BEIJING-In the wireless world, China no longer is a forgotten backwater, but is rapidly moving to center stage. According to the new Ministry of Information Industry (MII), the country had a 92-percent growth rate last year, bringing total mobile users to 13 million, and another 50 million subscribers will be added during the next five years. The country is on its way to becoming the world’s largest market.
Today China ranks as the third-largest wireless market, behind the United States and Japan, but the gap is closing fast. Annual subscriber growth over the past decade has averaged more than 150 percent, and still only one in every 100 Chinese owns a handset.
Foreign operators gleefully eye the lucrative Chinese market, but their entry still may be a long way off. Chinese analysts point out that foreign operators will be allowed full access only when China is able to form internationally competitive companies of its own. The government still is drafting a sorely needed telecommunications law.
The country’s two main operators, China Telecom and China United Telecommunications Corp. (China Unicom), now come under the umbrella of the Ministry of Information Industry, established in March after a massive government restructuring. Headed by former Ministry of Posts and Telecommunications veteran Wu Jichuan, the ministry’s stated aim is to avoid duplicating projects and to insulate government functions from corporate management. This could lead to further integration of both networks, but also may weaken competition.
Many foreign telecom operators and suppliers hope the recent government restructuring will remove some red tape and speed up the approval of foreign-funded telecom projects. On the other hand, the relevant ministries now are combined under one umbrella, leading to an even more monopolistic environment.
Price competition between the two operators is practically nonexistent. Although connection fees differ in many provinces, they still are subject to government regulations.
“The fact that there is one Ministry of Information Industry is a positive development,”said Pertti Simovaara, vice president and general manager for Nokia Mobile Phones Greater China. “It will make competition even harder, but may also accelerate the growth of the telecommunications business.”
“The establishment of the new ministry will lead to savings in investment and better utilization of the backbone network,” said Ken Zhang, L.M. Ericsson’s director of technology for mobile telephone systems. “Competition will be in the provision of services, not in the building of the backbone network.”
Dong Fureng, vice chairman of the Financial and Economic Committee of the National People’s Congress (China’s parliament) and a renowned economist explained in the China Daily that such companies as “China Unicom will benefit from the government streamlining, which abolishes ministry-owned companies’ monopoly in the market.”
The MII is supposed to be a macro-control watchdog, formulating policy guidelines and regulations-not involved in the actual running of a telecom enterprise.
China Unicom
Lu Jianguo, vice president of China Unicom, expressed hope that “the new ministry will establish a vigorous climate under which companies are able to compete fairly and rationally.”
“The Ministry of Information Industry has not given any new instructions concerning the management of China Unicom,” added Chen Youde, deputy director of China Unicom’s international department. “The establishment of the ministry, however, will certainly be favorable to the development of China Unicom and of telecommunications in China in general.
“There will be more cooperation than competition between [China Unicom and China Telecom]. Both are state-owned enterprises, so there will not be a life-and-death competition like you see abroad. After the establishment of Unicom, there were some problems with China Telecom, but of late, China Telecom has given us a lot of help. There definitely is improvement. China is a very big market, and we all have to develop.”
Unicom was set up in 1994 to break up the monopoly of China Telecom, but did not succeed very well. It planned to capture one-third of China’s mobile phone market by 2000, but so far only has been able to grab barely 3 percent.
At the end of 1997, Unicom had an installed capacity of 1.24 million mobile phone lines in 80 cities, but only 420,000 subscribers in 30 cities.
Says China Unicom’s Chen Youde: “Today we have 500,000 GSM (Global System for Mobile communications) subscribers in 35 cities-where the networks are operational and interconnected with China Telecom’s network. In those 35 cities, we also offer roaming to our subscribers, for which we partly use our 15 satellite base stations. In other cities, there is no roaming yet.
“By the end of 1998, the number of subscribers should increase to 1 million in 80 cities.”
China Unicom’s local phone network in Tianjin was built at a cost of US$72 million and completed in July, but still is not connected to China Telecom’s local network. Nevertheless, Unicom’s plans are ambitious, including constructing CDMA (Code Division Multiple Access) cellular networks and GSM networks in the Yangtze and Pearl River deltas and in the Bohai Sea area. These networks will be expanded further to cover China’s most populous provinces.
China Telecom
Because of the restructuring, officials at China Telecom declined to be interviewed.
The number of China Telecom’s GSM subscribers surpassed its TACS subscribers in 1997. Investment in expansion of China Telecom’s TACS network has slowed and even stopped altogether in some cities. In 1997, the GSM network covered 304 cities and 1,731 counties. GSM roaming agreements with 22 countries and territories have been implemented.
China Telecom Great Wall
A third operator, China Telecom Great Wall, has been experimenting with CDMA networks in four cities and only recently has begun accepting subscribers.
Supplier competition
As a result of the tremendous growth, China has become a major battleground for foreign manufacturers, with prominent market presences by all the major players. Motorola (China) Electronics in Tianjin is the second-largest foreign-funded enterprise in China, classified by sales in 1996-97, right behind Shanghai Volkswagen. Motorola’s investments totaled more than US$1.2 billion as of year-end 1997.
