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

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

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