In 1995, North America led the world cellular market with 36 million users, followed by Western Europe and the Asia-Pacific region. This is all set to change. According the MTA-EMCI research organisation, the Asia-Pacific cellular subscriber base will lead the field by next year, and the phenomenal growth currently being experienced in China will be the major factor.
Wireless telephony is providing the answer to many of China's telecommunications infrastructure problems. Nationwide, telephone line density is less than four per cent and relying on conventional fixed-line installations to increase penetration would be a costly and lengthy process. Faced with this problem, former government authorities, which have been turned into 'commercial operators, are enthusiastically embracing wireless technologies of every shape or form.
Proof of this can be found in a survey by Euromonitor which states that while conventional telephones grew 12-fold between 1991 and 1995, cellular and paging communication sprinted ahead to increase 20-fold in the same period. By the year 2000, mobile phones will account for 43 per cent of the Chinese telecoms market.
In the first nine months of 1996, the Ministry of Posts and Telecommunications (MPT) recorded 2.3 million new cellular subscribers, bringing the country total to nearly six million. The official prediction is for 18 million Chinese mobile subscribers by 2000, while a report by Pyramid Research estimates that there will be 20 million. Mr John Wang, Pyramid's Asia analyst, points out that the market is opening up to new suppliers. "While the Total Access Communications System (TACS) infrastructure market has been dominated by Motorola and Ericsson," he comments, "the emergence of the Global System for Mobile communications (GSM) digital standard in China is providing other vendors such as Nokia, Siemens, Italtel and Alcatel with an opportunity to enter the market."
The projected rates of growth for cellular will benefit both foreign suppliers and domestic operators. A study by research group CIT estimates that revenues from cellular services are likely to exceed US$10bn by the turn of the century and US$13bn by 2005. This will make China the second largest market in the Asia-Pacific region behind Japan ? and many believe the handing back of Hong Kong this year will further boost growth as a result of it becoming easier to expand networks from Hong Kong into the mainland. China is one of the few cellular markets expected to experience revenue growth beyond 2005 as other markets become mature.
Mr Bob Ollerenshaw, CIT's director of market analysis, says that it is themajor cities and economic zones, especially in Guangdong province, that are driving demand for mobile communications in China. "Guangdong alone has half the population on Japan," he says. "If you take the country as a whole, it represents 45 per cent of the entire Asia-Pacific population. In 10 years time, we expect China to account for almost one third of the region's total cellular revenues."
Suppliers have become inured to the fact that China is not an easy source of income given the complicated and swiftly changing regulatory structure. There are seven ministries responsible for different aspects of the wireless market.
Mr Luca Tassan, director of MTAEMCI, gives a historical overview of the situation: "The Chinese market has been dominated by the MPT which has acted both as the regulator and operator of cellular systems through its local entities ? the Provincial Telecommunications Authorities (PTAs). The wireless bureaux of each provincial or autonomous region's PTA install and operate systems with the approval of the MPT. The PTAs are subject to regulation from the MPT as well as regulation from provincial and local bureaux."
This setup changed dramatically in 1994 with the arrival of China United Telecommunications Corporation (Unicorn), a consortium led by the Ministry of Electronics Industry (MEI) and including other state-owned industries such as the railways authority plus private Chinese investors. The Chinese authorities realise that greater competition is essential to foster the local manufacturing of the latest technology, either through joint ventures or technology transfer.
Unicorn started with a TACS analog cellular system earlier this year and has since decided to move into the digital market with GSM networks in competition with the MPT and its PTA cohorts. At the end of last year, for instance, Unicorn announced a joint venture with Canada's Telecom International Wireless worth an estimated US$500m and which will first involve a GSM network serving the six million inhabitants of Changsha, capital of Hunan province. This will be extended to the cities of Xiangtan and Zhuzhou during this year and eventually offer services to all of the province's 63 million population. Unicom, which is China's second largest telecoms company, is investing increasing amounts of money and teaming up with various overseas companies in its effort to capture 30 per cent of the wireless market over the next five years.
