China's telco management shuffle: observers are making the link between the reshuffle and a probe into graft in China's telecoms market

Telecom Asia, Dec, 2004 by Robert Clark

Imagine that the CEOs of GM, Ford and Daimler-Chrysler swapped jobs without any explanation. The anger from investors would be so intense, and the impact on share prices so dire, that you could be sure none of those would hold their positions after a week.

It's a preposterous suggestion, of course. But when China swapped around the chiefs of its three listed telecoms carriers, China Mobile, China Telecom and China Unicom, the normally savvy investor community failed to respond either verbally or with its wallets.

Foreign investors have underwritten the growth of China's telecoms market to the tune of $15 billion.

You would think that in return for this generosity, the least the ministry might do is provide an explanation.

In the absence of one, it is inevitable that observers are making the link between the reshuffle and the launch of a probe into graft in China's telecoms market.

The Beijing Municipal People's Procuratorate has discovered that Lucent China fired four top staff six months ago, and the crack Beijing investigators are carefully reading the 800-page report Lucent filed to the SEC. They were "hopeful" it would provide names and details of corrupt officials, the China Daily reported.

We all know that China's high-growth telecoms sector, where the world's fattest contracts have been handed out year in, year out for the last decade, is ripe for large-scale graft.

In all that time, no senior telecoms official has been busted for corruption. The image of official investigators, after all these years, having to plough through a report filed to an offshore regulator before they can take action seems somehow apt for the whole shambolic and secretive approach to Chinese securities governance.

On the day the story of the graft probe broke, China's official press reported John Thain, the new CEO of the New York Stock Exchange, urging the country to make its corporations more transparent.

Enron, WorldCom, Tyco and Global Crossing et al have taught us that flagrant, gold-plated corruption is hardly unique to emerging markets.

The response of US regulators may not be satisfactory to all. But cases have been made against former execs from those companies. From the work of investigators and the press we know a good deal about the shenanigans that destroyed massive amounts of shareholder wealth and jobs. Congress responded with Sarbanes-Oxley.

None the wiser

Whatever the outcome of the probe, we can be sure that none of those will apply. Whatever the reasons for the decapitation of three of China's largest listed companies, we know investors will be none the wiser.

Turning from investors' blithe acceptance of obtuse Chinese corporate governance to another familiar topic, Australian politicians are squabbling over how much money they can squeeze out of the final stage of Telstra's privatization.

The re-election of the conservative government makes a full sell-off of the partially privatized carrier a certainty. We can only hope. The fate of Telstra has been virtually the only issue in Australian telecoms policy-making for the last decade, and it shows.

The problems arguably began more than a decade ago when the then-government opted for a duopoly model. Then it gave the green light for Telstra's tie-up with Rupert Murdoch, which allowed the already fully-integrated carrier to dominate the cable TV business.

The result is Asia's most highly vertically-integrated telecoms market and a carrier which is a law unto itself, despite the presence of a strong body of anti-trust law.

Telstra's domination of both copper and HFC leaves Australia with 5% penetration of broadband. That comes with speeds of 256k and 512k and with download limits.

Inside Line confesses to being a fan of publicly-owned telecommunications carriers until actually working for one. Public ownership provides for all kinds of ineffectual, grandstanding political oversight, and not necessarily any kind of genuine oversight of its finances or business strategy. Telstra's abysmal offshore record, and its attempts to buy a newspaper or TV chain, bear testament to that.

Public carriers have licenses, and licenses carry conditions. Put the USOs and public interest requirements into those conditions and let the operator continue with its job of running a telecommunications business. telecom

Robert Clark is a former Group Editor of Telecom Asia, and an independent technology journalist and commentator (rclark@telecomasia.net)