China’s Telcos Languish in the Shadow of the Internet
China’s telcos find themselves going sideways at best, with little or no top-line growth. However, they are required by the government to invest, invest, invest to bring higher speed internet to all of in China as fast as possible. Yet of course, the bulk of the value created from a higher speed Internet will accrue to the Internet companies themselves, not the telcos.
In one sense, the telcos are providing an enormous social good, and so it makes a lot of sense that the government should own most, if not all, of their shares. It also makes sense that the discussion about reconsolidating China’s telcos is gaining traction. Creating a single company to build and operate shared infrastructure should reduce wasted investment. Combining other parts of their operation may also make sense. To quantify the performance challenges, in the first half of 2015, revenue and customer numbers were down, while usage volumes continued to rise.
However much their share price fluctuates in Shanghai, the operation of China’s telcos seems to be tightly constrained. While it has always been incredibly tough to be the CEO of a Chinese state-owned enterprise, being a leader in the telecom sector today seems particularly challenging: enormous political pressures to improve the quality of the network nationwide almost instantly; almost no ability to raise prices; much mid-level talent leaving to Internet companies; thousands of retail outlets that are becoming obsolete; pressure to keep hiring even if there is limited need; and finally, an expectation to grow profits.