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Swap of Top Executives Increase the Uncertainties of Chinese Telecom Market

by Guang Yang | Aug 24, 2015

China government appointed new chairmen for three large state-owned telecom operators on August 24th. All of them are familiar faces in Chinese telecom industry. The table below gives the details of this reshuffle.

Executive

Former Position

New Position

Shang, Bing

Vice Minister of MIIT

Chairman of China Mobile

Xi, Guohua

Chairman of China Mobile

Retired

Wang, Xiaochu

Chairman & CEO of China Telecom

Chairman & CEO of China Unicom

Chang, Xiaobing

Chairman & CEO of China Unicom

Chairman & CEO of China Telecom

 

The change of China Mobile looks natural. Mr. Xi Guohua is more than 63 years old now. It is the routine retirement age for the executive of Chinese state-owned company. The new chairman, Mr. Shang Bing, should also be a routine nomination. In fact, Mr. Xi himself was the vice minister of MIIT before he took the position in China Mobile.

The real surprise is the swap of chairman between China Telecom and China Unicom. This is the largest rotation of operators’ executives since 2004. It brings some uncertainties to Chinese telecom market. Currently Chinese operators are facing larger pressure from OTT players. The sum of service revenue of three operators has declined by 0.9% in 1H 2015 compared with the same period of last year. On the other side, China government is requesting operators to “improve speed and reduce tariff” in order to support its “Internet Plus” Strategy to fuel the growth of macro economy. As state-owned company, the operators have to follow the request. So they indeed have demand of reducing cost, particularly the two smaller ones. That’s why there have been rumors about the merge of China Telecom and China Unicom. The swap of chairman between the two operators might be the first step to prepare the merge. At least, the two chairmen in their new positions may be willing to strengthen the collaboration between the two operators, such as infrastructure sharing or national roaming. Through the collaboration, the two operators may be able to manage their cost more efficiently and lower the tariff faster.

However, the significant change of executive team could also generate negative impacts on operator’s performance, at least in short term. Currently China Telecom and China Unicom have been far behind China Mobile in 4G market. By June, China Mobile has gained 190 million 4G customers. It is almost 5.5 times of the sum of China Telecom and China Unicom’s 4G subscribers. The swap of top executive will inevitably impact on their strategies and daily businesses. It could further enlarge the gap between China Telecom/China Unicom and China Mobile. The market would be more concentrated to China Mobile. But the market concentration will not be good for tariff reduction.   

More uncertainties come from the potential change of governance mechanism. China government is considering to reform the governance of state-owned companies in order to improve their efficiencies as well as to strengthen the government’s control over these companies. The change of top executive may be the first step to reform the governance mechanism of these state-owned operators. The executives in new position will have fewer concerns about human relations or historic issues. It would be easier for them to push the reform. But what the reform will exactly be is not clear yet. The reform’s targets look paradoxical and its roadmap has not been publically discussed.

As a summary, I think the reshuffle of executives will have negative impacts on the performance of China Telecom and China Unicom in short term. Its long term impact on Chinese telecom industry is not clear yet. It will depend on the macro policy from China government on how to reform state-owned companies. 

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