China Telecom Gets New Chief, Old Formula

| About: China Telecom (CHA)

Summary

The naming of a technocrat as chairman of China Telecom ends speculation of an industry shake-up.

The move also indicates China's big three telcos will continue as big state-owned companies that lag their global peers.

A shake-up that many of us were hoping for isn't coming.

It hass been quite a few months since I last wrote about China's three big telcos, so the naming of a new chairman of China Telecom (NYSE:CHA) seems like a good chance to revisit this lifeless trio that were a hot topic last year due to rumors of an industry shakeup. The naming of a new technocrat as head of the carrier implies that it's business-as-usual at China Telecom and for the broader trio of state-run carriers, and that a shake-up that many of us were hoping for isn't coming.

The new chairman, Yang Jie, will assume the helm of China Telecom four months after his predecessor, Chang Xiaobing, abruptly stepped down last year due to a corruption probe against him. Chang himself was previously chairman of China Telecom rival China Unicom (NYSE:CHU), but switched places with China Telecom's chief Wang Xiaochu in the middle of last year in a characteristic bureaucratic reshuffling by Beijing.

The leadership shuffle last year led some to speculate that the regulator might be planning to merge Unicom and China Telecom into a single company to better compete with industry giant China Mobile (NYSE:CHL). The two smaller telcos had failed to gain much market share despite receiving some big advantages from Beijing and collectively controlled just one-third of China's massive mobile services market.

The regulator later seemed to be indicating that such a merger wasn't in the offing, and this latest naming of a new China Telecom chairman seems to confirm that view. If the Ministry of Industry and Information Technology (MIIT) had really wanted to engineer a merger, it could have easily left the China Telecom chairmanship vacant and combined the two companies later this year under Unicom's Wang Xiaochu or another leader.

Thus the filling of the vacant post seems to imply that the two companies will remain independent for the foreseeable future. What's more, incoming China Telecom chief Yang Jie has all the usual markings of the technocrats that Beijing typically uses to fill the top ranks in most major state-owned enterprises. That would further indicate that it's business-as-usual for the sector and change won't be coming anytime soon.

According to the reports, Yang Jie will become China Telecom's chairman and party secretary and his second-in-command will be another technocrat named Yang Xiaowei (Chinese article). The reports are accompanied by photos of the pair, who both look the part of Communist Party bureaucrats with resumes to prove their credentials.

Yang Jie has more than 30 years of experience in the industry, including credentials as a engineer and a stint as a professor. He appears to be a company insider as most of his previous positions have been at various provincial level China Telecom affiliates.

Talented Technocrats

I certainly have nothing against good managers with technical backgrounds as they're important to maintaining telecom networks like the one that is China Telecom's core asset. But such technocrats aren't usually known for their creative, strategic thinking, and instead tend to focus on things like how to build better networks rather than creating new products and services that can truly differentiate them from rivals.

The MIIT last year ordered China Telecom and Unicom to forge an agreement on how to share their resources, a move aimed at lowering costs but also one that added fuel to last year's sector shake-up rumors. The regulator also has rolled out a two-year-old virtual network operator (NYSE:VNO) program to bring in more private investment to the sector, with names like Alibaba (NYSE:BABA) and JD.com (NASDAQ:JD) launching their own separately branded mobile services.

While those small steps look good, the bigger message that comes with this new appointment is that major changes, like outright privatizations, won't be coming anytime soon to China's big three telcos. Instead, we'll continue to see the three operate as big state-owned enterprises that underperform their global peers despite having a monopoly over a massive mobile market with 1.3 billion subscribers.