Big Debt Claims First Victim of Virtual Network Operator Program

(Beijing) — A privately owned mobile service reseller with 164 million yuan ($24 million) in unpaid bills may soon need to put its business on hold, becoming the first victim in a Beijing pilot program to create more competition in the telecoms services sector.

Sharing Mobile was one of the first of around 40 companies that began receiving virtual network operator (VNO) licenses three years ago, as part of Beijing’s plan to break the monopoly held on the market by China’s big three state-run carriers. Unlike those traditional carriers that run their own networks, VNOs own little or no networking assets, but simply lease capacity from others and market their service under their own brand names.

Sharing Mobile Chairman Jiang Zhixiang told Caixin his company currently owes 130 million yuan collectively to China’s three main carriers, China Mobile, China Unicom and China Telecom, which are all leasing out capacity under the program. Among those, Unicom is owed the most, between 80 million yuan and 90 million yuan, he said.

Jiang added that his company also owes money to some of its card suppliers and downstream partners, as well as back-wages to some of its employees, with collective debt totaling 164 million yuan.

Sharing Mobile’s website was still operating normally on Wednesday, though there was no prominent place to sign up for new accounts. But if the company does end up closing, it would become the first highly publicized case of failure for the more than three dozen licensees in the 3-year-old program.

“For the moment, I can only try as hard as possible to communicate with the big carriers, and beg them not to turn off accounts held by our subscribers,” Jiang said. “At the same time, I need to think of a way to solve our cash problems.”

The three big mobile carriers had no comment on the situation.

On Jan. 26, officials from China’s telecoms regulator met with Share Mobile and requested it stop accepting new subscribers and explain the situation to existing ones. The company had tried to carve out a niche by focusing on communities centered on schools, enterprises and the broader public. But it quickly burned through cash in its efforts to sign up new customers through the use of subsidies, a common practice in China’s competitive telecoms services sector.

Jiang said the company currently has more than 6 million users in more than 100 cities.

Most of China’s VNOs are believed to be losing money, as they also spend aggressively to build up subscriber bases by offering free services and other promotions. But the losses are gradually narrowing as those promotions expire and operators get economies of scale.

The field of players includes many smaller firms, but also major companies backed by the likes of e-commerce giants Alibaba Group Holding Ltd and JD.com. The telecoms regulator said the country’s total number of VNO subscribers reached 43 million at the end of last year.

Contact reporter Yang Ge (geyang@caixin.com)