(Caixin) After years of slowing profit growth in a crowded domestic
telecommunications market, China Communications Service Corp. Ltd. is
hoping a massive infrastructure project in Africa will reverse its
fortunes.
In the 1980s and ’90s, the state-owned enterprise was instrumental in
developing China’s first long-distance communications backbone,
nicknamed “bazongbaheng” — Mandarin for “eight verticals and eight
horizontals” — which linked the fiber optic networks of the country’s
provincial capitals for the first time.
Now China Communications wants to bring a bigger version of bazongbaheng to Africa — the Trans Africa Information Superhighway.
The information network will be a mammoth undertaking, covering an
area three times the size of China. It will pass through 48 countries
and 82 major cities, requiring as much as 200,000 km of cable and an
initial investment of more than $10 billion.
China Communications, the infrastructure subsidiary of China Telecom,
has the support of China’s Ministry of Industry and Information
Technology, and has reached agreements with a number of African
governments and Chinese industry partners over the Trans-Africa network
in the past couple of years.
Now the company faces the challenge of coordinating contracts across
dozens of countries, attracting funding, and managing operations while
simultaneously trying to ride out a slowdown in telecom infrastructure
investments back home.
Bazongbaheng 2.0
“When you look at Africa’s future, it’s a market with potential,” China Communications General Manager Si Furong told Caixin.
In 2015, Kenya had an internet penetration rate of 45.6%, slightly
above the world’s average of 44%, while Burundi and Tanzania had rates
of 4.9% and 5.4% respectively, a World Bank report showed.
In
comparison, the U.S.’ and China’s internet penetration rates were 74.5%
and 50.3% respectively.
China Communication’s first major overseas project was Ethiopia’s
national telecommunications backbone in late 2004. But the idea to
replicate China’s bazongbaheng network in Africa only crystallized on a
site visit by Si and China Telecom General Manager Yang Jie to Tanzania
in 2014.
At the time, China Communications was involved in the
construction of Tanzania’s domestic transmission network.
“While working on the Tanzania project, we wondered, ‘Is the
situation in Africa similar to China in the ’80s and ’90s?’ Actually,
Africa today has greater demand and higher technical requirements than
China did two or three decades ago,” Si told Caixin.
The original bazongbaheng program in China involved 48 regional
projects between 1986 and 2000, and almost 80,000 km of fiber-optic
cable.
By November 2015, China Communications had constructed more than
25,000 km of national fiber optic backbone network in Africa. The push
to connect these networks on a continental level really took off after
the December 2015 Forum on China-Africa Cooperation, held in
Johannesburg. At the forum, President Xi Jinping pledged that China
would pour $60 billion into development projects in Africa over the next
three years.
Around the same time, China Communications organized the China-Africa
ICT Partnership Forum, where it published a blueprint for the
Trans-Africa network. There, China’s information technology ministry
signed a memorandum of understanding with the United Nations’
International Telecommunication Union and five East African countries —
Tanzania, Uganda, Rwanda, Burundi, and Kenya — to develop a broadband
platform across eastern Africa.
Less than a year later, the Information Technology Ministry, which
had declared the trans-African network one of its main policy goals in
2016, brought Ethiopia’s Ministry of Communication and Information
Technology on board with another memorandum of understanding.
Propelled by policy tailwinds, China Communications established a
dedicated team in early 2016 to oversee the Trans-Africa project. “We
have now put most of our staff on the frontline in Africa, including our
design team,” Si said.
In June, the China-Africa Development Fund and FiberHome Technologies
Group signed a strategic cooperation agreement over the network with
China Communications, which is still looking for funding from other
Chinese companies, including optical cable and equipment manufacturers,
Si told Caixin.
‘Sewing a wedding dress for someone else’
For decades, Chinese firms have been heavily involved in African
infrastructure projects, mostly in power generation and transport
infrastructure.
