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Company Brief
China Telecom

by Faulkner Staff

Copyright 2022, Faulkner Information Services.
All Rights Reserved.

Docid: 00017855

Publication Date: 2207

Report Type: VENDOR

Preview

China Telecom is based in Beijing, China, and serves as a top provider of
integrated telco services in addition to operating as a top wireline voice,
broadband services, and CDMA (code division multiple access) wireless services
provider. The company – which has drawn increased regulatory scrutiny and
restrictions in the US due to national security concerns –
focuses on strengthening its 5G and 4G wireless services, as well as development
of emerging technology such as IoT (Internet of Things), cloud-based computing, Big Data, and connected Internet
devices. This company brief takes an extended look at China Telecom’s
operations.

Report Contents:

• Fast Facts
• History
• Key Executives
• Major Products
• Major Competitors
• Recent Activity

Fast Facts

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Name: China Telecom
Headquarters
31 Jinrong Street
Xicheng District
Beijing 100033, China
Phone: +86-10-66428166
Fax: +86-10-66010728
Web: http://www.chinatelecom-h.com/
Type of Vendor: Telecommunications provider.
Service Areas: Primarily China, with global IP backbone
Employees: 281,215 (2019)¹
Founded: 2000

History

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China Telecom was founded in 2002 as part of China’s effort to break up its
nationally-owned telecommunications service provider. While the company remains state-owned
and has focused on wireline voice and Internet, China
Telecom also competes with the other spun-off providers for new customers and
enhanced wireless services.

A subsidiary of the China Telecommunications Group, China Telecom is a top wireline
telecom and broadband services provider, as well as CDMA wireless services
provider, according to the company. China Telecom also operates numerous brands,
among them:

• e surfing – Mobile service brand for converged information
  services.
• e navigator – Customer brand for enterprise services.
• e home – Customer brand specifically for "family customers"
  requiring multiple, personalized telecom and information applications.
• Best Tone – Service brand for integrated information services.

Industry Reform: China Telecom’s Launch (1997 – 2002)

China Telecom was established by the government as the starting point for
China’s reform and restructuring of the country’s telecommunications industry.
In November 1997, President Jiang Zemin announced that China would join the
Information Technology Accord. Under this accord, each WTO member country had to
open its telecommunications service market by the beginning of 2000. China
Telecom was authorized by the State Council and controlled a monopoly over the
Chinese market until the formation of competitors China Unicom and China Mobile,
which were also created by the government to spur competition. China Telecom had
been the monopolistic telephone enterprise of China, directly under the control
of the Chinese government and holding 95 percent market share of China’s telecom services
until it was split up.

In 2002, China Telecom established its service areas,
including Shanghai, Guangdong, Jiangsu, and Zhejiang. The same year, the company
launched a public offering on the Stock
Exchange of Hong Kong Limited and the New York Stock Exchange, with net proceeds
from its IPO of approximately US$1.3 billion.

Expansion and Global Offerings (2003 – 2008)

In its formative years, China Telecom acquired local companies
region-by-region from the original parent state-owned carrier. In 2003,
the company acquired six telecom companies as its wholly-owned
subsidiaries from China Telecommunications
Corporation for RMB46.0 billion, expanding its
service areas to 10 provinces. The company’s global offering of roughly
5.3 billion new
H shares in 2004 brought in net proceeds of about US$1.5 billion.
The next
year, China Telecom acquired 10 additional companies,
expanding its service areas to 20 provinces.

In 2005, China Telecom filed a request with the Chinese regulators to
buy a wireless network belonging to China Unicom. The company then set its
sights oversees, entering Europe’s telecom market via China Telecom Europe in
2006.
The company also activated two network nodes in Europe, located in London and Frankfurt,
to offer communications and networked IT services to Chinese business customers
looking to move into Europe, as well as for European businesses expanding into
the Asian market.

China’s telecom market consolidated further in 2007, as China Telecom acquired China Telecom (HK), China Telecom
(Americas), and China Telecom System Integration from China Telecommunications
Corporation.

In 2008, China Telecom completed its acquisition of rival China Unicom’s CDMA
wireless business, and also absorbed 20 wholly-owned China Telecom subsidiaries.

