A Chinese Future for Vodafone.

Vodafone, "the world's largest mobile operator by revenue", plans to use the government led shake up of the Chinese telecoms market to increase its presence in the Middle Kingdom.

As I covered in my September 15, 2007 post "China Shakes Up Telecoms Market: Mobile is the Driver", the Chinese government is restructuring the local telecoms market as part of the roll out of 3G in-country. Vodafone plans to capitalize on it by using it's 3.3 per cent share of China's mobile market leader, China Mobile, CMCC, as leverage to extend its reach into what will be the world's largest mobile market, or potentially use it to springboard out of China to other large(r) markets. Some financial wags are pushing that, but where else on earth are you going to get the return and scale of the China market? India? Not on the long tail. [The funny thing in all of this is where are the American operators such as ATT in the global wireless game--they're not even on the pitch. After selling off the off shore "wireless" holdings of SBC ten years ago, the leading American telco has no presence in mobile anywhere else in the world except in the US. What do their shareholders think is going to happen when you start approaching saturation in the US, combined with a strong trend of displacement of home wireline by mobile, as is happening in other parts of the globe? Where will market share growth come from then?]

Arun Sarin,CEO of Vodafone ( and formerly part of Airtouch in California where I once briefly met him while I was with Pac Bell Mobile Services over a decade ago) is quoted by the Financial Times that Voda's $13bn stake in China Mobile could be used to take advantage of local opportunities in China. One potential option could be selling off its stake in China Mobile for a bigger stake in another company. My personal view is that it all depends on the China government's view, and what they do with the mobile market shakeup in China. Arun thinks the same.

As I relayed in "China Shakes up Telecoms Market", a scenario exists where the break up of second placed mobile operator, China Unicom, has CUNC being split up and sold to fixed-line giants China Telecom and China Netcom. Unicom's operates a GSM and CDMA network, so a separation of operations could make it easier for Unicom to find strategic investors for each of the different businesses. If the Chinese government opened up foreign ownership of assets, can you imagine who might be bidding on that, ATT, Orange, O2-Telefonica, SingTel ? Speculation is that a merged Unicom CDMA and Netcom network will roll out CDMA2000, while China Telecom will launch WCDMA or TD-SCDMA using Unicom's GSM network.

Sarin has the long tail view to China, given that only 35 per cent of the population has a mobile phone, as he relayed: “From our shareholders’ point of view, China is 35 per cent penetrated, we have got a long way to go. Would we like to participate in a bigger way? Of course we would like to participate in a bigger way.”

Newsflash: China is a Great Financial Return

Vodafone’s 3 per cent stake in China Mobile, bought for $3bn, is now worth $13bn. Nice return. “We have $13bn in China. That is a nice kitty [or] endowment to either stay where we are, or take wherever we want it,” advised Sarin. Asked if he could see Vodafone selling out of China Mobile and taking a large minority stake in one of the fixed-line companies, such as China Netcom – if it gains a mobile license – Mr Sarin replied: “Frankly, whatever the Chinese government wants us to do, so long as it is responsible and right, we will do.”

Meanwhile, Mr Sarin also said Vodafone was discussing a “more expanded partnership” in India for network sharing and would look at expanding in Africa if it secured control of Vodacom, South Africa’s largest mobile operator.

China Mobile is widely expected to commercially introduce the homegrown Chinese-air-interface TD-SCDMA, but analysts are not ruling out the possibility that China Mobile will also pursue WCDMA. That battle has yet to be engaged in the global standards battle fields.

However, it is thought the awarding of 3G licenses in China, still to be determined, will be the coup de grace to such rumors, and will be the force for restructuring. Some are thinking that the the Beijing Olympics in August of next year would be an attractive event to launch 3G services, but I find that highly unlikely given that it is less than 300 days from now. Selection, advisement and buildout in 300 days--whose dreaming this up?  Anyways, which is more important on the world stage, the Olympics or a techie's China dream regarding 3G mobile licenses? Unlikely the Chinese government will detract from the center stage with an announcement regarding the distribuiton of a mobile license. That will come after the games.

For now, start looking for a Vodafone logo in Chinese characters....

[Thanks to Telecoms.com for the great graphic and their coverage of this as well]

OK now it’s your turn. What do you think I missed or am wrong about Voda in China?  I’m not a prognosticator and prefer conversations. Please share your perspectives, critiques, additions, subtractions, bravos, taunts and tomatoes via comments. Thanks for your continuing interest.