China Telecom Waiting for 3G, IP TV Policies Before Introducing Overseas Investors

A China Telecom spokesperson confirmed yesterday that the company had been approached by five foreign interested parties. He added that 3G mobile licensing and rules on IP TV were among the issues that require more clarity before substantive talks could take place. The comments come after several newspapers reported earlier this week that China Telecom was close to selling a stake to foreign strategic investors. The reports, which cited unnamed sources, said that Japan's NTT DoCoMo, France Telecom, U.S.-based Verizon Communications, Deutsche Telekom, and Singapore-based SingTel were potential suitors.

Outlook and Implications

• Regulatory Uncertainty Delays Decision: China Telecom said last month that it had been approached by several foreign telecoms operators about a potential partnership, but uncertainty about the launch of 3G mobile services in China was delaying a decision on the matter. China Telecom expects that it will receive a 3G licence, but the timing of issuance and type of technology it will deploy remain uncertain. The most likely date for 3G licensing now appears to be early 2007 (see China: 24 August 2006: China Netcom CEO Says China to Award 3G Licence in Q1 2007). As a new mobile-market entrant, China Telecom may be a government favourite to adopt the home-grown TD-SCDMA standard. In comparison to the mature W-CDMA and CDMA 2000 1X standard, the TD-SCDMA network will cost more in construction and operation. Introducing strategic foreign investment would not only help China Telecom improve its business operations and management through the sharing of experience, but also help fund the expensive 3G network roll-out.
  Entering the mobile market could help China Telecom gain new growth momentum as its traditional fixed-line telephony services experience stagnant growth, owing to mobile substitution (see China: 31 August 2006: China Telecom Posts Lower H1 Net Profit amid Intense Competition in Voice Foray). The operator is also pushing ahead with the development of its IP TV service, which is deemed a "killer application" in the next-generation network (NGN) era. It has conducted IP TV trials in seven cities in the country. The largest, in Shanghai, involved 7,000 paying users earlier this month and is expected to have 50,000 users by the year-end.
  
  
• Foreign Investment in Chinese Operators: Although ample growth opportunities remain in the world's largest mobile market, China so far remains relatively untapped by foreign investors compared to other high-growth markets in the region. Regulatory uncertainty related to 3G licensing and industry restructuring has made international operators reluctant to expand into the market. Nevertheless, several leading international players have made their moves. Three of China’s four major telecoms operators have so far introduced overseas investors. Spain-based Telefónica has bought a 5% stake in China Netcom, China's second-largest fixed-line operator. U.K.-based Vodafone Group holds a 3.3% stake in China Mobile, the country’s largest mobile player’s. SK Telecom also agreed in June to buy US$1-billion worth of China Unicom convertible bonds, in a deal that would effectively give the South Korean operator a 6.7% stake in the country's second-largest mobile operator (see China: 21 June 2006: China Unicom, SK Telecom in CDMA Strategic Alliance).