It isn’t common to hear foreign manufacturers utter any gloomy predictions about the market.
Ericsson’s Zhang explains that “China Telecom planned to add 8 million mobile subscribers this year, but in the first four months (it) already (has) added 1 million per month. The growth will continue as both the connection fee and the prices of handsets keep falling.
“In 1997, China was Ericsson’s second-biggest market, right behind the [United States]. We are absolutely confident that this year China will be our biggest market. During the first four months of 1998, we had sales of US$1 billion.”
Simovaara of Nokia asserted that “the market has been bigger than forecasted. In China, having a mobile phone is no longer considered a luxury. Since everybody is focusing on China, competition is killing, but also motivating.”
Growth does not seem to slow down. “We don’t feel much impact from the Asian financial crisis,” said Simovaara. “I do not see the importance of China diminishing. It is very important to have a strong position here.”
China was Nokia’s sixth-largest market in 1996, moving to the third spot last year, right behind the United States and Great Britain. And the trend seems to be continuing into 1998. The company reported its positive first-quarter results were fueled by sales in China.
Nokia chose to launch its newest phone, the 6110, not in the United States, Europe or Japan, but in China.
Markets and technology
Thirty percent of China’s population of 1.24 billion live in more than 670 cities.
On
a national scale, mobile phone use is still low, but in the coastal cities such as Guangzhou and Fuzhou, the rate goes up to more than 10 percent. Says Simovaara: “There is not just one China. The way of doing business as well as customer needs are different in every province. We are moving more and more inland.” In April, Nokia signed a contract to more than triple the GSM 900 network in the remote inland province of Ningxia.
The biggest provincial operator in the country-with 22 percent of all subscribers-is the Guangdong Mobile Communications Corp. (GMCC), a subsidiary of China Telecom (Hong Kong). In January, Ericsson signed its biggest contract to date, valued at US$369 million, with GMCC.
China Unicom invested US$300 million to expand its network in Guangdong province with equipment from Motorola and Siemens to a capacity of 400,000 lines with 499 base stations. Interconnection with China Telecom’s network was planned for the first half of this year.
To make better use of precious bandwidth, GSM 1800 now is winning ground. “Ericsson has delivered GSM 1800 networks in Guangzhou and Shanghai,” said Ericsson’s Zhang. “Within two months (by the end of June) the dual-band handsets will arrive from Sweden, and the networks will become operational. The SH888 terminal will be manufactured in China in the future.
“Although frequencies are more efficiently used in China than in the [United States], the capacity is still not big enough. GSM 1800 will grow fast in the highly populated cities in China. We believe that after the introduction of GSM 1800, the Chinese operators [won’t] need narrowband CDMA because it does not offer any new services. There will be no problem of capacity. Moreover, with GSM 1800, you just add equipment to the existing base station infrastructure.
“On the other hand, we are involved in research on broadband CDMA.”
Quest for bandwidth
Motorola and Lucent Technologies Inc. still promote narrowband CDMA.
China Great Wall, a joint venture between China Telecom and China Electronics Systems Engineering Co. (CESEC), an offspring of the People’s Liberation Army (PLA), is experimenting with CDMA networks in Beijing, Shanghai, Guang-zhou and Xian.
The Shandong PTA and the Jinan Military Command of the PLA jointly have set up the Shandong Telecom Great Wall Mobile Communication Corp. and plan to build a CDMA cellular network in 17 cities in Shandong Province. The company has not yet chosen an equipment supplier. Motorola, Samsung Electronics Co. Ltd., Lucent and Northern Telecom Ltd. (Nortel) are vying to supply the equipment.
Development centers mushroom
China’s domestic capabilities clearly are improving, but still are lagging far behind foreign manufacturers.
The Chinese actively are pushing opportunities to become involved in the design and development of future-generation mobile phone systems. The government insists that joint ventures set up a development center for new products, and the foreign partner makes a commitment to continue the transfer of technology.
Nokia set up an R&D center, which is fully involved in global development projects and should grow to employ 100 people within two years.
Lucent announced last year it will set up a Bell Labs facility in two Chinese cities.
Qualcomm Inc. announced a joint research project with the Beijing University of Posts and Telecommunications involving its CDMA technology.
Ericsson has a design center in Shanghai to develop next-generation access products. And at the Ericsson Academy, students receive MBA (masters of business administration) training.
According to press reports, a big frustration for China’s telecom planners is that practically all mobile phone systems and handsets either are imported or manufactured by Sino-foreign joint ventures or wholly foreign-owned companies.
Only at the end of last year did Huawei Technology Co. show the first model of a domestically designed and built GSM system.
Great Dragon Telecommunications (GDT), a group of eight large state-owned enterprises, also has developed a GSM mobile switching sub-module for its HJD04 switch based on the GlobalSwitch technology of United States-based General DataComm. The system also supports the GSM 1800 standard.
Datang Mobile Communications Equipment Co. will produce GSM digital switchboards, and the Jiangyin Intelligent Telecommunications Equipment Factory in Jiangsu has developed an analog mobile handset, the YD9100.