Going Wireless (2009 – Present)

China Telecom entered the country’s wireless services fray in 2009, when it was awarded a 3G CDMA2000 license from the Chinese
government. In 2011, the company launched the first 3G global roaming cellphone in Beijing in
partnership with HTC. The company also launched the China Telecom Canada subsidiary.
In 2012, China Telecom fully acquired its mobile network from its parent
company. In December 2013, the company purchased its 4G spectrum assets as well
as
permission to launch its high speed TD-LTE mobile network. The 4G network
rollout began in 2014.

Since regaining its foothold in the marketplace, in 2014 China Telecom
acquired 4G wireless spectrum and launched 4G LTE high-speed wireless Internet
networks in urban areas. China Telecom continues to invest heavily in wireless
network and broadband network infrastructure to increase its speeds and reach
more customers.

Costs associated with upgrading its infrastructure are high, which is one
reason China Telecom spun off its wireless telecommunications towers and related
assets to China Tower Corporation Limited in later 2015. Looking ahead, China
Telecom depends heavily on its forays into advanced wireless data services,
broadband Internet, and cloud services and whether growth in these sectors can
balance losses in the wireline sector. The company expects to remain
market-driven and competitive for the foreseeable future, but it concedes an
uncertain regulatory environment.

In October 2019, China Telecom rolled out its 5G service throughout China.

Hijacked Data Traffic? (2018 – Present)

Late in 2018, China Telecom was forced to address accusations that it
"hijacked overseas Internet data traffic." As a result, the services provider
claims to have launched an investigation by a task force of network technicians,
and reported that its team uncovered an erroneous routing configuration by
Nigerian operator MainOne Cable. In an
official
statement, company officials called the media reports as "ungrounded," with
a "lack of factual evidence" and failing to "match with the current status and
technical principles of global Internet operation."

US Sanctions (2019 – Present)

In June 2020, China Telecom was one of five Chinese vendors targeted²
by the US government in a new crackdown of the use of foreign equipment over
allegations of posing a national security threat. According to Reuters,
President Donald Trump’s administration believes that the firms were, in fact,
manipulated by China’s military body, and as such they began facing new sanctions
that prevent US companies from purchasing and using their hardware and
equipment to fulfill government contracts. Other companies named in the hunt
include Huawei Technologies, Hikvision, China Mobile Communications Group, and
Aviation Industry. The source Department of Defense document, Reuters noted,
listed a total of 20 Chinese companies with a US presence that may be potential
risks.

In January 2021, China Telecom, along with other Chinese telecommunications
companies China Mobile Ltd. and China Unicom Hong Kong Ltd., was delisted from the
New York Stock Exchange. The NYSE’s move was the result of President Donald Trump’s
executive order prohibiting American companies and individuals from owning shares in
any of the 31 Chinese companies the US listed as enabling the People’s Liberation Army.
The order stated that the People’s Liberation Army is a threat to the US and is
"increasingly exploiting United States capital" to gain an edge in its
military-industrial complex.

As of March 2022, the US Federal Communications Commission added China Telecom (Americas)
Corp. to its list of communications equipment and service providers deemed threats to US national
security. Also added to the list at the time were Russia’s AO Kaspersky Lab and China Mobile International USA.

Current Strategy

China Telecom’s strategy is to deepen reform with innovation and cooperation
to enhance its corporate value. This aim includes:

Customer-Centric, Market-Oriented Mechanisms:

• Constructing infrastructure for cloud-network integration.
• Sharing API exposure with cloud-as-the-core.
• Establishing strategic tech companies for vertical industries.

Customer-Front Digitalized Service Platform:

• Establishing online sales and marketing service portal covering all
  customers.
• Promoting platform to coordinate all channels.
• Establishing intelligent Big Data support platform for customer
  operation.

High-Quality Development with Multi-Pronged Measures:

• Propelling cloudification.
• Refining intellectual operation.
• Creating premium and secure services.
• Cultivating professional talents.
• Expediting reform.
• Strengthening ecological cooperation.

