In a bid to encourage direct foreign investment into the country, China’s Ministry of Industry and Information Technology (MIIT) has issued a draft proposal to allow mobile virtual network operators (MVNOs) to set up in the market.

The MIIT is currently in consultation with the industry’s stakeholders, including the three mobile network operators – China Unicom, China Mobile and China Telecom – regarding the move. If approved, the government could launch a two-year trial which would see each operator mandated to sign up at least two MVNOs to run on their network. It would be the first time that China opens  up its doors to MVNOs.

“It is interesting that the regulator is holding a consultation period to get operators’ responses; I would guess that China Unicom and China Mobile probably wouldn’t be very open to it,” commented Carrie Pawsey, senior analyst at Ovum.

“They would probably prefer to keep wholesale players out of the market, but we could see some interest from China Telecom for a number of reasons.”

She explained that China Telecom is the smallest player in the market and traditionally it is the smallest who is most open to wholesale, as it is often looking for opportunities to grow their market share. China Telecom also has a number of its own MVNOs overseas; it recently set up one in the UK and one in Germany and is  looking at other European opportunities.

“They would understand the benefits of what an MVNO can bring to a host provider better than the other two, which have no experience with MVNOs at all,” explained Pawsey.

She added that China represents an attractive market to foreign brands because of its sheer size; there are over a billion subscribers in China.

“Who wouldn’t like to get their hands on some of those customers? It’s a massive opportunity in terms of the size of the market, and it is also very heavily prepaid: 70 per cent of subscribers are prepaid and most MVNOs tend to go with a prepaid offering, rather than postpaid, so it’s an attractive market from that perspective,” she said.

However, she warned that even if regulator does support MVNO in the market, it won’t necessarily be plain sailing from there. Regulators do not usually mandate the wholesale prices that MNOs should charge and will allow their commercial negotiations take place. This can often take a long time and won’t always result in the MVNO coming in to the market. There is a real opportunity, however, for mobile virtual network enablers (MVNEs), explained Pawsey.

“We’re talking about MNOs that have no experience in offering wholesale services and opening up their networks to third parties, so there are going to be a lot of issues around things like system integration and billing systems,” she said. “So there is a lot of complexities for MNOs to tackle, and for MVNEs, if they can get in early become an MNO’s partner of choice, they can take away a lot of that pain and also make quite substantial revenue for themselves.”