Maverick China Research

SARFT (State Administration of Radio, Film, and Television), China’s main regulatory body governing the media, recently issued mobile TV licenses to China Radio International and China National Radio. With four of China’s largest media companies now holding mobile TV licenses (including Shanghai Media Group and CCTV) and none issued to China’s telecom operators and WVAS providers, it’s clear that SARFT is winning the power struggle over the MII (China’s main telecom regulator) in controlling the mobile TV industry in China. For foreign media companies, infrastructure vendors, and investors, this distinction will be very important as the industry develops because the two government regulators have a different set of regulations regarding foreign investments and market entry.

China Mobile, though, seems determined to become more than just the network provider for mobile TV as can be seen in its recent acquisition of 19.9% of Phoenix TV.

According to the People's Bank of China, all domestic credit cards and debit cards must be part of China UnionPay’s network. Since the company was founded in 2002, China UnionPay has taken advantage of its monopoly status to quickly grow its bank card network to the point where up to an estimated 30% of retail spending was made using bank cards in China’s tier one cities (Beijing, Shanghai, Guangzhou).

I recently attended an analyst roundtable event hosted by E-Business Journal and Yeepay, one of the top e-payment companies in China. The common theme that everyone spoke of at the event centered upon building a healthy market environment to develop e-payment in China.

It was recently announced that SK Telecom, one of South Korea's leading mobile operators, will buy $1 billion of China Unicom bonds. As the world's second largest mobile operator, China Unicom should have all the leverage they need to negotiate favorable partnerships with other telcos worldwide. Foreign operators, meanwhile, are salivating over the growth potential of the China market and have been scratching at any opportunity to work with either China Mobile or China Unicom. It is curious to see, then, that China's operators continues to sell company stakes to foreign operators. We have seen this with China Mobile and Vodafone, China Telecom and PCCW, China Unicom with Telefonica and most recently SK Telecom. By diluting ownership, Chinese operators are giving up their leverage. What is the cause of this?

One theory is that Chinese operators are getting ready for the huge CAPEX required for 3G buildup and rollout by selling stakes of the company as a method of capital infusion. Continual government delays and policies about pushing 3G into a market that cannot support it and doesn't demand its services are possibly hurting the domestic telco industry more than it's helping it.