Rumor: China Telecom to Spin Off 8 Industry Bases
CWW, 3/19/12
An industry source revealed recently that China Telecom (NYSE: CHA; 0728.HK) is preparing to spin off its eight vertical service bases for operation as independent companies - after which the bases' employees will no longer be formally part of China Telecom's organization.
China Telecom has set up eight vertical service bases around southern China in recent years for the operation of core mobile internet products. The bases are: the E-Surfing Literature Base (Zhejiang), the Collaborative Communications Base (Zhejiang), the M2M (Internet of Things) Base (Jiangsu), the "I Games" Base (Jiangsu), the "I Music" Base (Guangdong), the Video Center (Shanghai), the E-Surfing Space Mobile App Base (Chengdu), and the Animation Base (Fujian). Owing to limitations imposed by the operator's structure, and to clashes of corporate culture, the bases have had difficulty competing with rival internet companies. One explanation may be the differences in product structure and pricing plans between China Telecom subsidiaries in different regions - as opposed to the "one-click access, centralized operations" structure required for internet services. Another limitation may be the state-owned structure of the operator. Whereas internet companies have to be flexible enough to act first, the processes of planning, soliciting bids, and submitting plans for government review mean that by the time the operator is able to move, market opportunities have long since dried up.
While the source expressed confidence that China Telecom would spin off its vertical service bases to operate independently, he did give voice to some concerns about the bases' future. A lack of cooperation from provincial subsidiaries following the spinning-off would be a distinct possibility, as the bases would only be considered partners of the provincial subsidiaries, and their business performance would not have any bearing on the subsidiaries' performance - meaning that many provincial operators would decide that the fate of the mobile internet bases' products was of little concern to them.
Keywords: wireless mobile literature mobile gaming mobile music mobile video mobile application China Telecom animation telecom M2M 0728.HK CHA mobile Internet
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