Alibaba Unit Enters China Wireless Industry as Market Opens

Dec 27, 2013 3:31 am ET

(Updates with closing share prices in eighth paragraph.)

Dec. 27 (Bloomberg) -- An Alibaba Group unit and 10 other companies will compete for wireless subscribers in China after regulators awarded new operating licenses, a step toward opening the world’s largest mobile market.

Alibaba’s HiChina unit, which offers website development services, and the other new operators can lease wireless capacity from the nation’s existing carriers in a trial intended to boost competition in the $213 billion market, the Ministry of Industry and Information Technology said yesterday. The country’s current carriers, China Mobile Ltd., China Unicom (Hong Kong) Ltd. and China Telecom Corp., are all state-run.

Opening the market to new operators, which also include Telling Telecommunication Holding Co., Beijing Bewinner Communications Co., JD.com and Lianlian.com, aims to help cut prices and bring more choices to the nation’s 1.2 billion wireless users. For Alibaba, it allows China’s largest e- commerce group to develop new services to boost user loyalty.

“Alibaba can increase its users and traffic volume by adding telecom services,” Ricky Lai, an analyst at Guotai Junan International Holdings Ltd. in Hong Kong, said by phone yesterday. “It could bundle its telecom services with e- commerce business and increase user stickiness.”

User phone bills may decrease by about 3 percent as a result of competition from the new operators, Lai estimates.

New Services

Carriers are being pushed to improve customer service to encourage users to switch to service plans on faster networks in a nation where two-thirds of subscribers have yet to upgrade to third-generation networks. China’s regulators this month issued licenses for the start of commercial service on fourth- generation networks.

The companies awarded the first 11 licenses are all partnered with one of the nation’s two smaller carriers, China Unicom or China Telecom, as China Mobile has yet to submit applications for its partners, the Ministry said on its Website.

China Mobile shares rose 0.1 percent to close at HK$81 in Hong Kong trading. China Unicom was unchanged at HK$11.70 while China Telecom rose 0.3 percent to HK$3.90.

The new operator licenses have been granted as part of a two-year trial to bring more competition into the market.

The companies granted licenses will grab about 10 percent of China’s mobile-phone connections by 2018, according to estimates from Nicole McCormick, an analyst at researcher Ovum.

Ownership Rules

The new operators will need to offer services such as some long distance calls at cheaper rates, Sandy Shen, a Gartner Inc. analyst in Shanghai, said by e-mail. The carriers may also target customer segments under-served by major carriers including migrant workers or students with high Internet usage.

“Only by providing better and differentiated services will they be able to survive,” Shen said.

The licenses open the market to private companies and limit foreign investors to less than 10 percent ownership in the new operators. That rules out leading roles for Asia technology giants like Japan’s SoftBank Corp. and hinders even China’s largest Internet companies, including Baidu Inc. and Tencent Holdings Ltd., which have international shareholder stakes exceeding the limit.

The license to Alibaba’s unit HiChina was confirmed by company spokeswoman Florence Shih in an e-mail. Alibaba Group refers to the brand that encompasses all Alibaba entities.

Additional Customers

JD.com plans to use the license to become China’s fourth- largest mobile company within five years, after the three current carriers, Vice Chairman Zhao Guoqing said in an e-mailed statement. The e-commerce company was the nation’s largest online seller of personal computers in the third quarter with more than 50 percent market share, according to a survey by market researcher IDC.

JD.com, which has 140 million registered users, will offer a full range of voice and data plans, Zhao said.

“JD.com’s entry into the mobile carrier market will promote industry development, technological innovation and greater choice for Chinese consumers,” Zhao said. “The additional customers that these new services will bring to JD.com will also provide a significant boost to our already large and rapidly growing user base.”

--Edmond Lococo and Lulu Yilun Chen, with assistance from Stephen Tan in Beijing and Suresh Seshadri in Bangalore. Editors: Robert Fenner, Aaron Clark