China Mobile, the world’s largest wireless carrier by subscribers, is feeling the pinch of increasing pressure from the Chinese government, which is striving to reduce the company’s dominance in China.
The latest policy headwind is its talks with the other two state-controlled carriers China Unicom and China Telecom to set up a joint venture to build and manage telecommunications infrastructures in China.
The discussions– likely directed by the government– match with Premier Li Keqiang’s stated goals to reform state-owned enterprises by boosting competition.
While the planned joint venture could help enhance the sharing of resources and reduce the costs for future network expansion, dominant carrier China Mobile may lose its strength in network coverage as it is likely to share its extensive network with the smaller rivals, said analysts.
China Mobile, which has reported declines in earnings, had a head start on speedier fourth-generation mobile services in China, hoping the new services would help fend off rising competition and help it regain growth momentum.
Smaller rivals China Unicom and China Telecom operate on 3G mobile technology platforms that are widely used globally, which give them access to more popular smartphones. The two companies have sold Apple’s iPhones for several years but China Mobile only started offering them with the roll-out of its new 4G network in January.
The new joint venture could undermine China Mobile’s first-mover advantage in 4G services, analysts said.
“If all tower assets in China are transferred to this new company, it will help China Telecom and China Unicom to accelerate their 4G network rollout, “said Leping Huang, an analyst at Nomura.
The number of telecom towers that China Telecom and China Unicom own is only equivalent to 28% and 46% of the towers that China Mobile owns, according to Nomura’s estimate.
Analysts said an independent telecom tower company is a common business model in some countries like the U.S, India and Indonesia. A tower company typically will purchase or lease land, build telecom towers and lease the space in the tower to telecom operators. Telecom operators will use the space to install base station equipment they purchase from equipment vendors.
China didn’t have an independent tower company in the past.
As part of the government’s continued effort to promote competition, China Mobile has already suffered from lower interconnection fees that smaller rivals pay for calls to the company’s network, beginning this year. Analysts said the savings from the interconnection policy will help fund China Unicom and China Telecom’s network upgrade and marketing efforts to further increase its mobile users this year.
They added that more policy headwinds are ahead for China Mobile in the coming years. For example, the Chinese government could gradually introduce mobile number portability which enables subscribers to retain their mobile numbers when changing from one carrier to another. This measure is expected to hit China Mobile badly as the mobile giant, with more than 770 million subscribers, controls about 60% of the mobile market in China.
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