BEIJING-Tough times lie ahead for equipment suppliers and operators with the establishment of China Mobile expected to slow equipment purchases and with China Unicom still struggling to end its China-China-Foreign contracts and feverishly trying to secure alternative financing.
With China Mobile still in its infancy and China Unicom short of funding, network expansion is likely to slow.
Meanwhile, domestic manufacturers are turning up the heat.
China Mobile
New provincial China Mobile operators are being established one after another, taking over the provincial networks from China Telecom.
On 28 August, it was Beijing’s turn as the Beijing Mobile Communications Co. took over the network of the Beijing Wireless Telecommunications Bureau, which has 1.35 million customers and a switching capacity of 2 million lines.
With 800 base stations, the network covers the city proper and 10 surrounding counties. Dong Huiyi was appointed general manager of Beijing Mobile, which launched one of the first mobile networks in China.
The first analog call was made on the network in April 1988, followed by the first digital call 11 years later in April 1995. During the span of those years, the number of subscribers grew on average 125 percent a year.
The mobile penetration rate in Beijing now stands at 10 percent, 7 percentage points higher than the national average.
Fast expansion
Fifty years have passed and a lot has changed in China since Mao Zedong proudly proclaimed the founding of the People’s Republic on 1 October 1949. But one of the most startling developments has been in the field of telecommunications.
It took China 110 years to connect its first 10 million fixed-line subscribers, but only four years to go from 10 million to 50 million and three years to boost the number past the 100 million mark.
Mobile phone development has likewise leaped from no subscribers in 1987 to more than 36 million today, representing the creation of the world’s largest GSM network. The country also has 63 million pager users.
This year alone China has already signed up 10.91 million new mobile phone customers, bringing the total to 36.19 million. Mobile switching capacity stands at 58.46 million lines.
In the first six months of the year, operating revenue of the mobile business increased 87.3 percent to 66.59 billion yuan (US$8.05 billion), accounting for almost half (47.8 percent) of all telecom revenue.
China Telecom has established roaming agreements for its GSM network with 68 operators in 42 countries.
The Ministry of Information Industry’s (MII’s) objectives for 1999 have been increased from 13 million subscribers to 13.24 million and from a switching capacity of 20 million to 20.14 million lines.
Though telecommunications is traditionally very profitable for the government, the MII now sees its funds for investing in capacity expansion dwindling. Rate cuts for fixed-line phone installation and Internet use in March will reduce its revenue by 8 billion yuan (US$963 million). MII Minister Wu Jichuan predicted that investments in telecommunications will decline by 20 percent this year to 120 billion yuan (US$14.46 billion).
The ongoing restructuring of the telecom operating sector will have a profound impact on infrastructure development, delaying equipment purchases.
China Mobile has already been established, and two more new companies for fixed-line and satellite communications will follow before the end of the year. It is unlikely the new companies will purchase a great deal of new equipment in the coming six months as they gear up their operations.
Continuing CCF troubles
Meanwhile, the MII ordered China Unicom to wind down its 46 CCF contracts by the end of September, but most of its foreign partners refused to accept the company’s offer to pay back investment plus a small amount of interest.
Stuck between a rock and a hard place, China Unicom stopped paying its foreign partners operating revenue as of 1 October.
The move could spark lawsuits and more hard feelings between China Unicom and some of the world’s large telecom operators. And its lack of funding will further impede the rollout of its CDMA network, which it hopes will boost Unicom’s competitiveness against China Mobile.
Third operator
A third telecom operator has been set up, but it currently has no plans to move into the mobile business. China Netcom Corp. (CNC) will focus on Internet Protocol backbone services and international integrated data services for large companies in 15 cities, using US$50 million in government funds.
Foreign vendors take a hit
Foreign handset suppliers are feeling increased competition from local companies and are forced to transfer ever more of their prized technology. Nokia, for example, recently established a mobile phone design center in Beijing.
Internet-enabled mobile phones possibly could further invigorate the market. Many Chinese cannot afford a PC, but could be tempted to surf via wireless.
In an interview in China Daily Business Weekly, published on the occasion of the Fortune Global Forum meeting in Shanghai, China, Nokia Chairman and Chief Executive Officer Jorma Olilla said China will one day have more people accessing the Internet from mobile sources than from fixed lines.
