The head of China Telecom's small but fast-growing business in Europe, based on its competitive terrestrial routes across Russia, says he is looking for opportunities to invest in IT services to support its work with enterprise customers. Ou Yan talks to Alan Burkitt-Gray
Ou Yan, China Telecom: land route between Europe and Asia
is faster and more reliable, but more expensive at the moment
Latency from London to Beijing via China Telecom's routes across Russia is
just 180 milliseconds, says Ou Yan, compared with the sea route's 240 ms
China Telecom is looking for investment opportunities in Europe, mainly IT companies that it can use to enhance its service to business customers and to expand its overall operations.
So far the company’s fast-growing European offshoot is some way from making any bids, but its managing director Ou Yan says it is “prospecting” for potential acquisitions. “We have started discussions.”
But, in his interview with Global Telecoms Business, he was reluctant to say whether his Beijing head office has allocated him a budget. “It is too early to say that.”
China Telecom Europe is the smallest of three international arms of the giant home-grown Chinese company, the others being the Hong Kong unit, its venture in the Asia Pacific, and China Telecom Americas, based in Washington DC but about to set up in Latin America.
All are small compared with the home company in mainland China, with 181 million fixed-line customers and 74 million mobile customers, all on the CDMA network that China Telecom took over from China Unicom in 2008. The mobile business is growing strongly, at about 3 million a month, though the fixed market in China is falling — as it is in many parts of the world. In June 2010 China Telecom lost 890,000 fixed lines.
As with many large operators, China Telecom’s international operations were started to serve home enterprise customers in foreign markets.
It also serves non-Chinese customers wanting service into the Asia Pacific region. Here, China Telecom has a significant advantage over many: terrestrial connections between Asia and Europe across the vast Russian landmass. These are more expensive but much faster than the routine connections by sea, along the Mediterranean, through the Red Sea, and across the Indian Ocean.
“Latency from London to Beijing is 180 milliseconds,” says Ou, who set up the European operation in 2006. That compares with 240 milliseconds by the submarine route.
“Carriers need fast and reliable solutions,” says Ou. Reliability comes from the absence of subsea earthquakes, which have caused a number of disruptions over the past few years, or from ships dragging anchors, which have caused even more.
The Hengchun earthquake in December 2006 just off the south coast of Taiwan interrupted five submarine cables. “During that time our trans-Russian network was unaffected. Tier one carriers asked us to provide connections between London and Hong Kong within five days. We took three says,” smiles Ou. “It creates confidence among our partners. Since then our product has been accepted.”
China Telecom uses a number of land routes across Russia, working with a number of operators, including Rostelecom and TTK as cable systems providers and Sistema and Megafon among strategic partners. The company has another connection via Mongolia and is planning a further link across Kazakhstan.
“The price is a little bit higher than for submarine cable but it is more reliable and there is a short roundtrip latency,” says Ou. “Our customers are not the mass market. Most are carriers that are not price sensitive. We still have the pressures of the market — we are not the unique carrier on the route. But others cannot provide a total solution.”
China Telecom’s traffic across Russia is now running at 50 gigabits a second. “We started with one STM 4 circuit in 2006,” says Ou. That’s 155 megabits — so the traffic has grown 300 times.
Once all four routes “we can reduce the cost and get more market share”, he says.
About 50% of the company’s revenue comes from wholesale and 50% from enterprise customers, he says, though in sheer numbers enterprise represents 80% of the customers. Of them, Chinese companies are about half that total.
Coverage in the Europe, Middle East and Africa market includes Johannesburg in South Africa and Dubai in the Gulf, as well as a number of European cities — Paris, Frankfurt, London, Moscow, Stockholm and Helsinki: the last two are explained by a contract with a large Scandinavian telecoms manufacturer to provide connections to its Chinese factories. “They have recently upgraded their system,” he notes.
But it’s a two-way market, as “a lot of Chinese enterprises are going out and investing in the Middle East and Africa”. The POP in Dubai serves north Africa “and we plan to set up an office in Johannesburg — it’s a communications hub for many African companies.”
Equipment in Russia and Mongolia is provided by China Telecom’s telecoms partners. “In our POPs we use Huawei and Cisco,” says Ou.
In addition, the group’s Hong Kong sister company has six or seven points of presence in the Asia Pacific market outside mainland China. “We have very strong coverage in the region — and China too of course.”
China Telecom’s move around the world started in 2000 when Ou was in the Beijing headquarters — responsible for heading the company’s international expansion strategy. It started in the US, initially to reduce the cost of linking into the internet. “With our own presence in the US we could use our own facilities on submarine cable systems.”
After creating its Hong Kong operation China Telecom set up its European office. “I was in the headquarters and I told them to do this,” says Ou. “We have a very good relationship with headquarters. We have told them we need to expand business in EMEA. They know us very well. We follow our customers.” Hence the two POPs in Scandinavia.
So how does he see China Telecom developing internationally? “We need to expand our product line, providing competitive solutions and applications such as conferencing. But also disaster recovery — very important for the finance sector. That’s one reason we have two POPs in London, one in Docklands and one in the west.”
Data centres “are not a huge priority for us” though, he says. “They are a huge consumer of electricity and right now we are looking at low-carbon operations and environmental protection.”
But the company is looking at ways of providing “total solutions to our end customers”, including IT solutions: “not only software but applications such as video conferencing, network security and internal networking. We have to move up the value chain to provide more ICT solutions to add value.”
How does China Telecom plan to do this in the EMEA region? “We need more local staff to work with local customers,” says Ou. They need to understand the local culture. “Chinese enterprises know us well but for locals it’s a different story.”
It seems that what Ou really aspires to do is compete not just for business with large companies but at a smaller scale too. “It is a big challenge,” he accepts. “How does the customer know us and understand us?”
The company is planning to start off by holding a series of seminars in the EMEA region, in cities such as London and Frankfurt, for potential enterprise customers “to show them what we’re doing here, to show our products. And for existing customers to show them how they use China Telecom.”
It is, he emphasises, mid-size customers that China Telecom will be aiming for in the region.
Meanwhile China Telecom Americas is also expanding, from its initial base in Virginia, near Washington DC, to Canada and Brazil this year.
For Ou it’s a continuing challenge. “I have driven the international business for a long time,” he says. “Driving business in Europe is very important. It’s not just pricing but how to serve your customers. The service culture is very important. Service quality is delivered by people, so all people — not just the front line staff but the back office — must have the same loyalty to the customers.”
The European business is still small, but growing fast — from £2.2 million in 2007 to a probably £11 million this year. “Every year we’ve shown an increase of more than 50%.”
And he’s clearly ambitious for growth to continue. That’s why he is looking for ways to expand. “My focus is on the existing company,” he says. But he’s looking around for opportunities to grow faster. GTB
Further reading from Global Telecoms Business:
China Telecom and reorganisation of Chinese telecoms
China Telecom Americas
China Telecom main site http://en.chinatelecom.com.cn/
China Telecom Europe http://www.chinatelecomeurope.com/
China Telecom Americas http://www.chinatelecomusa.com/