China Telecom is planning to launch an MVNO in the UK: a good move

Comment by Cesar Bachelet, Senior Analyst at Analysys Mason

London, UK, (PresseBox) - In early January 2012, China Telecom (Europe) revealed that it had signed an agreement with Everything Everywhere, the UK's largest mobile network operator (MNO), and mobile virtual network aggregator / enabler (MVNA/E) Transatel, which would enable it to supply mobile virtual network operator (MVNO) services to Chinese residents and visitors in the UK, starting in the first quarter of 2012.

Although China Telecom will be entering a saturated market with a mobile penetration rate of nearly 128% as of September 2011, the number of MVNO subscribers in the UK is still growing; in the five years to September 2011, the number of MVNO subscribers in the UK increased by nearly 60% to just under 11 million. Therefore, we believe that China Telecom's MVNO could do well, particularly for the following reasons:

- The UK has a large number of Chinese immigrants with strong links to their native country: The Chinese citizens in the UK, most of which have strong ties to China, represent a million potential customers for China Telecom's mobile services.
- China Mobile is offering a proposition tailored specifically for that community: Although the UK has many MVNOs that offer cheap calls to international destinations, none offer services specifically designed for the Chinese. Not only will China Mobile provide support to customers in their mother tongue, it plans to offer a range of Chinese 'infotainment' services by the end of 2012.
- China Telecom is a well-known and trusted brand within the community: China Telecom was China's fixed-line incumbent and is the leading integrated operator in China's southern provinces. As such, it is a familiar and recognisable brand to any Chinese citizen.

When the service is established in the UK, China Telecom plans to launch similar services in other European countries, such as France, Germany and Italy, by the end of 2014.

Expanding abroad is a smart move for China Telecom, which faces growing competition in its domestic market. Due to the ongoing loss of fixed lines, amounting to nearly 5% of its installed lines in service in the year to June 2011, China Telecom's core fixed revenue has continued to decline. Although China Telecom's mobile business is growing, it remains a distant third player behind China Mobile and China Unicom.

Offering services overseas will not just enable China Telecom to gain new customers outside China, but could also encourage Chinese citizens returning from abroad to opt for their services, both fixed and mobile. By using an MVNA/E such as Transatel as an intermediary, China Telecom has increased speed to market while reducing its initial outlay and minimising the risk, thus making it possible to have a viable business case with a lower number of subscribers.

So can we expect more to come? Although the road to becoming an MVNO has been littered with notable failures, including Disney Mobile and ESPN Mobile, the concept of the MVNO that targets ethnic communities has had some success. So far, operators based in Asia have generally been slow to capitalise on MVNO opportunities abroad. However, we believe that it is only a matter of time before operators from various Asian countries target their compatriots abroad.

Analysys Mason

Analysys Mason delivers strategy advice, operations support, and market intelligence worldwide to leading commercial and public-sector organisations in telecoms, IT, and media. Analysys Mason consistently delivers significant and sustainable business benefits. We are respected worldwide for the exceptional quality of our work, our independence and the flexibility of our teams in responding to client needs. The company has over 250 staff worldwide, with headquarters in London and offices in Cambridge, Dubai, Dublin, Edinburgh, Madrid, Manchester, Milan, New Delhi, Paris, Singapore and Washington DC.

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