The Sunday Mail
IT’S difficult to ignore China Mobile. As the world’s largest wireless carrier as measured by subscribers -760 million at last count, the company is so successful in its home country that the Chinese government wants to reduce its domestic dominance by allowing two other state-controlled carriers, China Unicom and China Telecom, to establish a joint venture to build and manage telecommunications infrastructure in the country.
It’s understandable, then, that China Mobile has recently expressed interest in flexing its substantial muscle in overseas markets.
Chairman Xi Guohua in particular has made no secret of the fact that the state-owned enterprise is ready to explore growth opportunities in North America and Europe.
The news comes on the heels of the launch of China’s first 4G network, which China Mobile hopes to leverage overseas to build a global footprint and boost profitability.
Could China Mobile pose a serious threat to the likes of Verizon and AT&T?
Analysts say the hurdles are high for entry into the crowded US market.
“Because it lacks spectr um and mobile licences, it would need to acquire existing operators, buy spectrum in future auctions, or enter the market as an MVNO,” says Julian Watson, an analyst at the research firm IHS Technology in London.
A mobile virtual network operator, or MVNO, typically buys access to network services from an existing operator at wholesale rates, then resells to its own retail subscribers.
To date, China Mobile’s only foreign play is in Pakistan.
In 2007, it purchased Paktel for about $300 million.
Making a significant acquisition in the US would be difficult, but not impossible.
Japan’s SoftBank, which acquired the No. 3 US wireless carrier Sprint in 2012, is expected to make a bid for the No. 4 US carrier, T-Mobile, next month.
SoftBank is believed to need to combine the two wireless carriers if it hopes to compete head-to-head with Verizon and AT&T, though US regulators have expressed concern that such a merger would reduce competition and negatively impact American consumers.
If regulators sink the deal before the year is out -just as they did with AT&T’s proposed $39 billion acquisition of T-Mobile in 2011, it could open the door to China Mobile negotiating an agreement with T-Mobile’s parent company, Deutsche Telekom.
There are other ways to enter the US market. China Mobile’s second option is buying spectrum.
The US Federal Communications Commission has kicked off its first major auction of wireless airwaves in six years.
The most valuable band, low-frequency airwaves in the 600 MHz range currently being used for broadcast TV signals, is scheduled to hit the block in 2015.
China Mobile need not go after the spectrum alone, either.
The company could partner with a US wireless carrier to bid for the newly available band.
In additional to cost sharing, China Mobile would enjoy compatibility:
The 4G standard used in China, known as TD-LTE (Time Division-Long Term Evolution), complements the standard used in the US, FD-LTE (Frequency Division-Long-Term Evolution).
“The benefit of TD-LTE is to complement FD-LTE to increase capacity in peak hours and in congested cells,” says Sandy Shen, research director in Gartner’s Shanghai office, noting that the two wireless standards can be co-located on the same tower.
Which US company would be interested in partnering with China Mobile on a spectrum bid? Verizon. Earlier this year, the company completed the acquisition of the 45 percent stake it did not already own in Verizon Wireless from U.K.-based Vodafone in a massive deal valued at $130 billion.
With so much debt on its balance sheet, Verizon might see China Mobile as a compelling financial partner in next year’s spectrum auction.
Finally, China Mobile could establish a toehold in the US market as an MVNO.
Though it’s small potatoes for a wireless giant like China Mobile,which has three times the number of subscribers to AT&T and Verizon combined the establishment of even a small presence in North America could pay dividends in the long run.
“China Mobile has advantages in serving consumers and businesses that have a connection to China,” Gartner’s Shen says.
It’s a strategy that has worked for rival China Telecom, which signed a wholesale agreement with U.K. mobile operator Everything Everywhere in 2012.
China Telecom estimates there are some 600,000 Chinese people living in the U.K., but even with a comparably small subscriber base the company makes money by keeping its investment small and operations lean.
China Telecom is now looking at Germany, France, Italy, and Spain for similar expansion.
Whatever decision it makes in the next 12 months, China Mobile has a number of viable options for achieving its goal of expanding into the US Now it just needs to take the leap. — Fortune Magazine.
