ANALYSIS: Branding - Set-up could hurt China Telecom's branding - China Telecoms' structure is complicating its brand campaign

<p>When you serve over 130 million customers across 240 cities, and </p><p>have more than 500,000 employees in a US$20 billion-plus market, </p><p>how do you keep your brand consistent? The answer has to be: with great </p><p>difficulty. </p><p><BR><BR> </p><p>This is precisely the issue that China Telecom finds itself facing. In </p><p>many ways, it's typical of the challenges which confront China's </p><p>monolithic former state-owned enterprises (SOEs). China Telecom is a </p><p>massive organisation, but one which is split up into smaller operating </p><p>units by both geography and business area. The company would like to </p><p>promote its brand consistently - and indeed has begun to do so, with a </p><p>series of corporate branding ads. </p><p><BR><BR> </p><p>This desire to present a united branding front has been given extra </p><p>piquancy by the company's plans for a US$5-7 billion overseas </p><p>listing late this year or early next, following an initial offering of a </p><p>minority stake in the company in Hong Kong last year. </p><p><BR><BR> </p><p>The problem is the company's structure, and the way its marketing </p><p>budgets operate. The branding ads were created by Grey Beijing, with the </p><p>account controlled by the company's Beijing headquarters. They present </p><p>the company as a modern, high-tech, forward-looking, customer-responsive </p><p>organisation, which is shaking off its history as an inefficient state </p><p>monopoly, and making a difference in people's everyday lives. </p><p><BR><BR> </p><p>But at the same time, the company's regional subsidiaries are operating </p><p>their own marketing departments, appointing their own agencies, running </p><p>their own advertising and - crucially - controlling their own media </p><p>budgets. </p><p><BR><BR> </p><p>The situation has arisen because of China Telecom's history. The company </p><p>is still state-controlled, and was only established as a commercial </p><p>organisation last year -before that it was part of China's Ministry of </p><p>Post and Telecommunications. </p><p><BR><BR> </p><p>To cope with its size, the unwieldy giant was broken down by geography, </p><p>and that meant decentralisation of budgets. A variety of creative and </p><p>media agencies are employed by local corporations, with some buying </p><p>still done by local brokers, and there's no central co-ordination. </p><p><BR><BR> </p><p>"It's the legacy of being a former SOE," says a source close to the </p><p>company. </p><p><BR><BR> </p><p>"There have been almighty fights for media budget. It would make more </p><p>sense to do brand advertising and product promotion centrally, but </p><p>that's just not the way it's done." </p><p><BR><BR> </p><p>The company is being further broken down to encourage competition. There </p><p>is pressure, ahead of its flotation, to copy AT&T and break China </p><p>Telecom up into several companies, something which China's entry into </p><p>the World Trade Organisation will only intensify. In addition, China </p><p>Mobile was spun off in 1999, and China Unicom was set up as a </p><p>competitor, albeit also state-controlled, in 1994. </p><p><BR><BR> </p><p>Josh Li, general manager of Grey Beijing, says that although the </p><p>branding ads his agency has created are changing people's perception of </p><p>the company, China Telecom's head office "hasn't had the opportunity to </p><p>get into the media budgets for product communication". </p><p><BR><BR> </p><p>He adds: "Media involves money, and so there's a lot of fighting for </p><p>power and control over that. The local parts of the company are quite </p><p>independent - they have their own budgets. The headquarters doesn't </p><p>really have full control over media buying." </p><p><BR><BR> </p><p>The problem is a lack of co-ordinated thinking about media - strategic </p><p>planning, in other words. </p><p><BR><BR> </p><p>"The company doesn't have a media strategy," says Li. "It doesn't </p><p>realise that it has to plan its media and co-ordinate it. It's very </p><p>price-sensitive and doesn't realise the value of strategic media </p><p>planning, which is common among local companies in China." </p><p><BR><BR> </p><p>Media budgets are fragmented across China's demerged telecoms industry, </p><p>with China Mobile following the same pattern. </p><p><BR><BR> </p><p>"The advertising is pretty decentralised," says Lau Seng Yee, managing </p><p>director of BBDO China, which has the US$2 million Shanghai </p><p>Mobile account. </p><p><BR><BR> </p><p>"Individual corporations have their own marketing departments, and </p><p>planning and buying are done internally. There are core values, though, </p><p>and those are distributed internally." </p><p><BR><BR> </p><p>Ben Tsang, managing director of Leo Burnett Guangzhou, which has the </p><p>China Broadband account in Guangdong provice, says that the </p><p>fragmentation of media budgets "makes it a little bit difficult for </p><p>agencies". </p><p><BR><BR> </p><p>Tsang adds that brand consistency has not traditionally been a priority: </p><p>"They've not really been organised in their advertising in the past. </p><p>It's been much more product-focused." </p><p><BR><BR> </p><p>The market at stake is a huge one. There are more than 200 million phone </p><p>lines in China, giving the country the second biggest telecoms </p><p>infrastructure in the world. The telecoms industry has spent RMB560 </p><p>million (US$67.7m) on advertising so far this year, and spent </p><p>RMB920m (a whopping US$111.3m) last year. China Telecom's share </p><p>of this is RMB330m (US$39.9m) this year, and RMB310m (US$37.5m) last. </p><p><BR><BR> </p><p>The challenges companies like China Telecom face are typical of those </p><p>confronting all big Chinese companies, particularly those currently or </p><p>formerly owned by the state. They're massive, with lots of divisions, </p><p>and that makes creative and communication consistency difficult - </p><p>especially with fragmentation of media budgets. When media isn't </p><p>particularly highly valued, these challenges multiply. </p><p><BR><BR> </p><p>But then China Telecom, like its peers, is struggling with process </p><p>issues which date back to the time when such things as 4As agencies, </p><p>brand consistency, creative media planning, and even focusing on </p><p>customers, were pretty remote concerns. </p><p><BR><BR> </p>