Key
Executives

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China Telecom’s key executives include:

• Ke Ruiwen – Executive Director, Chairman, and CEO
• Li Zhengmao – Executive Director, President, and COO
• Shao Guanglu – Executive Director
• Liu Guiqing – Executive Director
• Zhu Min – Executive Director, EVP, CFO, and Secretary of the Board

Major Products

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China Telecom offers communications services for both personal and business
customers.

"Key" product / service areas are detailed in Table 1.

Network Description

China Telecom’s global Internet service reaches directly to “everywhere in
the world” on a global IP backbone known as “CN2,” or “China Telecom Next
Generation Carrier Network.” This network provides global telecom operator
customers with differentiated Internet transit services of scalable bandwidth,
connectivity, billing options, and “rich” product features.

Figure 1 shows China Telecom’s CN2 coverage.

Figure 1. China Telecom Coverage Map

Source: China Telecom

China Telecom’s international network backbone consists of both
International Terrestrial Cable System and Submarine Cable System
coverage. The provider also continually expands and upgrades this presence.

China Telecom’s terrestrial network backbone consists of:

• Customer
  Premise Network (CPN) – Comprises
  equipment between the customers and the access network, such as a telephone
  or a LAN.

• Core
  Network – Includes domestic backbone network
  and the metropolitan area network.

• Access
  Network – Composed of a
  series of transport entities; the connection between the core network and CPN.

Network layers include:

• Transport
  Networks – Provide
  transport functions for voice and data signals for the upper service
  networks; can be divided into various path layers and the physical layer.

• Service
  Networks – Include PSTN
  network, non-IP data networks (such as ATM, FR, and DDN), IP network, and
  other service networks.

• Application
  Layer – Includes
  applications, such as Distance Learning, Video Conferencing, File Transfer,
  and Multimedia Services.

Each of these
layers can be divided into more detailed layers. Support networks include
the signaling network, digital synchronous network, and network management
system.

Fiber-to-the-Premises. China Telecom’s broadband network build-out
includes high-speed fiber-to-the-premise broadband services.

Mobile Networks. The company offers 5G and 4G LTE wireless
data services across China.

Major Competitors

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China Telecom competes with other government-owned telecommunications
companies inside China, among them China Mobile, China Unicom, CK Hutchison
Holdings, and PCCW.

• China Mobile:
  https://www.cmi.chinamobile.com/
• China Unicom: http://www.chinaunicom.com/
• CK Hutchison Holdings: http://www.ckh.com.hk/
• PCCW: http://www.pccw.com/

Recent Activity

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In March 2022, the US Federal Communications Commission added a number of overseas technology firms to its list
of communications equipment and service providers deemed threats to US national security. Among the companies cited
were Russia’s AO Kaspersky Lab, China Telecom (Americas) Corp., and China Mobile International USA. FCC Commissioner
Brendan Carr said the new designations "will help secure our networks from threats posed by Chinese and Russian
state-backed entities seeking to engage in espionage and otherwise harm America’s interests." Inclusion on the
"covered list" means money from the FCC’s $8 billion annual Universal Service Fund may not be used to purchase
or maintain products from the companies. The fund supports telecommunications for rural areas, low-income consumers,
and facilities such as schools, libraries and hospitals.³

China Telecom announced it added 44.7 million 5G subscribers in June 2021. Since the
beginning of the year, the firm’s total subscriber base rose 19 million to 362.5 million.

In response to its delisting by the New York Stock Exchange (see above), China Telecom said it would
sell up to 12.09 billion shares publicly on the Shanghai Stock Exchange, according to an exchange
filing. The sale would raise roughly $4.1 billion. The firm said the Shanghai listing would help
the company “broaden sources of funds, enhance capital strengths and improve risk tolerance.”

References

¹ "Number of Employees at China Telecommunications Corporation from
2009 to 2019." Statistica. Accessed July 22, 2020.
² "Exclusive: Trump Administration Says Huawei, Hikvision Backed by
Chinese Military." Reuters. June 25, 2020.
³ David Shepardson and Raphael Satter. "US FCC Adds Russia’s Kaspersky, China Telecom Firms to National Security Threat List." Reuters. May 25, 2022.

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