There were some big news in the US wireless arena last week. Verizon and AT&T won the auction of some new wireless spectrum, Google did not win the spectrum (see the details at NYTimes). Do you know how much Verizon paid for the new spectrum? $9.6 billion. Imagine a similar scenario in China, how much does the 3G license cost in China? As far as China Mobile (and China Unicom and Telecom) is concerned, it’s null, zero, no cost.
What? You must think this is crazy. How come the goverment gives away the license for free? Well, the No. 1 reason is the goverment is the biggest shareholder of all those big wireless/telecom companies. If they charge a big fee, essentially they are putting money from left pocket to right pocket. So why bother.
Moat analysis
What does CHL got?
(CEO Wang Jian Zhou at annual report, from iphonebuzz.com)
1) A top 10 Chinese global brand, which consists of 3 sub brands: GoTone/quan qiu tong (white collars), shen zhou xing (everyone) and dong gan di dai (mobile internet), quote in Chinese:
中国互联网盈利的最大市场是向手机用户发送移动梦网内容。中国有超过5亿的手机用户，是美国、日本、德国和英国使用人数的总和。近一半多的手机用户都向移动梦网门户网站定制了手机铃声、笑话和图片。每下载一次这些内容花费几分钱，费用中大部分流向门户网站，手机运营商则通过人们转发笑话、图片等获利。一次下载费用虽少，但数亿用户数次行为的累积足以形成不菲收入。
2) A national distribution channel, including rural areas.
3) A network (behind the scene), I can get signal when I was in Jiu Zhai Gou (May 2005).
4) Management: Wang Jianzhou and his team has experience both in industry and the goverment. Note the latter one is also important, because in China goverment has the final words on a lot things (such as give away spectrum or 3G license).
The potential downside
The biggest worry is the goverment made China Mobile pick up the slack for the deployment of the domestic brewed 3G standard TD-SCDMA (Wiki). Some people worry CHL will waste lots of money on TD/3G deployment, without consumers’ buy in. Because in China consumers always want the best (usually not the domestic) technology. This is evident in the popularity of foreign products in cars, cell phone (Nokia, Samsung), MP3 player (Apple) etc.
Spam SMS:
A portion of SMS sent everyday is spam. This is been reported in the Focus Media wireless division’s recent spam SMS scandal, in which millions of spam message being sent to cosumers. China Mobile publicly appologied and vowed to stay clean of all this. But we know they make money even from spam messages, so there is a conflict interest here.