China Telecom Corporation Limited is a wireline telecommunications and broadband services provider, providing telecommunications and information services including voice, data, image and multimedia mainly in 21 provinces, municipalities, and autonomous regions in China.

Firm Information
                   
China Telecom is a large state owned telecom enterprise which provides various telecommunication services in China.  The company operates a variety of domestic and international fixed line networks, provides telecom network-based data transmission services, and carries out account settlements for international telecom services.  Its customer base includes governments, residential clients and business consumers.  The company is headquartered in Beijing, China and has more than a quarter million employees.

China Telecom was formerly a complete monopoly but its assets in 10 northern provinces of China were transferred to a rival telecom company, China Netcom, in 2002, leaving China Telecom with 21 provinces.  Even though the two companies are allowed to compete across the country, both China Telecom and China Netcom dominate market share in each of their respective geographic areas.

Competitive Strengths & Advantages

Strong market position is one of the greatest strengths that China Telecom has in its bag of tricks.  China Telecom monopolistically controls telecommunications in southern China.  It is able to provide land lines, domestic and international phone service, broadband service and public network access with the largest WiFi network (over 30,000 hotspots that is available in 250 cities).  As of April 2008, the company had over 216 million subscribers and over 38 million broadband users, and provided close to 62% of China’s bandwidth.  In addition to this, domestic long distance has caused an increase in revenues steadily in the past year (2.8% at fiscal year 2008).  The strong platform and sheer size allows the company to act as a solid entry barrier for other telecommunication enterprises.

Another strength that China Telecom possesses is its well-built and diverse network.  China Telecom holds in its possession many different types of networks to meet the needs of its customers. Its Transport Network provides large capacity and multifunction telecom services using fiber optic cables as a primary element while using satellite and digital microwave links as supplementary elements.  By the end of 2007, expansion reached over 1 million kilometers and the transmission speeds for data increased by several dozen times since 2006 in its Transport Network.  In addition to this, it has a rapidly growing Switching Network.  As of 2007, China Telecom had close to 315 million landlines on its network and close to 10 million long-distance lines.  Business customers have close to 600 private lines through China Telecom allowing for a wide variety of customer base.  In addition to this, China Telecom operates a number of other networks such as Data and Internet.

Like any growing company, Research and Development is the major source of growth.  China Telecom’s R&D department is built to research on the development trends of the telecommunication industry.  China Telecom has research centers in Beijing, Guangzhou and Shanghai.  These research centers are responsible for developing new equipment and services, as well as providing technical support to all of China Telecom’s various networks.  Its R&D department is set up in the fields of fiber optic transport network, data and multimedia, cyber security and many other telecommunications fields.  IMS (aid the access of multimedia and voice applications from wireless and wireline terminals) and WiMax (technology that provides wireless transmission of data using a variety of transmission modes, from point-to-multipoint links to portable and fully mobile internet access at speeds up to 72 Mbit/s) are just some of the technologies that that China Telecom’s R&D department has been able to harness.

It would be a mistake to think that China Telecom has presence in only China.  Recently, it has undertaken a number of very visible projects that will allow it to expand globally.  The company has participated in the construction of over 30 international fiber optic cable systems, as well as supplying direct connections to Taiwan, Hong Kong, Macao, Vietnam, Laos, and Burma.  China telecom hopes to begin to expand its North American bandwidth transmissions and develop more direct routes to America.

China Telecom has been able to form a number of critical joint ventures to serve the needs of its diverse customer base.  PCCW, a dominant Hong Konger telecommunications company, and China Telecom cooperate to provide premier businesses data carrying services between Hong Kong and other cities.  Most recently the Chinese government awarded 3G licenses to the three telecom companies present in China; China Telecom will receive the license based on CDMA2000 technology which is the standard currently used in the United States.

Future Opportunities

Strategic acquisitions are probably the biggest source of growth for China Telecom’s future.  In December of 2008, China Telecom acquired CDMA network, based in the Chinese province of Macao, after buying China Unicom’s CDMA business for close to $16 billion.  This acquisition has allowed the company to gain new customers, with the added bonus of running a 3G network in the Macao.  In addition to this, talk has circulated that China Telecom might acquire China Unicom’s C Network, which allows users to make free calls using the many WiFi spots that China Telecom offers.  This service is planned to be bundled with the already available CDMA phones to help users save money.  It is future acquisitions like these that will allow China Telecom to grow effectively.  However, they have to be wary of spending too much acquiring these customers since it may cut into their profit margin. 

China Telecom has recently joined in an agreement with China Netcom, China Unicom and Verizon Communications to maintain the underwater fiber optic cable that connects US and Chinese telecom services.  The cable is estimated to be valued at around $500 million and said to be able to hold 121,000 simultaneous phone calls.  The addition of this cable to China Telecom’s network will add valuable network speed and capacity to the 21 provinces that China Telecom controls.  This partnership is a very important step for China Telecom, allowing the company to expand internationally.  It is important to note that China Telecom is still heavily concentrated on its domestic market. 

The growth of the broadband market is an opportunity that China Telecom is trying very hard to harness.  As of July 21, 2008, China Telecom had over 40 million DSL users, accounting for 16% of the world’s DSL lines!  China itself has more than 25% of the world’s DSL subscribers.  This kind of demand is something that China Telecom is trying hard to profit from because of the slump it is facing from its landline voice services.  China Telecom is set up to benefit from the booming internet access market, especially considering its monopoly position.

Threats & Weaknesses

Like many other firms, China Telecom faces intense competition.  The industry group itself is fast moving and highly competitive.  It faces stiff competition from other providers in China.  Companies like China Mobile Communications are competing on the mobile network while China Railway Communications are directly competing in all services with China Telecom.  This competition causes huge amounts of pricing pressure, lowering the profit margins for each customer, and the business as a whole.

The regulatory environment is another threat to China Telecom.  Recently the Chinese government did liberalize some of the stringent policies and tariffs but with only minimal alleviation for the company.  In addition to this, the communist government provides preferential treatment to other competitors, allowing them to offer more services for cheaper prices than China Telecom.  This has, and will continue to hurt China Telecom’s growth.  This will no doubt cause the company to face tough times in the future and will have to cooperate with the government extensively if they want win this war.

Most importantly, there is a decline in landline business globally, which is hurting not only China Telecom but all telecommunication enterprises. Voice revenues have fallen annually in the last 2 years due to decline in voice usage over landlines.  China Netcom and other major corporations are no different and are suffering from increase mobile usage by all customers.  It will be very interesting to see if the increased mobile usage will substitute wireline services such that the company can continue on its expected growth pattern.

Opinion

The Chinese telecommunications industry is a highly regulated sector with minimal room for product diversity and differentiation.  China Telecom falls under this government oversight, and although this does give it some monopolistic advantages, these restrictions mean it will not be able to grow like an effective company in the free market.  China Telecom also faces very intense competition from other companies that offer almost identical products and services.  Investment in the telecommunication industry as whole in China should be done with strict cautionary protocols.