Alibaba to expand in telecom sector

A sign of Alibaba Group is seen at CES (Consumer Electronics Show) Asia 2016 in Shanghai, May 12, 2016. [Photo/Agencies]

Chinese e-commerce giant Alibaba Group Holding Ltd is gearing up for expansion in the telecom sector, as it aims to meet the communication demand of millions of small and medium-sized enterprises across China.

The Hangzhou-based company, which has emerged as one of China's two biggest corporations by tapping into the online shopping boom, is stepping up its investment in the telecom sector, amid market speculation that it will be an investor in China Unicom.

China Unicom, formally known as China United Network Communications Group Co, is the country's second-largest telecom carrier by subscribers. It is pushing forward a mixed ownership reform, which aims to revitalize its business by attracting private backers.

Yu Pengwu, general manager of Ali Telecom, a department of Alibaba's cloud computing unit, said the country's three telecom carriers are playing a very active role in serving State-owned enterprises and governments.

"But millions of SMEs are under-served, whose demand for tailor-made communication services represents almost a 500-billion-yuan ($74.5 billion) market. That is what Alibaba is interested in," Yu said, adding it is not a competitor but complements telecom carriers' services.

The company obtained a license to conduct trial operations of virtual network operator services in 2013. Virtual network operators are resellers of network services from telecom suppliers that do not own the telecom infrastructure. They often offer more diversified services at lower costs than telecom carriers, in the hope of complementing their businesses.

Yu said in an interview with financial news outlet Jiemain that the company's virtual network operator business was profitable last year and its telecom services are also deeply intertwined with its sprawling ecosystem of e-commerce, cloud computing, internet finance and other businesses.

For instance, sellers on its popular online shopping platforms can now attract consumers by promising free mobile data traffic packages.

Fu Liang, an independent telecom expert, said cloud computing will be a major area of cooperation between Alibaba and China Unicom if the former invests money in the latter.

"Investing in China Unicom will give Alibaba privileged access to its core information infrastructure resources, such as servers and network, which can make its cloud computing service more flexible and responsive," Fu said.

According to him, tech companies also bank on telecom carriers' services to connect different internet centers, which will increase China Unicom's appeal to Alibaba.

The logic seems to be proven by Alibaba's reported investment in Chinese telecommunications gear maker ZTE Corp. Bloomberg reported last month that Alibaba is closing in on a deal to acquire ZTE's software subsidiary.

The deal, which is expected to cost 2 billion yuan to 3 billion yuan for ZTEsoft Technology Co, can help strengthen Alibaba's global internet computing business, as it can benefit from ZTEsoft's global client portfolio and relationships with wireless carriers from Europe and Africa, analysts said.

Both Alibaba and ZTE declined to comment, but Fu said if the ZTE deal goes through, the chances of Alibaba investing in China Unicom will be even higher.

Xiang Ligang, a telecom expert and CEO of telecom industry website Cctime, said telecom services will also be a key area of cooperation between the two.

"Alibaba excels in attracting consumers with flexible marketing and retailing strategies. Its innovative prowess will help rejuvenate China Unicom's businesses," Xiang said.

Alibaba said it sold 240,000 SIM cards in a three-day telecom festival on Tmall, one of its two major online shopping platforms, which help pushed the total transactions of telecom services to 2 billion yuan, up almost 20 percent year-on-year.

Alibaba is already partnering with China Unicom in low-cost data traffic package services, which have attracted more than 3 million users, Wang Xiaochu, chairman of China Unicom, said at a news conference in May.