China Telecom not only spinning off businesses, also incubating startups

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The incubator operated by China Telecom, one of the Big Three state-owned telecom operators, accepted its second patch of 31 teams in mid-November. Different from the first ones, this time 11 teams aren’t employees, but from outside the company.

To encourage employees to start up internet businesses, the internal startup program was launched in March this year, with 200mn Yuan as initiation capital. The required duration is two years. The company promises to keep their positions till then.

In May, e-surfing Technology Investment Ltm. was established. It’s a ‘professional incubation + mentors + angel investment model”, according to Niu Gang, vice GM of the investment entity.(source in Chinese)

The first patch, all are employees, graduated 14 teams in the end of October, with three successfully having formed companies. Niu Gang said that more from the outside would be accepted for the next patches.

Entrepreneurs at the Shanghai-based incubator have access to resources and infrastructures China Telecom has as a carrier.

Wang Xiaochu, chairman of China Telecom, expects to  one or two companies with hundreds of billions in market cap in five to six years (source in Chinese).

State-owned spin-offs embracing private funding

China Telecom started spinning off its eight mobile internet businesses, under e-surfing brand, from its video service in March 2011. One year later, the spinoff raised 102mn Yuan from Tinzen Investment at a valuation of 1.9 bn Yuan. In 2011, Mr. Wang, indicated there needed a change in the company’s business model, “a turn to mobile internet”.

Not only are the spin-offs allowed to receive external private investments, also third parties are allowed to acquire controlling stake in anyone of them. Management buyout is also allowed. Well-performed ones will go public independently. Mr. Wang doesn’t expect all of them to be outstanding, saying he’d be satisfied if four of the eight could survive (source in Chinese).

The gaming business and mobile reading service went independent in August and November of this year, respectively. The rest five, covering digi-musicappsanimation, internet of things, collaborate telecommunication, will go in the same direction.

China Telecom started establishing the eight e-surfing units in 2009 at eight provincial business units. Actually China Mobile was the first that came up with all the mobile content services, made a whole lot of money from ringtone music and is still the leading power in mobile reading. All the Chinese carriers acknowledge that highly-profitable voice call era has gone and increasing smart phone users have no reason to still like the 2G mobile content. They know that data sales and content consumption are the future revenue drivers.

Ten years ago I was a China Mobile user for it offers the best 2G coverage; later I switched to China Unicom for better 3G services. China Telecom was just a choice for land line back then. In the past years more and more people I know would choose China Telecom for fair fees and 3G coverage.

What China Telecom has done now are something it’s frenemies, China Mobile and China Unicom, are not likely to do. Actually we couldn’t imagine any state-owned Chinese company to do so even five years ago. No matter wherever the China Telecom actions will lead it, it’s such a good thing to see a state-owned giant to reform and embrace startup culture and the market  – at least looks like so.