Responding to media rumors, China’s three largest telecommunications operators, China Mobile, China Unicom and China Telecom, have confirmed that they are in talks to set up a joint venture for the sharing of mobile infrastructure, with the approval of the Ministry of Industry and Information Technology. While the talks are still in the preliminary phase, the companies have indicated that the venture would be for the operation of existing base stations throughout the country as well as the construction of new ones, which the three operators would lease from the venture. The venture, likely to be known as the National Tower Company, will initially have up to US $1.6 billion of capital and will collect rent from the three operators.
The idea of sharing network infrastructure makes a good deal of sense for China’s big three. Despite the rapid growth of the Chinese economy and the already huge numbers of customers these operators have, they are all facing challenges. Since the granting of 4G licenses by the Chinese government in December 2013, the operators have been facing the need for large capital expenditures to build out high-speed networks. China Mobile, the largest operator, reportedly plans to build 500,000 4G base stations by the end of 2014, while China Telecom intends to reach 250,000. In addition, all three providers are now operating in a more competitive environment, due to entrance into the marketplace of new entities. The government’s issuance of 19 MVNO licenses promises to shake up the Chinese mobile telecommunications landscape.
In this context, the three traditional operators have a common interest in fostering better coverage and quality of service for their networks, and sharing the cost, we believe, will help all three—though it must be admitted that China Telecom and China Unicom have more to gain here than number-one China Mobile. While the plan should cut costs in the long run and accelerate the rollout of 4G, the initial investment will likely cause have a negative impact on profitability in the short run.