BEIJING-Already the largest mobile-phone market in the world with more than 190 million subscribers at the end of September, China is gearing up to introduce third generation (3G) services on a trial basis sometime next year. But first, the government needs to make a few 3G decisions, including reserving 3G radio-frequency spectrum and assigning 3G licenses.
Will 3G turn out to be a golden egg for foreign and domestic suppliers and operators? That will be up to cost-conscious Chinese consumers. They are crazy about short message service (SMS), but will they pay more for pictures, video and data on their handsets? Internet connectivity is one of 3G’s advantages, but 87 percent of China’s Web surfers earn less than 2,000 Chinese yuan (US$242) a month, not exactly the wealthiest segment of the population. 3G services may be too expensive for them.
Analysts caution that the Chinese market may not be ready for 3G.
Homegrown TD-SCDMA
The TD-SCDMA alliance in late October was set up in Beijing to help commercialize TD-SCDMA products. TD-SCDMA is China’s homegrown 3G standard co-developed by Datang Telecom Technology and Siemens of Germany. It has been adopted by the International Telecommunication Union (ITU) as an official standard, but adoption outside China seems uncertain. In addition, neither China Mobile nor China Unicom has committed to using TD-SCDMA.
The Chinese government, conscious of its huge market and loath to pay royalties to foreign companies, is aggressively promoting the standard. Lothar Pauly, board member of the Information and Communication Mobile Group of Siemens, told Global Wireless his company would agree to fair and reasonable royalties for its part of the technology. Siemens is also developing W-CDMA network equipment, but adoption of TD-SCDMA technology by Chinese operators would be a big boost to the company. Siemens is investing 50 million euros (US$49 million) in the technology in the current fiscal year, adding to an investment of hundreds of millions of dollars.
But even in China, not everybody is enthusiastic about TD-SCDMA. Engineers at Alcatel Shanghai Bell refused to speak on the record, but whispered in private that TD-SCDMA is not such a good idea. With TD-SCDMA being compatible and complementary to W-CDMA, why not rally behind the latter, they question? The fewer standards the better. China is almost certain to also adopt cdma2000 technology, balancing European and U.S. interests.
Radio frequencies for 3G services are expected to be announced soon, but awarding licenses will be postponed until a new government takes charge in March next year. In the run-up to the 16th Congress of the Chinese Communist Party, which convened on 8 November, Wang Xudong, former Hebei provincial party secretary, has been appointed party secretary of the Ministry of Information Industry (MII) and is expected in March to replace Minister Wu Jichuan, who will retire. Being a telecom outsider, analysts expect him to be slow on advancing radical reform.
China Telecom told a roadshow for the launch of its initial public offering (IPO) it is confident to receive a mobile license “at the appropriate time” and that the initial 3G launch would not cost more than US$2 billion. The northern division of China Telecom, which split off in May to merge with China Netcom and form the China Netcom Group, is also expected to receive a mobile license.
2.5G bridge
China Mobile and China Unicom are aggressively pushing their 2.5-generation (2.5G) offerings. China Unicom got off to a slow start with its CDMA network due to skeptical potential customers and a lack of handsets. After signing contracts to directly buy handsets from manufacturers to sell at subsidized prices, subscriber growth started to pick up. In mid-October, the company announced it had signed up 4 million customers and is confident to reach its 7 million target by year-end. An estimated 1 billion yuan (US$121 million) has already been spent on subsidies, and continuing the promotion may become a serious cash draw.
Rival China Mobile countered with a deal to buy 300,000 handsets from suppliers, including Eastern Communications and NEC, to push its General Packet Radio Service (GPRS) service, but it said it would be a one-time initiative that would not be continued. The company has only signed up around 3 million GPRS subscribers of which only one-third are active users.
China Unicom has already signed contracts to buy 3.2 million handsets from ZTE, SK Teletech, Samsung and LG in anticipation of the launch of its CDMA 1x services in March next year.
Lagging investment
As an anniversary present for 30 years of doing business in China, China Unicom signed a contract worth US$280 million with Nortel Networks in mid-October to upgrade its CDMA network. Motorola, Lucent and Ericsson also signed contracts with a combined value of US$1 billion ahead of Chinese President Jiang Zemin’s U.S. visit. But network infrastructure investments by China’s operators could still be better.
Total investment in fixed and mobile networks declined 36.5 percent in the first half of the year to 49.93 billion yuan (US$6.03 billion) but has picked up since. In the third quarter alone, investment rose 48.9 percent compared with the second quarter to 46.59 billion yuan (US$5.63 billion), following the break-up of fixed-line carrier China Telecom in May. Still investment this year is unlikely to surpass last year’s record 264.8 billion yuan (US$31.99 billion).
Will the operators be prepared to invest heavily in a 3G rollout or rather exploit to the largest extent their investment in 2G?
Nortel Networks President and Chief Executive Officer (CEO) Frank Dunn, on his second visit to China, told the China Daily newspaper: “Every time I come here, I have a feeling of astonishment. … China is so advanced in telecom technology. It is unbelievably successful-no one else did that in such a short time.”
If the past is any clue to the future, China may still offer a few surprises. GW
