Alibaba to ex­pand in tele­com sec­tor

China Daily (Hong Kong) - - BUSINESS - By MA SI masi@chi­

Chi­nese e-com­merce gi­ant Alibaba Group Hold­ing Ltd is gear­ing up for ex­pan­sion in the tele­com sec­tor, as it aims to meet the com­mu­ni­ca­tion de­mand of mil­lions of small and medium-sized en­ter­prises across China.

The Hangzhou-based com­pany, which has emerged as one of China’s two big­gest cor­po­ra­tions by tap­ping into the online shop­ping boom, is stepping up its in­vest­ment in the tele­com sec­tor, amid mar­ket spec­u­la­tion that it will be an in­vestor in China Uni­com.

China Uni­com, for­mally known as China United Net­work Com­mu­ni­ca­tions Group Co, is the coun­try’s sec­ond-largest tele­com car­rier by sub­scribers. It is push­ing forward a mixed own­er­ship re­form, which aims to re­vi­tal­ize its busi­ness by at­tract­ing pri­vate back­ers.

Yu Pengwu, general man­ager of Ali Tele­com, a depart­ment of Alibaba’s cloud com­put­ing unit, said the coun­try’s three tele­com car­ri­ers are play­ing a very ac­tive role in serv­ing State-owned en­ter­prises and gov­ern­ments.

“But mil­lions of SMEs are un­der-served, whose de­mand for tai­lor-made com­mu­nica- tion ser­vices rep­re­sents al­most a 500-bil­lion-yuan ($74.5 bil­lion) mar­ket. That is what Alibaba is in­ter­ested in,” Yu said, adding it is not a com­peti­tor but com­ple­ments tele­com car­ri­ers’ ser­vices.

The com­pany ob­tained a li­cense to con­duct trial op­er­a­tions of vir­tual net­work op­er­a­tor ser­vices in 2013. Vir­tual net­work op­er­a­tors are re­sellers of net­work ser­vices from tele­com sup­pli­ers that do not own the tele­com in­fra­struc­ture. They of­ten of­fer more di­ver­si­fied ser­vices at lower costs than tele­com car­ri­ers, in the hope of com­ple­ment­ing their busi­nesses.

Yu said in an in­ter­view with fi­nan­cial news out­let Jiemain that the com­pany’s vir­tual net­work op­er­a­tor busi­ness was prof­itable last year and its tele­com ser­vices are also deeply in­ter­twined with its sprawl­ing ecosys­tem of e-com­merce, cloud com­put­ing, in­ter­net fi­nance and other busi­nesses.

For in­stance, sell­ers on its pop­u­lar online shop­ping plat­forms can now at­tract con­sumers by promis­ing free mo­bile data traf­fic pack­ages.

Fu Liang, an in­de­pen­dent tele­com ex­pert, said cloud com­put­ing will be a ma­jor area of co­op­er­a­tion be­tween Alibaba and China Uni­com if the for­mer in­vests money in the lat­ter.

“In­vest­ing in China Uni­com will give Alibaba priv­i­leged ac­cess to its core in­for­ma­tion in­fra­struc­ture re­sources, such as servers and net­work, which can make its cloud com­put­ing ser­vice more flex­i­ble and re­spon­sive,” Fu said.

Ac­cord­ing to him, tech com­pa­nies also bank on tele­com car­ri­ers’ ser­vices to con­nect dif­fer­ent in­ter­net centers, which will in­crease China Uni­com’s ap­peal to Alibaba.

The logic seems to be proven by Alibaba’s re­ported in­vest­ment in Chi­nese telecom­mu­ni­ca­tions gear maker ZTE Corp. Bloomberg re­ported last month that Alibaba is clos­ing in on a deal to ac­quire ZTE’s soft­ware sub­sidiary.

The deal, which is ex­pected to cost 2 bil­lion yuan to 3 bil­lion yuan for ZTE­soft Tech­nol­ogy Co, can help strengthen Alibaba’s global in­ter­net com­put­ing busi­ness, as it can bene- fit from ZTE­soft’s global client port­fo­lio and re­la­tion­ships with wire­less car­ri­ers from Europe and Africa, an­a­lysts said.

Both Alibaba and ZTE de­clined to com­ment, but Fu said if the ZTE deal goes through, the chances of Alibaba in­vest­ing in China Uni­com will be even higher.

Xiang Li­gang, a tele­com ex­pert and CEO of tele­com in­dus­try web­site Cc­time, said tele­com ser­vices will also be a key area of co­op­er­a­tion be­tween the two.

“Alibaba ex­cels in at­tract­ing con­sumers with flex­i­ble mar­ket­ing and re­tail­ing strate­gies. Its in­no­va­tive prow­ess will help re­ju­ve­nate China Uni­com’s busi­nesses,” Xiang said.

Alibaba said it sold 240,000 SIM cards in a three-day tele­com fes­ti­val on Tmall, one of its two ma­jor online shop­ping plat­forms, which help pushed the to­tal trans­ac­tions of tele­com ser­vices to 2 bil­lion yuan, up al­most 20 per­cent year-on-year.

Alibaba is al­ready part­ner­ing with China Uni­com in low-cost data traf­fic pack­age ser­vices, which have at­tracted more than 3 mil­lion users, Wang Xiaochu, chair­man of China Uni­com, said at a news con­fer­ence in May.

mar­ket value that re­sults from SMEs’ de­mand

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