In the United States, the Telecommunications Act of 1996 freed telephone companies to deliver video programming and cable companies to provide phone service. But even though the 1996 telecom act opened up competition, the United States’ $100 billion telephone industry still had some big advantages over cable when it came to moving into the broadband markets.
In the first quarter of 2001, the U.S. cable industry was focusing on upgrading the connection to fiber-optic cable networks between its head-end and U.S. neighborhoods to fiber-optic cables, which could handle two-way data transmission. It’s an expensive proposition. In the meantime, the former ILECs (i.e. independent local exchange carriers) were looking to reuse the copper wire that they had already installed in almost every U.S. household.
The International Monetary Fund released a report that the U.S. economy would only grow by 1.5 percent, while China’s economy would grow 7.2 percent and continue well into the year 2003. In May, with more than 48,000 broadband networking employees laid off within Northern California’s Silicon Valley by Cisco, Intel, Sun Microsystems, Exodus Communications, 3Com, Nortel, Dell, Compaq, SGI, Microsoft, Winstar, XO Communications, Northpoint and Covad Communications; it had been made clear that China had now become the only key telecom and Internet emerging competitive growth market for the United States.
China’s telecom market
In the first quarter of 2001, China was addressing the issue of broadband access with cable networks and fixed wireless for the “last mile.” China had made great strides in its telecom sector and it has become a key target for foreign firms to assist in the deployment of advanced telecommunication networks.
At closer view, seven major telecom service providers were licensed to offer voice and data services nationwide in China. They were China Telecom, China Mobile, China Unicom, Jitong, Netcom, Railway Communications, and Satellite Communications.
China Telecom provided long-distance, local, data, and other value-added services. China Mobile delivered wireless voice services, data, IP telephone, multimedia, and Internet service provider service. China Unicom provided similar services to China Mobile.
In 2000, the total revenue generated from China’s telecom sectors was US$37.3billion, a 26.4-percent growth from the previous year. The contributors were China Telecom with US$20.7 billion, China Mobile with US$13.5 billion, and China Unicom, representing US$3 billion.
The total number of telephone subscribers in China had reached 215 million and a net increase of 63.17 million from the year 2000. The most significant part of the new business came from the mobile users. There were 85.26 million mobile subscribers in China, with 41.97 million being new subscribers, a 97-percent growth rate compared with 1999.
The fastest-growing market segment was the Internet. There were 9.132 million IP users. Of that universe, more than 6.144 million were new Internet subscribers. Since 1999, according to TGN Associates International, the growth rate of subscribers was 205.4 percent. It was forecasted that 60 million to 80 million people in China would be surfing the Internet by 2002.
Mobile market segments were projected to maintain a strong growth in China for the next five years. The Ministry of Information Industry projected that, by the end of 2005, China would have 280 million mobile users, averaging 26 percent of annual growth. China Mobile is the strongest player in the mobile market, followed closely by China Unicom. Recently, China Mobile started to build up its General Packet Radio Service (GPRS) network infrastructure with equipment from L.M. Ericsson, Nokia Oy, Huaiwei, Siemens AG, Alcatel Althsom, and Motorola Inc.
While the U.S. telecom industry was reporting a slowdown, China’s telecom sector had proved to be strong. During the first quarter of 2001, 25.59 million new subscribers in China were offered telephone service, averaging 280,000 each day. As of the end of March, the number of subscribers totaled 255 million-with a breakdown of 155 million fixed-line users and 100 million mobile users.
TGN Associates International had viewed a sharp increase in China’s telecom infrastructure investments. During the first three months of 2001, US$1.65 billion was spent on infrastructure, an increase of 107.2 percent from the same period of last year.
The vendor line-up
Until recent years, China’s telecom market’s core equipment has been supplied mainly by foreign vendors-including Motorola, Nortel, Ericsson, Nokia, Siemens, Alcatel, and Lucent Technologies Inc. Chinese local firms like Huawei, Zhongxin, Datang are emerging in the market as very competitive players. While the strategy of large equipment manufacturers were to gain a leadership position in China, smaller domestic and international vendors such as Eagle Information Technology Group of Tangshan City are also being encouraged to be part of a China’s dynamic and competitive market driven economy.
