With the issuing of China’s third generation (3G) telecom licenses earlier this year, the country’s mobile carriers – China Mobile, China Unicom and China Telecom – started to battle for dominance in this massive, untapped market. What makes the competition all the more interesting is that the carriers are using separate 3G technologies – TD-SCDMA, WCDMA, and CDMA 2000. Zhao Houlin, deputy secretary-general of Geneva-based International Telecommunication Union (ITU), believes this unique approach will throw up some unique challenges for the three telecom giants. Zhao, who was with China’s Ministry of Posts and Telecommunications for over a decade before moving on to take up senior positions at the ITU in 1986, spoke with CHINA ECONOMIC REVIEW about 3G technology and the benefits of cooperation between Chinese and foreign carriers.
Q: What are your thoughts on China’s 3G technology?
A: Looking at China’s 3G market you will see it is the only one in the world where all three of the 3G technologies supported by ITU coexist. It is an interesting phenomenon. I hope with the roll-out of the 3G licenses in the Chinese market that these different technologies will each gain a strong market share. Of course people are looking for global technologies, which ideally means one technology, but the reality is that, unfortunately, we’re just not there yet. I hope that from the experiences gained in China we might one day see the three technologies interoperating with one another so that eventually we will be able to move into 4G with a globally accepted solution.
Q: Who stands the best chance of gaining the upper hand in terms of China 3G market share?
A: China Mobile has a very strong subscriber base. However, its TD-SCDMA technology was only developed for the domestic market. Outside of China we don’t see many TD-SCDMA products and I think handset companies have to develop more products with this standard. However, I am very pleased to see that, as far as the technology itself is concerned, TD-SCDMA seems quite good. As the second largest carrier, China Unicom also has a good subscriber base. Its WCDMA 3G standard is widely used outside of China, which means the company has a lot of international support from a technology and product point of view. Finally, China Telecom received a license for CDMA 2000. The company can profit from the advantages of CDMA technology and upgrade from the current 2G technology to 3G very quickly, while developing its subscriber base. In my opinion, the opportunities and challenges are there for all three operators.
Q: What do you make of the variety of 3G handsets available in China?
A: Handsets will become the key element for the success of 3G services in China. If you don’t have enough choices for customers to pick out a handset then it will be difficult for the technology to succeed. For WCDMA technologies, there are a sufficient number of good handsets developed for the foreign market that can be used by China Unicom. China Telecom uses CDMA 2000 technology which also has a wide variety of handsets available, although not to the same extent as WCDMA. But there’s a real challenge for TD-SCDMA because China Mobile can’t expect foreign markets to offer the same choice of handsets. It will have to encourage the market to develop handsets for its service and this will take time.
Q: What are the chances of TD-SCDMA being promoted overseas?
A: I noticed TD-SCDMA was being promoted at a number of ITU events such as Telecom Africa and Telecom Asia held in May and August of last year, as well as ITU Telecom 2009 held in Geneva in October. However, compared with WCDMA and CDMA 2000, TD-SCDMA is in the early stages of promotion. There is still a long way for it to go. But in my opinion, TD-SCDMA would have to venture abroad to secure its future.
Q: As China’s mobile market matures, the operators’ average revenue per user is declining. Will revenues from 3G be able to counterbalance this?
A: I believe that 3G, like any new technology, will face some financial difficulties in its early stages. But they will find a way to run the 3G business in a sustainable way. The advent of many new applications will help 3G to establish its own markets. And there is another area that needs to be factored in to 3G’s future – the countryside. Like 2G and broadband services, the development of urban areas will encourage operators to continue developing faster connections. But there is always a fear of market saturation in urban zones and this makes the potential for growth in rural areas, which are still on GSM and CDMA, very important. In order to increase revenues all three major Chinese telecom operators must develop their 3G services in the countryside.
Q: What do you think of the 3G infrastructure in China?
A: The telecom operators could not set up base stations until they knew what kind of licenses they were going to get. Now they have these licenses, but China is such a large country you can’t expect everything will be done in a couple of months. There is also the possibility of local opposition to having a base station nearby. In most cases, you can’t use existing 2G stations for 3G operations and so finding new locations will not be easy.
Q: What role do foreign telecom companies have to play in China?
A: As far as foreign equipment companies are concerned, they’ve already been there from the early 1980s. For mobile operators, there is already a lot of cooperation now for roaming services – if you don’t have an agreement with foreign operators you can’t offer roaming outside of China, and vice versa. By way of example, Vodafone has an investment in China Mobile and SK Telecom maybe moving from China Unicom perhaps to China Telecom in order to cooperate on CDMA 2000 services.
Q: What benefit does foreign cooperation bring to Chinese telecom companies?
A: Cooperation with foreign operators presents a good opportunity for Chinese carriers to see how the telecom business is run overseas. Management at all three domestic operators have indicated they would like to go beyond China’s borders to improve relationships with foreign partners, but it’s not easy for them to operate abroad. At present, China Mobile has limited operations in Pakistan and China Telecom has limited operations in Europe and America. There’s a cultural difference, difference in language, as well as a difference in the market environment. On the other hand, it is equally difficult for foreign companies to operate here. However, cooperation between the local and foreign operators will develop further both in Chinese markets and in the broader world markets.