The Ministry of Industry and Information Technology, China’s top industry regulator, granted licenses to 15 companies on July 23 to run virtual telecom network services.
A virtual network operator is a provider of management services and a reseller of network services from other telecommunications suppliers, that does not own the telecommunication infrastructure.
The move signals that virtual telecom services are officially recognized after five years of pilot operation. Such initiatives allow companies to offer telecom services by piggybacking on the infrastructure of China’s big three State-owned telecom carriers: China Mobile, China Unicom and China Telecom.
It is part of broader push by China to inject new vitality into the multibillion-dollar telecom industry by attracting private capital and promoting cross-industry partnership.
According to the official website of the ministry, Alibaba Group Holding Ltd, Xiaomi Corp and JD are among the 15 companies that have got the licenses from the government. They are the first batch of players that have inked cooperation agreements with China Unicom.
In January, the ministry said China would officially launch virtual network services this year and welcomed foreign and private companies to join the sector.
As of December 2017, China boasts more than 60 million virtual network service subscribers, accounting for 4.1 percent of the country’s total mobile users, data from the ministry showed. The industry has already attracted direct private investment worth 3.2 billion yuan ($500 million), and has helped to create nearly 60,000 jobs.
Xiang Ligang, CEO of telecoms industry website Cctime, said a string of internet heavyweights are vying for a presence in the virtual telecom sector because it is an efficient way to accumulate new users.
“Though reselling telecom services delivers low profits, it can bring tons of data traffic. The official licenses will fast-track their efforts in the area,” Xiang said.
As of 2017, 42 companies including Alibaba, Tencent Holdings Ltd and Xiaomi were running trial virtual network services. Among them, 13 were profitable in 2017, with three companies seeing their user base exceed 5 million.
Xu Lidong, a senior researcher at the China Academy of Information and Communications Technology, a government think tank affiliated with the ministry, said: “Compared with virtual network operators in foreign countries, which did not achieve profits until three to five years later, Chinese companies have already done quite well, by generating profits within just three years.”
But efforts are needed to prevent phone fraudsters from taking advantage of virtual telecom service networks to cheat consumers.
China has been ratcheting up efforts to revamp the telecom sector, which has long been dominated by State-owned players. Last year, China Unicom pressed ahead with its 78 billion yuan mixed-ownership reform by attracting Alibaba, Tencent, Baidu and other companies as investors.