March 15, 2013
On January 9, the Chinese telecom regulator, the Ministry of Industry and Information Technology (MIIT), commenced a month-long consultation, paving the way for the advent of mobile virtual network operators (MVNOs) in China, potentially increasing the total number of operators from three to nine by June 2013.
Among the many measures suggested in the consultation, the most significant ones revolve around four main areas:
- Access to network: Each of the three infrastructure-based mobile network operators (MNOs) — China Mobile, China Telecom and China Unicom — will make their services accessible to at least two MVNOs, resulting in a threefold increase in the number of telecom operators
- Service quality: Services provided to MVNO subscribers have to be of a guaranteed quality, at least on par with those offered to MNO subscribers
- Numbering: A continuous sequence of numbers will be made available to MVNOs
- Pricing: The wholesale price for services paid by MVNOs must be lower than the cheapest retail price of equivalent services
According to our mobile data forecast, China is en route to grow its wireless subscription base from 1.1bn in 2012 to 1.8bn in 2017, a CAGR of 9.4%, almost doubling its total wireless market value to US$216bn by the end of period. Leveraging the neighboring Hong Kong market as a benchmark (see exhibit), we estimate MVNOs in China will capture nearly 5% of total mobile subscriptions within five years of launch, reaching 90m subscriptions.
Exhibit: MVNOs' share of mobile subscriptions, Hong Kong, 2009-2012
Source: Office of the Communications Authority, Hong Kong
We believe this move will create sizable opportunities in the Chinese market for new players, with a cumulative revenue opportunity of between $9.5bn and $13bn between 2013 and 2017, assuming MVNOs are able to generate ARPU levels between 45% to 60% of average market mobile ARPS.
Exhibit: MVNOs' potential cumulative revenue (in $bn), China, 2013-2017
Source: Pyramid Research
Companies that we expect to take most advantage of this opportunity, however, will be those that can leverage existing assets to enter the market and expand either horizontally or vertically. Our MVNO competency matrix indicates the core assets necessary for different businesses to thrive in the MVNO market revolve around four main areas for focus:
- Channel: MVNOs successfully leverage existing retail channels assets, reaching the designated subscriber group with marginally higher marketing and business development budget
- Brand: MVNOs capitalize on their household name to reduce marketing expenditure
- Convergence: Integrated service providers, such as digital TV, fixed-line and broadband operators, can offer convergence services enabled by their MVNO operations
- Content: MVNOs hold rights to exclusive content, bundled with telecommunication services
Exhibit: Key competencies of MVNOs
Source: Pyramid Research
So who’s in?
Soon after MITT’s announcement, a number of businesses have indicated strong interest in the MVNO ventures, particularly nationwide retail chains Suning (002024.SZ) and GOME (00493.HK). Both companies were declared by senior MIIT officials as qualified suitors on January 23. The two companies fit as channel MVNOs given their existing network of thousands of outlets across the nation, most of which are already serving as hubs to sell MNO SIMs and handsets. These channel MVNOs could look at revenue synergies between their retail business and their telecom business through cross-selling and cross-marketing activities, such as redeeming store credits for phone bills, integrated e-commerce services and targeted mobile advertising. On a strategic level, big retail chains’ MVNO operations can expedite their transformation away from physical stores to virtual retail outlets.
— Hansang He, Analyst
Pyramid Research Mobile Data Forecast
Forecast published quarterly
A premium version of the Mobile Demand Forecast, it tracks current and future demand for mobile data services, within the context of overall mobile demand. This forecast includes all the same tracking as the standard Mobile Demand Forecast but breaks down mobile data ARPS, revenues and subscriptions at the service level.
China: Operators Turn to Mobile Data, Broadband to Drive Telecom Market
Country Intelligence Report published August 2012
After the Chinese market showed a strong year-on-year growth of 10.5% in 2010, an even better performance was recorded in 2011 as revenue improvement increased to 13.2%. We expect the trend to continue in 2012 as the projected $165.8bn in revenue for the year will illustrate another year of robust growth at 13.8%. The main driver supporting the positive outcome is mobile data, which we estimate to generate $46.0bn in 2012, bettering the $36.4bn in 2011 by 26.4%.