Factors shaping China’s telecom sector
The PRC’s regulatory policies were and would remain a critical factor in China’s telecom industry and markets on both a national and regional basis. Favorable local government treatment will change some of the telecom landscape in China. In exchange for the investments, some local governments are promising tax elimination, reduction or even opening entire regional markets to some enterprises. No foreign investment has ever been allowed in the China Telecom service sector until C. Michael Armstrong, President of AT&T Corp., obtained 25- percent ownership of Shanghai Xingtian Communications in December. This was a very important indication that China is seriously pursuing membership in the World Trade Organization.
Only a few years ago, China Telecom was the dominant market leader. Competition now has become a business driver for China’s telecom industry and is reshaping the market. The major operators were in fierce competition building out their own networks through out China. Chinese vendors were spending heavily on research and development, product, sales and marketing. Upon China becoming a member of the WTO, the local Chinese telecom operators and equipment vendors fear the much lower entry barrier for foreign competition will break their “rice bowl;” therefore, establishing a strong alliance with a foreign company with a leading technology has become the latest fashion in the telecom industry.
Telecom incubators and hi-tech parks are creating more simple start-up environments for entrepreneurs in China’s telecom sector. Almost every major city in China has an incubator or park. Besides the support from local government, venture capitalists back up these incubators and parks. In 2002, China will have a hi-tech stock market, similar to America’s NASDAQ. However, the Chinese government will wait to see how the NASDAQ recovers from the current high-tech stock slump. Surprisingly, venture-capital funding has become the preferred method of investing in the Chinese telecom industry.
Broadband-the last mile
The “last mile” war does exist, but has been invisible to most of American companies because it involves a lot of local activities. In some middle to large cities, real-estate developers clearly understand the importance of the last-mile property for large telecom operators. With the majority of urban Chinese living in apartment buildings, those real-estate developers were controlling a large broadband subscriber base with the existing installed copper wires in apartment buildings. In some of new residential complexes, unshielded twisted pair cable (UTPC) had reached every household; and not the traditional copper twisted pair. High-priced acquisitions by some service operators to buy last-mile properties had taken place. However, other operators had taken a “wait and see” approach, hoping that developers won’t be thinking about end-to-end “smart housing,” and in the end, the
service operator can buy the last mile at a bargain price.
The latest development in the last-mile war had become extremely critical to China’s telecom operators. The real-estate developers extended their invitations for two major operators to have their extension from the local loop to be installed near the same customer premises equipment. The end user will become the ultimate quality of service beneficiary. If the quality of service falters, the subscriber can choose one provider today and then switch to another service provider by simply plugging the phone into the optional wall jack.
Future network developments in China
Third-generation development for China’s wireless mobile market will be deployed by 2002.
Broadband access will be provided by hybrid network systems including fiber-optic cable modems and fixed wireless.
IPs will be cheaper and easier to deploy in China’s telecom market, but asychronous transfer mode technology will play a part as well in broadband access. However, PC usage must be increased to a critical mass by 2003.
Chinese will become the most used Internet language by 2005. If a quarter of 500 million telephone subscribers will use the Internet, service provisioning will become a key requirement for the satisfaction of China’s subscribers.
Conclusion
Nortel, the world’s No. 1 supplier of fiber-optic equipment to the world and to China, had made a recent strong statement with the pending retirement of John Roth, chief executive officer of Nortel, and its DSL division, Nortel Networks Broadband Access, (formerly Promatory) as it relates to xDSL. Namely, Nortel’s realization that 20th century xDSL technology will never replace the speed of access and reliability of 21st century fiber-optic network sciences. With the economic conditions and the complications in the global capital markets, China has become the key leverage point for the Bush administration to work in a cooperative manner to allow American firms to be the key players in China’s vast broadband access market. Putting politics aside, it is like Alvin Toffler said, “Without knowledge exchanged, no wealth can be created” for the U.S. and China’s telecom Sectors.
Richard T. “Theo” Kusiolek is chairman and president of TransGlobalNet Inc., which offers professional services and wireless infrastructure/strategic planning.
