China Telecom Eyes 4G, Private Partners

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China Telecom (HKEx: 728; NYSE: CHA) is quickly becoming a company to watch, with new signals indicating it will soon receive a 4G license for its FDD-LTE technology as it searches for private partners to co-develop new services. These 2 news bits actually come from separate sources, but they collectively show that China Telecom could be poised to gain some market share over its larger and more bureaucratic rivals China Mobile (HKEx: 941; NYSE: CHL) and China Unicom (HKEx: 762; NYSE: CHU). Regular readers will know that I'm relatively bullish on China Mobile and China Telecom, though I'm far less enthusiastic about the schizophrenic Unicom.

All that said, let's take a look at these 2 latest news bits that both look like solid developments for China Telecom, the smallest and most entrepreneurial of China's 3 wireless carriers. China Telecom and Unicom have both been waiting patiently for 4G licenses based on the global FDD-LTE standard, after the nation's regulator issued licenses for a homegrown 3G standard called TD-LTE late last year.

The staggered licensing approach was aimed at giving China Mobile a head-start in 4G, since it's the only one of China's 3 major telcos that plans to build a network based on the newer and less mature TD-LTE standard. China Telecom has said it will only build a 4G network based on FDD-LTE, which is compatible with its current 3G network and is far more mature technologically than the TD standard.

Reports in April indicated that the Ministry of Information and Industry Technology (MIIT) was preparing to issue FDD-LTE licenses to Unicom and China Telecom as soon as this month, and reports earlier this week said the license awards would come on May 17, which is Saturday (English article). Now a newer series of reports is citing another knowledgeable source saying the earlier reports contained some correct information, but that the FDD licenses won't be issued on May 17.

The MIIT is famous for its slowness in making major new moves, and we saw a similar series of rumored dates for licenses awards last year that came and went without any news. But what this latest series of reports does show is that the FDD licenses are likely to come soon, probably by mid-June at latest, which means that China Telecom should be able to offer superior 4G service to China Mobile's by the end of this year.

Meanwhile, another report in the English-language China Daily is citing China Telecom's low-key Chairman Wang Xiaochu saying his company is looking to expand into newer services via joint venture partnerships with private companies. The move is part of a broader drive by Beijing to inject more private money and innovation into a wide range of traditional sectors now dominated by massive state-run companies.

The big 3 state-run telcos have worked with private partners for quite a while now. But the telco is the dominant partner in nearly all those relationships, with private firms usually playing a much more junior supporting role. Under its newer strategy, China Telecom will let its partners play a much bigger role in joint ventures, allowing them to actually manage those ventures while China Telecom simply provides access to its networks for the delivery of newer services.

This is the first time I've heard any of the telcos talk so directly about handing over more responsibilities to private partners, and it follows a major tie-up between China Telecom and Internet giant NetEase (Nasdaq: NTES) announced last summer in the mobile instant messaging service space. (previous post) Such an approach looks like a fast and efficient way to bring more innovation into the company, and should help China Telecom to gain an edge over its 2 slower moving and more bureaucratic rivals.

Bottom line: China Telecom's imminent receipt of a 4G license and plans to form more private joint ventures should give it a growing advantage as it seeks to gain market share from its 2 rivals.

Disclosure: No positions