

Chief among them is a $240 million minimum domestic capital requirement on players entering the market. According to the USTR, MII officials have been unable to explain why.

Incoming carriers are also required to partner with one of the six licensees, meaning they will be effectively competing against their partner's parent company.

The MII has also declined to open up the resale segment - an essential part of the competitive environment in all advanced telecom markets.

It's seems absurd to think that the China Mobile group - the largest operator in the world by customer numbers, as it likes to remind us - is incapable of meeting extra competition in its home market.

In fact, its purchase of Peoples demonstrates it clearly relishes competition in external markets. Why not at home‾ 

We know China's telecom reform is inextricably bound up with the issue of 3G licenses and the restructure (yet again) of the six operators, a process right now moribund.

Sadly, none of the many restructure scenarios that have been floated publicly have included a foreign carrier.

A pity, because it would bring in valuable expertise and investment, drive down prices and deliver better services.

But obviously those run a poor second to giving China Mobile a free kick into other markets.

Robert Clark is a Hong Kong-based technology journalist and analyst [email protected]

(The views presented in this article series are those of the author and in no way reflect those of Lucent Technologies)

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