China telco senior management changes announced The China telcos have announced changes in senior management. China Mobile has announced that Chairman Xi Guohua will retire, and will be replaced by Shang Bin (deputy minister of industry regulator the Ministry of Industry and Information Technology (MIIT). Unicom’s Chairman Chang Xiaobing will become the Chairman of China Telecom, while China Telecom’s Chairman Wang Xiaochu will become the Chairman of China Unicom, in a direct ‘swap’.
We expect a limited impact on fundamentals
Our view is that the primary drivers of the profitability of a telco market are the number of players in the market (and in particular the presence or otherwise of well-capitalised, infrastructure-based new entrants) together with the regulatory backdrop. Within each market, a telco’s return on invested capital is likely to be determined primarily by its revenue market share, which in turn will be driven by its date of service launch, the licences held, the technology used and the assets (base transceiver systems) constructed. While effective management of those assets, and the company’s marketing budget, is of course important to some extent, it is unlikely in our view to overpower these more overriding structural drivers, particularly in a heavily regulated market such as China. We would therefore play down the likely impact of these management changes on the profitability of the China operators; each has a relatively clear strategy, based on the assets and licences in place, and we don’t expect material changes in strategy to occur.
