By The Sizemore Letter<\/u><\/p>\n
China made news this week by announcing that it would allow censorship-free access to Facebook<\/b> (<\/span>FB<\/a>)<\/span>, Twitter<\/strong>, and many Western news sites in its Shanghai Free-Trade Zone. Though China is still a long <\/i>way from implementing anything resembling American freedom of speech, the fact that the government is loosening its grip on information at all is noteworthy.<\/p>\n But as interesting as this might be, what really caught my eye were comments that the Chinese government would allow non-Chinese telecom companies to provide internet services<\/a>. Currently, only China Mobile <\/b>(C<\/a>HL), China Telecom <\/b>(<\/span>CHA<\/a>)<\/span> and China Unicom <\/b>(<\/span>CHU<\/a>)<\/span> are authorized.<\/p>\n Whenever the words \u201cChina\u201d and \u201copening to foreign firms\u201d are used in the same sentence, investors’ eyes get big. You know the storyline: There are 1.3 billion potential customers in China. If you only get\u00a0 2% of them, that\u2019s 26 million new customers, or a quarter of\u00a0Verizon\u2019s<\/strong> (<\/span>VZ<\/a>)<\/span> current customer base.<\/p>\n We should keep things in perspective here. China is not opening its telecom market to foreign competition. At this stage, the liberalization is limited to the Shanghai Free Trade Zone.<\/p>\n Still, it does get you to wondering: If China were to fully liberalize its internet service market, who would stand to benefit?<\/p>\n I wouldn\u2019t put AT&T<\/b> (<\/span>T<\/a>)<\/span> or Verizon<\/b>\u00a0at the top of the list. Neither has much of an international presence outside of a few partnerships with local providers.\u00a0 These are very much American companies serving a primarily American market.<\/p>\n What about globe-trotter Vodafone<\/b> (<\/span>VOD<\/a>)<\/span>? Vodafone is the most internationally diversified of the major mobile carriers, and after the Verizon Wireless divesture, they will have the cash on hand to do pretty much anything they want.<\/p>\n However, Vodafone already has a strategic relationship in place with China Mobile; it\u2019s hard to see VOD encroaching on its partner\u2019s turf. Likewise, France\u2019s Orange <\/b>(<\/span>ORAN<\/a>)<\/span> has a strategic partnership in place with China Telecom.<\/p>\n Spain\u2019s Telefonica <\/b>(<\/span>TEF<\/a>)<\/span> is one possibility. After Vodafone, it\u2019s the most internationally diversified mobile carrier in the world. Telefonica has experience investing in China. Until last year, the company was a major shareholder in China Unicom — eventually selling its China Unicom stake as part of its efforts to shrink its balance sheet. Unlike many of its competitors, Telefonica also has experience providing fixed-line telephone and internet service in addition to mobile.<\/p>\n Telefonica hasn\u2019t been making any major expansion moves of late, as the company has instead made paying down its debts a priority. This may be changing, however, as just this month Telefonica\u00a0 struck a deal for control over Telecom Italia <\/b>(<\/span>TI<\/a>)<\/span>.<\/p>\n Will any of this actually pan out? We’ll have to wait and see — at this point, it’s pure speculation. But if any of the major Western telecom companies were to jump into the Chinese market, my bet would be Telefonica.<\/p>\n Charles Lewis Sizemore, CFA, is the editor of the\u00a0Sizemore Investment Letter<\/a>\u00a0and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, he was long CHL and TEF.\u00a0Click here<\/a>\u00a0to learn about his top 5 global investing trends and get your copy of \u201cThe Top 5 Million Dollar Trends of 2013.\u201d \u00a0This article first appeared on InvestorPlace<\/a>.<\/em><\/p>\n This article first appeared on Sizemore Insights as China Opening Its Telecom Market: Who Benefits?<\/a><\/p>\n