China Mobile shows antiquated culture

The prices of the 4G packages offered by China Mobile, one of the major suppliers on the Chinese mainland so far, show that, despite government efforts in economic restructuring, the antiquated corporate culture nurtured in the days of the planned economy is hard to shake off.

China Mobile has invested a reported 100 billion yuan ($16.37 billion) in setting up its 4G network. Such a large investment is said to be the reason the carrier has charged such hefty prices, despite the fact the quality of its 4G service is widely judged to be sporadic at best.

This combination of high prices and subpar service has drawn the ire of many consumers, including some of the highly successful and well-known IT entrepreneurs, such as e-commerce titans Ma Yun of Alibaba and Li Guoqing of Dangdang. Ma was quoted as saying the poor service was "outrageous". While Li cautioned consumers to remember to terminate their 4G connection before going to sleep, as the cost of overnight connection could be as high as the unwary consumer's home.

China Mobile has denied that it is overcharging for its 4G service, noting particularly that Li was exaggerating. Nevertheless, the charges of China Mobile's various 4G packages are on average two or three times higher than the equivalent packages offered by the carriers in the Hong Kong Special Administrative Region, including those of the China Mobile subsidiary there.

Some analysts have suggested the high prices are because China Mobile needs to recover the costs of building the 4G infrastructure and they predict that when the customer base grows larger, the price will come down.

Such logic sounds unfamiliar to people in Hong Kong. To build critical mass, Hong Kong carriers did exactly the opposite in the initial stages. They offered the service at prices that the market could accept, sweetened with various incentives, such as unlimited access to the Internet, to woo early subscribers. Having quickly built up a large enough customer base, the Hong Kong carriers are no longer offering any incentives although prices have been kept at levels they consider "acceptable" to new customers. That is the predictable and proven strategy to launch a new service or product in a market-oriented environment.

In contrast, the strategy adopted by China Mobile for launching its 4G service on the mainland seems arbitrary and crude. In Hong Kong, such an approach applies only to the utility monopolies, such as electricity and gas.

Under an arrangement that applies to each individual monopoly, its return, at a capped rate, is tied to the capital investment it makes in infrastructure. This means that there is a built-in mechanism allowing the monopoly to raise charges to maintain the rate of return when new investments are made.

Such arrangements have worked well in Hong Kong because the operations of these monopolies, all publicly traded companies, are sufficiently transparent, allowing for close supervision by the government and scrutiny by the public. As a result, rates are set largely through a process of consultation that seeks to balance the interests of shareholders and consumers.

There are obvious lessons China Mobile and other dominant State-owned enterprises should learn from if they want to survive the mainland's market-oriented economic restructuring that is expected to gather momentum in the coming years.