In 1975, China participated in the construction of the 1,860-km
Tanzania Zambia Railway Authority rail link, providing a crucial
interest-free loan after the project had been turned down by Western
creditors. More recently, a subsidiary of state-owned China Railway
Construction Corp Ltd. signed a $2.26 billion deal, also with the Zambian government, to build an intercity railroad in eastern Zambia.
But information and communications technology infrastructure projects
between China and African partners are becoming more common, and China
Communications isn’t the only Chinese telecommunications company looking
to Africa for new opportunities.
By January 2011, Chinese telecommunication equipment makers ZTE Corp.
and Huawei Technologies Co. Ltd. had built 20 national fiber optic
networks in Africa, and set up at least 40 3G networks in 30 African
countries, state-owned periodical ChinAfrica reported.
Yangtze Optical Fibre and Cable Joint Stock Limited Co., the world’s
largest optical-fiber cable maker by output, laid the foundation of its
first cable factory in Durban, South Africa, in May.
Yangtze Optical’s
Durban plant is the continent’s first optical-fiber manufacturing
facility.
So far, most projects have been limited to the national level, and no
other Chinese telecommunication businesses have made concrete steps
toward building a continentwide network.
Liquid Telecom, based in Mauritius, currently owns the continent’s
largest fiber network, running from northern Uganda to Cape Town, South
Africa. Liquid Telecom has laid more than 17,000 km of fiber optic cable
so far — less than a tenth of what China Communications plans to build
through its trans-Africa network.
While companies like Huawei and ZTE may win some contracts, China
Communications has an advantage over its competitors thanks to its
privileged position as a state-owned enterprise, an industry watcher
told Caixin. “Still, the trans-African network will require contracts to
be negotiated on a country-by-country basis. And the completed network
will be a massive test of CCS’s operational capabilities,” the source
said.
A lack of funding is only one of the obstacles the network is facing,
Si said — local partners frequently lack operations experience. China
Communications might decide on a country-by-country basis whether to
bring in Chinese operators or set up joint ventures with local operators
to manage sections of the completed network.
If China Communications fails to execute its plans well, smaller
companies will rush in to take its place, and it will have spent all its
time and money laying the groundwork for its competitors, the industry
watcher said, using the Chinese idiom “sewing a wedding dress for
someone else.”
A ‘modest goal’
China Communications’ lackluster recent performance in the domestic
telecommunications market has made its Africa plans increasingly crucial
to the company’s long-term survival.
In December 2006, the company completed its Hong Kong IPO, and
maintained double-digit profit growth for years after its listing. But
in 2013, the company started to experience a slowdown in revenue growth,
and even saw its net-profit margin shrink.
The telecommunications industry’s value chain was changing, with a
greater proportion of value being created by internet companies rather
than traditional operators and infrastructure providers, Si told Caixin.
The company’s gross profit rate was 12.8% in the first half of 2016, a
stark contrast to earlier years, when the figure tended to hover around
20%, the company’s 2016 midyear financial report showed.
Si is pessimistic about the outlook for the company’s domestic
business over the next couple of years. “In 2017, the investment
expenditure of the three big telecommunications operators (China
Telecom, China Unicom, and China Mobile) will be equal to their 2016
expenditure. But this number could actually fall in 2018,” he said.
The latest wave of telecommunications infrastructure upgrading within
China, focused on improving the existing optical-fiber network, could
be completed this year, Si told Caixin. And the central government
announced just last week that industrial standards for 5G, the next
generation of China’s mobile network, will be set in 2018, with 5G
expected to become widely adopted only by 2020.
The rollout of 5G networks across China could mean a new round of
investment in domestic telecommunications infrastructure. But until
then, “we can’t just wait for investments from telecom operators — we
have to improve our business ourselves,” Si said. He believes the
trans-Africa network could help push the company out of its current
financial rut.
Si told Caixin he has a “modest goal” for the company over the next
few years: “Achieving 100 billion yuan ($14.5 billion) in revenue, and
surviving 2018.”
Source: Caixin By Teng Jing Xuan, Qin Min and Zhang Erchi
No comments:
Post a Comment