Grant, I must applaud you on your posts. They are quite refreshing in an environment of rumour and innuendo.
However I must clarify a few points contained within this string.
ATC have 2 x DS3's (for the non telco people that is 2 x 45 megabytes per second, quite a large amount) from London to Shanghai via HK. The London-HK route is leased from Singtel. The HK SHG route is leased from China Telecom.
In your posts you have relied most of your logic regarding the accounting questions on the statement “strategic vendors (paying) for the transmission costs”. I have checked and can clarify this. It relates to the two suppliers of the capacity, ie Singtel and CT. They definately have leased the capacity to ATC, so traffic running over the network between ATC points of presence (POP's) is and will be accounted for by ATC.
The statement refers to the positive situation that ATC also carries traffic for the two capacity suppliers (ie CT and SingTel). This results in ATC being a debtor to these carriers (for the capacity) and these carriers being a debtor to ATC (for carrying some of thier traffic in a normal wholesale arrangement). Of course, SingTel and China Telecom would probably just net off with ATC and pay (or be paid) the difference. But this is where your statement “strategic vendors (paying) for the transmission costs” comes from. Hope this sheds some light on the situation.
In regards to China Mobile, your research is impeccable, but unfortunately in the wrong area.
The ATC deal with China Mobile is NOT for prepaid cards. It is for straight voice origination/termination only. Thus they will be picking traffic up from CM that is heading out of China and carrying that to HK or to London and making the (probably quite large) margin. They will be doing this be establishing POP's in Guongzhou and Bejing in addition to that in Shanghai. They along with France Telecom are the only western company that has this opportunity.
What they are doing in prepaid is relatively simple. They are distributing prepaid cards in Shanghai through Shanghai Telecom. Initially they will be standard prepaid calling cards similar to the Telstra 'phoneaway' card. They are designed to provide an alternate for Chinese customers to access international calling services at rates below what they are charged by current providers. They can be used from any phone, landline, payphone, mobile, just like any other prepaid card in Australia or any other country.
There is no credit risk...they pay for the whole card up front. There is no ARPU in the mobile sense. There is no migration to post paid as the last thing you want is a standard retail process in which you have to bill, collect etc.
That is the beauty of cards. They are inexpensive, there is no credit risk, no billing, no collection required, very little infrastructure required (just some toll free numbers) and ATC has a distribution agreement for these through 2000 Shanghai Telecom stores to the 15 million + people in Shanghai.
And why would the Chinese want to use them? Simple, they are cheap, just like all other phone cards around the world.
What ATC is doing is maximising margin preservation. No matter what happens to the wholesale margins in China, this card traffic will be independent of that.
This is because the Chinese carriers will never lower retail prices for consumers to far (it is an important source of revenue, plus they are looking to float China Telecom for the best price), so retail prices for cards will be constant. Thus ATC will be collecting retail prices in Shanghai as people buy the cards, and paying wholesale rates to its interconnected carriers.
Not a bad business....but lets wait and see what the revenue numbers are projected to be...
ATC Price at posting:
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