China Mobile: Top 3 Consequences

The jungle telegraph is on fire tonight with Guy Kewney’s revelation that China Mobile is on the verge of buying HWL 3G operations in the UK and Italy. I’ve heard that fake press releases are on the run in Hong Kong and a very off-the-record quote that “...am more worried about my paypacket than my paymaster”

Anyway, I thought I’d add a little fuel to the fire with what I consider will be the greatest consequences of a bid by China Mobile:

Variety is the Spice of Life

Personally, I think it’ll be great if the Chinese state mobile company enters the UK market. A fresh faced well financed challenger from a different side of the world will add plenty of new ideas and services into the marketplace. Life will get a lot more interesting.

Disruptive Disequilibrium

After 3.5 years, I do not believe that 3 have enough size to be sustainable in any of its European Markets. Therefore, China Mobile will have to take some radical steps to try and achieve scale – the likelihood of price wars across Europe is extremely high. Together with the entry of TeliaSonera into Spain makes 3 of the top 5 EU markets in a dangerous state of competitive imbalance – not a good outlook for mobile shareholders.

Competitors Comeback

I do not expect the main European networks to take this lying down. HWL is after all is public quoted company and a lot of spoiling tactics can be played in the short term to delay and even reduce the probability of the Chinese entering the market. Given the stakes, I would be extremely surprised if someone somewhere didn’t play the protectionist card.

Some wider issues which are worth considering:

i) I cannot see Vodafone remaining a minority investor (3.25%) in China Mobile;
ii) I can see China Mobile also wanting to buy HTIL and get its hands on some juicy assets in real growth markets in Asia (India, Vietnam and Indonesia); and
iii) I think the level of disclosure to the Hong Kong markets about the transaction and how a potential counter bid is dealt with will be revealing indication for the future.