Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

A lot of the optimism surrounding China's mixed-ownership reform comes from the prospect of fresh private funds being injected into state-owned enterprises.

In the case of China Unicom (Hong Kong) Ltd. and its controlling shareholder, Shanghai-listed China United Network Communications Ltd., the idea is that such money could be used to help prepare its network to compete in the coming 5G mobile era, as fellow Gadfly Nisha Gopalan wrote last week.

The extra investment would enable Unicom to go toe-to-toe with China Mobile Ltd. and China Telecom Corp. in the race for spectrum, bandwidth and coverage. But as much as telcos hate hearing it, such a battle merely amounts to building more "dumb pipes" through which reams of data will be fed. That becomes a race to the bottom on pricing in the hope of leveraging scale to produce profit.

In the past week, shares of the Hong Kong unit have swung according to news flow on which entity may get these new funds (the Shanghai-traded A shares have been suspended since March 31). The Shanghai company plans to raise at least 30 billion yuan ($4.3 billion) via new shares that may introduce Chinese internet companies as shareholders, Hong Kong's Sing Tao Daily reported Monday.

Unicom's Hong Kong-listed stock has outperformed the Shanghai shares this year.
Source: Bloomberg

Investors playing the long game should concern themselves less with which unit gets the money and focus more on who's providing it.

Baidu Inc., Alibaba Group Holding Ltd. and Tencent Holdings Ltd. are on the wish list and they're the types of companies Unicom needs to turn its dumb pipes into smart networks. Between them, the BAT trio are responsible for much of the data that consumers shove down Unicom's funnel through online video, news, instant messaging and e-commerce.

Yet the potential growth in mobile telecoms, especially 5G, comes not just from a billion Chinese watching online karaoke or slaying virtual dragons. A rising share of traffic won't even be human. Dozens of emerging businesses -- from bike rental and ride-sharing to shopping and deliveries -- require secure, stable mobile connections. In the future, driverless cars, automated factories and connected healthcare services will be even more reliant on this connectivity.

Not Talking
Non-voice services are now the primary source of revenue.
Source: Bloomberg Intelligence
Note: Data services contribute most non-voice revenue.

That's where the BAT triumvirate comes in. The three have shown an uncanny ability to help companies they've invested in slay rivals, with Didi Chuxing's defeat of Uber Technologies Inc. being the most famous example. Their force field is so powerful that startups dream of falling into the orbit of any BAT member, because of the doors they open and a willingness to share their prowess.

Each of them has also been talking up cloud computing, big data and artificial intelligence as the future of its business. In this paradigm, being able to deliver massive quantities of information will be important, but not as crucial as offering reliable services and the back-end technology to connect all the data.

Unicom has the networks -- fixed and mobile -- but it's the internet giants that can really teach it how to offer unique and innovative services that the market will need in coming years. It won't be the size of the network that counts, but what Unicom can do with it.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Unicom's A shares are one of three vehicles state-owned China Unicom Group uses to hold 61.94% of Unicom H.K. The rest is via B.V.I. companies.

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Tim Culpan in Taipei at

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Matthew Brooker at