China telecom sector MVNOs: the more the merrier?

Event

    After market close on January 29, Ministry of Industry and Information Technology, the mainland’s telecom regulatory body, announced the second batch of MVNOs for the domestic mobile market.

    Impact

    Eight companies named in second batch of MVNOs. Totally 8 companies are included in the second batch of MVNOs (mobile virtual network operators). Similar to the first batch, we believe none of the companies among the second batch of MVNOs will have a nationwide MVNO licence.

    Vulnerable area…low-ARPU subscribers. Since MVNOs often use discount mobile tariffs to attract potential customers, we believe the segment of mobile subscribers potentially attracted by MVNOs is price-conscious but less service-focused. Therefore, we believe the incumbent mobile operators are less likely to lose high-ARPU subscribers to MVNOs.

    Disadvantage of MVNOs. We believe MVNOs are mainly responsible for the front-end of reselling (e.g. distribution of SIM cards, monthly billing of subscribers). Given the incumbent operators still hold the ultimate ownership of back-end infrastructure (i.e. telecom network), we believe MVNOs will not be able to offer reliable service quality and resolve network quality issues on a prompt basis. Any network quality and coverage issues will be maintained and resolved at the level of incumbent operators. As a result, incumbent operators should remain at a relatively advantaged position over MVNOs.

    Outlook

    Our order of preference for the Chinese telecom operators remains: China Telecom > China Unicom > China Mobile.