Vodafone's China Deal: A Step Towards Unveiling the Elusive Market

Strategic Insights -

Vodafone's October deal with China Mobile (HK) seemed like a major breakthrough, giving the world's largest mobile company a foothold in China's booming market. However, the challenge lies in translating promises into action, as China prepares to sign off on new commitments under the World Trade Organisation. Despite the potential for significant growth, with the industry expected to double in size to $100bn in five years, the market remains elusive for foreign investors due to regulatory hurdles and the dominance of state-owned companies.

Key Takeaways:

  • The Vodafone-China Mobile deal is the first of its kind in China's telecommunications industry, with Vodafone investing $2.5bn for a 2% stake in exchange for cooperation on technology, marketing, and branding.
  • China's WTO agreements lay down timetables for foreign investment in telecoms services and commitments to create a regulatory level playing field, but implementation will be a significant challenge.
  • The telecoms industry in China is expected to double in size to $100bn in five years, with mobile services accounting for 40% of the market, data for 18-20%, internet for 4%, and fixed line for the remainder.
  • The phased opening of the mobile sector to 49% foreign ownership of joint ventures and no geographic limitations on their operations by 2004 is expected to provide significant opportunities for foreign investors.
  • Despite the promise of new opportunities, the dominance of state-owned companies and the lack of incentives for them to form full strategic partnerships with foreign companies pose a significant obstacle to foreign investment.
  • The Vodafone-China Mobile deal may be seen as indicative of a change of attitude, but many industry observers remain unconvinced, arguing that it is more of a financial investment than a move towards an operational joint venture.

Statistics:

  • The value of China's telecoms sector is currently $50bn and expected to double in size to $100bn in five years.
  • Mobile services account for 40% of the market, data for 18-20%, internet for 4%, and fixed line for the remainder.
  • The Vodafone-China Mobile deal involves a $2.5bn investment by Vodafone for a 2% stake in China Mobile (HK).
  • Average annual growth in mobile subscribers between 1994 and 1995 was 94%, according to Nomura International.
  • China Mobile's international share offering in November 1999 raised $6.6bn, making it Asia's largest outside Japan.

Sources:

  • The Financial Times, "Vodafone takes stakes in China," October 1999.
  • Nomura International, cited in the article, providing data on mobile subscriber growth.
  • China Mobile, cited in the article, providing data on their international share offering.
  • BDA China, cited in the article, providing insights on China's telecoms industry.