Company Strategy

China Telecom Europe: From Asia to Europe

Kavit Majithia examines China Telecom Europe's international strategy as the company ventures into the nascent markets of Kazakhstan and Mongolia.

China Telecom set up its European subsidiary in 2006 with the aim of increasing the company’s connection in the Europe, Middle East and Asia regions. Since its creation, China Telecom Europe (CTE) has established three terrestrial cables connecting Asia to Europe. Two cables are based on partnerships in Russia, one through Rostelecom’s Transit Europe Asia (TEA) cable and the other on TTK’s backbone. CTE launched its third cable, Transit-Mongolia, to connect Beijing with two other cables through the country. A fourth cable is due to open in Q4 2010 through Kazakhstan.

The company has plans to build approximately 10 PoPs across Europe, with extended reach to 50 other PoPs, accommodating 20 different carriers.

“Emerging markets like Kazakhstan and Mongolia will see their internet traffic increase very fast,” says Yan Ou, managing director at China Telecom Europe. “In China, traffic increased very fast after 2000, and we now expect the demand for increased international bandwidth in Mongolia and Kazakhstan to be more prominent than ever. In Mongolia we have set up to sell capacity to the wholesale market, but we also intend to co-operate with the Mongolian carriers to deliver internet traffic.”

David James, principal analyst at Ovum believes that building infrastructure in these regions will enable China to increase its own enterprises in these countries. He says: “China is interested in developing mining for materials in emerging markets, and several of these countries have the potential to supply oil, gas and other resources that China needs.”

Ou defines CTE as a communications company that is focussed on capacity solutions. He confirms plans to extend its terrestrial routes from Kazakhstan to Krygyzstan by Q4 2010 and then to extend further to reach Tajikistan by Q1 2011. CTE’s route through Kazakhstan will enable the company to pick up extra traffic through Kurdistan, Uzbekistan and Turkmenistan through a cross-border cable system.

“China is part of the Shanghai Co-operation Organisation (SCO) linking all the central independent states with Russia, outlining China’s commitment to international trade,” says Ou. “SCO is tasked with promoting trade development among these countries and the central independent states. A lot of Chinese, British and UK companies are interested in mining and oil resources and several oil companies are exploring Kazakhstan and central Asia because of its potential.”

“China recently passed Japan to become the world’s second largest economy, and it shares borders with Kazakhstan, Kyrgyzstan and Tajikistan,” says Paris Burstyn, senior analyst at Ovum. “China Telecom’s investments will provide capacity to serve China’s continuing economic growth as it reaps the rewards of its industrial investments in that region to sell to Europe.” However, Burstyn believes the Kazakh region will present CTE with challenges in political and cultural instability.

CTE will set up a representative office in Frankfurt by the end of the year to provide business and connectivity throughout Europe. Ou outlines the benefits of connecting to Germany because of its central position in the continent and the ability to pick up extra traffic throughout Europe. With strong economic and business ties between China and Germany, CTE has a mandatory requirement that its staff speak Mandarin, English and preferably German.

“We will be working with Deutsche Telekom in Germany and we plan to open up connections in both Greece and Turkey, working with OTE and Turk Telekom respectively,” says Ou. “We treat Greece and Turkey as emerging markets because they are both fairly limited in terms of connectivity. For capacity connection, it is possible to connect to India and China’s solutions to link to Turkey through Asia-Pacific.”

As part of the company’s “information silk road”, there has been significant growth through its Dubai office, which opened in 2008. CTE also plans to develop further connectivity in north Africa; two new PoPs will be opened in Nairobi and Cairo, covering east and north Africa respectively.

In the Middle East, CTE is developing initiatives with both Etisalat and Du, but concedes that this has been the hardest market to break into, largely due to the lack of liberalisation in the region.

Ou is credited with much of China Telecom’s international development. His achievements are made more impressive by the fact that the company’s Hong Kong office was not assigned to any international business until 2004. In China, agriculture is a booming market, and the company has nicknamed Ou “Kaihuang”, which means a pioneer for development of agriculture in Chinese. Ou is China Telecom’s pioneer in the field of connectivity.

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