When someone writes a future book about the history of telecoms in China, the period between 2008 and 2013 could easily be titled "The Lost Period For China Unicom (NYSE:CHU)," a reference to the numerous squandered opportunities for China's second largest wireless carrier during that time. Now we're getting word that this "lost period" could extend into 2014 and perhaps beyond, with reports that Unicom has undergone yet another major management overhaul that has become a regular occurrence at the company over the last five years.
It's hard to know what's going on inside the company, since Chinese telcos are notoriously opaque and Unicom is particularly lacking in transparency. The company has been in a near-constant state of turmoil since its formation in 2008 with the merger of two of China's four major carriers at that time. Company sources are trying to put a positive spin on this latest reorganization, saying it will position Unicom to take advantage of newly issued licenses for 4G wireless service. But from what I can see, this latest development looks like cause for more pessimism about the most dysfunctional of China's three major telcos.
Let's start with a look at the latest headlines, which say this new reorganization is the biggest for Unicom since 2008 and is aimed at clearly defining the roles of all top managers as the company prepares to launch 4G service (Chinese article). Industry watchers will recall that Unicom was formed in 2008 through the merger of the original China Unicom, which was a pure wireless carrier, and China Netcom, which was the smaller of the country's two fixed-line operators.
Integration issues created by the merger of two such big companies put the new China Unicom at a disadvantage to the nation's other two big telcos, leading wireless carrier China Mobile (NYSE:CHL) and China Telecom (NYSE:CHA), the smallest of the trio. But the new China Unicom also had a big advantage over its two rivals when it was the only carrier in China to receive a license to build a 3G network based on a technology called WCDMA, considered the best of several competing technologies.
Despite getting that major technological edge, Unicom has foundered for most of the last five years and has become the least innovative and most bureaucratic of China's three telcos. That period has seen the company make numerous management changes, presumably as executives from the former Netcom and Unicom jockeyed for position in the new firm. As a result, Unicom lost a major opportunity to grab significant share from China Mobile, which still controls about two-thirds of the market.
If I were an optimist, I might say that this latest management overhaul at Unicom looks like a good move as it prepares to roll out 4G service. After all, data could easily overtake traditional voice services in the 4G era, when complex applications like video streaming are expected to see big growth. Accordingly, telcos should overhaul their management structures to prepare for this new reality. But I'm definitely not an optimist in this case, based on what I've seen from Unicom over the last five years. I'm not at all convinced that this latest reorganization is the last. To the contrary, I fully expect that we'll probably see continued management turmoil at the company as we move into the 4G era.
The company's shares haven’t moved much over the last five years, though admittedly none of China's telcos have been stellar performers during that time. Still, this latest report makes me confident that we won't see anything too exciting from Unicom in the 4G era. By comparison, the more focused China Telecom and China Mobile could finally see some meaningful growth in the next two to three years, as their data services start to generate major revenue.
Bottom line: China Unicom's latest management shakeup is a bad sign as it prepares to launch 4G service, indicating its corporate dysfunction will continue into the 4G era.