In late December, China’s telecom regulator MIIT granted MVNO (mobile virtual network operator) licenses to 11 non-telecom companies, breaking open a market long dominated by a few large operators.
With a vast population and widespread dissatisfaction with incumbent carriers, MVNOs could inject significant disruption and new growth into China’s mobile industry. MIIT estimates MVNOs could reach roughly 50 million subscribers — about 3% of China’s total mobile user base — by 2015, capturing around 1% of total mobile revenue, a sum measured in tens of billions of yuan.
While these projections remain uncertain, the development marks a notable turning point in China’s telecom history.
The 11 newly licensed MVNOs were chosen from more than 70 applicants. Most are not household names in the telecom sector; they largely come from three categories: retail distribution channels like Dphone (a major smartphone retail chain), value-added service providers, and Internet companies such as JD.com (one of the country’s largest e-commerce platforms) and Net.com, an IDC operator and domain registrar affiliated with Alibaba.
The announcement was broadly expected, but contained a few surprises. Major electronics retail chains such as Suning and Gome were not among the initial grantees despite strong interest; they may appear in subsequent licensing rounds. Another surprise: China Mobile missed the recommendation deadline, so the first 11 MVNOs will operate using China Unicom and China Telecom networks, with some overlap between those two carriers.
MIIT indicated it plans to issue additional licenses quickly, likely to ensure parity for China Mobile. Consequently, another list of approved MVNOs is expected before the end of January or in early February. Like the current batch, some MVNOs may sign deals with multiple network operators.
Facing the music
The initial roster suggests several likely characteristics of China’s emerging MVNO landscape. Larger companies are expected to deploy nationwide operations, establishing their own operational centers and customer support systems. For instance, JD.com has announced plans to launch a branded smartphone called JDPhone and to begin service next May. Smaller MVNOs will probably concentrate on regional markets or specific customer segments, such as students or young urban consumers.
One major unknown is how MVNOs will price services. Although China has only three major network operators, consumers enjoy abundant choices in handsets and tariff plans. Years of competition have already driven down handset and service costs, leaving limited room for further price cuts. MVNOs will therefore face not only the entrenched power of incumbent operators but also intense competition among themselves in an already saturated market.
Most MVNOs have been reticent about pricing, partly because many have not finalized their commercial plans and are still evaluating market conditions. Incumbent carriers have suggested potential wholesale terms: China Telecom has reportedly offered a 40% discount on network access, and China Unicom around 35%. If those figures hold, they would form the basis for MVNO margin and retail pricing strategies.
Overall, MVNO retail prices are likely to be slightly lower than those of full-service operators, but the difference may be modest. Many MVNOs have stated they do not intend to trigger a price war; instead, they plan to compete through broader price choices, bundled offerings, and complementary services.
For example, Alibaba aims to integrate MVNO services with its online ecosystem, tying mobile service to its e-commerce and other digital services. JD plans to leverage its customer data and logistics network, coupling mobile plans with device sales and third-party handset distribution to create additional revenue streams.
Experience from other markets highlights three critical success factors for MVNOs: an existing user base to attract new customers, a distinct sales and marketing strategy that sets them apart from incumbent operators, and the ability to scale quickly to build momentum. Achieving those factors in China will be challenging given market saturation and strong incumbents, but not impossible with time and the right execution.
Time will be an important constraint. MIIT requires licensed MVNOs to begin operations by May and may revoke licenses if operators fail to reach their customer targets within 19 months. That deadline creates both opportunity and pressure for the newcomers.
What will become of MVNOs in China? The outcome is still uncertain. For now, most industry observers are cautiously optimistic rather than euphoric — a mood that accurately reflects the current market environment.