"Due to the complex market structures and regulatory relationships between the central government and local entities, it's difficult to project demand," says Tassan.
However, based on recent experience, even the most optimistic estimates could be surpassed. This is despite the fact that some PTAs seem to have taken matters into their own hands by choosing non-MPT approved standards and thereby jeopardising the capability for roaming between networks in different cities and provinces. More recently, the MPT and other government bodies appear to have been addressing this situation. Having recognised the positive aspects of the ability to roam, they have been imposing their will on local operators and Western suppliers. The Directorate General of Communications insisted archrivals Ericsson and Motorola should roam between their often competing networks for three million subscribers in 26 provinces and major cities.
Apart from the sheer weight of bureaucracy, some Western suppliers may have been put off by the complex nature of the Chinese wireless market. For example, the MPT may decree that GSM be the chosen digital standard for China only for some of the provincial telecoms authorities to select Code Division Multiple Access (CDMA) for its own independent reasons.
The limitations on foreign equity and operational involvement in telecoms networks have had a detrimental impact on foreign involvement in the development of China's communications infrastructure but some telecoms suppliers, most notably Ericsson and Motorola, have found the forging of local links to their advantage.
These links typically involve partnerships with Chinese companies and educational institutions for manufacturing and research and development purposes. Ericsson has been involved in a series of joint ventures while it has secured a US$400m framework agreement for the distribution of digital cellular phones in China this year. Motorola has signed a US$268m joint venture manufacturing deal with the MPT-owned Hangzhou Communications Equipment Factory and the Zhejiang Technical Import and Export Corporation involving the manufacture of Motorola's TACS and GSM infrastructure kit.
Local loop technologies
Cellular mobile is not the only wireless technology contributing to the provision of communications in China.
Wireless in the local loop is emerging as a favourite in achieving the provision of basic services in often remote areas where the conventional wireline option is often too expensive and would take much longer to install. Local loop involves the use of a wireless technology to form the final link between the public network and the domestic or business premises. Technologies currently on offer for this function include cellular standards ? analog and the newer digital GSM and US-driven CDMA and cordless telephony standards including the Digital European Cordless Telephony Standard. Which technology would be most cost-effective and offer the best voice quality would depend, for example, on whether the installation is in a sparsely populated rural area or built-up city.
Shosteck Associates estimates there will be between 172 million and 367 million users of wireless in the local loop by the turn of the century and around a third of them will be in the Asia-Pacific region. "Three forces ? political, economic and technological ? are converging to create the market for wireless local," says Mr Herschel Shosteck. Political forces are leading to a shift from state controlled and monopolistic provision of telecoms to privatised, deregulated and competitive provision. In the early 1990s, long-established political guarantees to state telecoms monopolies began to crumble as governments throughout the Asia Pacific recognised that only through liberalisation of telecoms policies could they attract the investment and expertise needed to build world-class networks." This is exactly the road China is taking.
One aspect of the Chinese cellular market that continues to limit its growth is cost. While the cost of access to wireless technology is falling,
n handsets are still at a premium and seldom discounted as in the West. Consequently, those budding Chinese entrepreneurs who are not able to get a fixed line or afford cellular services, are left with another option, paging.
Paging still prospers
While on the decline in many parts of the world, paging is alive and well in a number of countries in the Asia Pacific and China in particular. MTA-EMCI's World Paging Markets 1996 points out that there were 21 million new paging users in the region while cellular networks only attracted 11 million new subscribers. The report estimates that there will be nearly 73 million paging subscribers in China by 2001, accounting for 46 per cent of the region's total, nearly three times more than today's 24 million. Paging was opened up to competition at a fairly early stage, and there are some 350-400 operators competing for business. However, Motorola looks set to dominate this market having firmly established its new generation digital Flex standard through a successful programme of joint ventures and local manufacturing which have led it to be recognised as the national standard by the MPT. Flex architecture can be upgraded to include voice, but only one-way, so its impact on the cellular market is likely to be limited.
Although there are those who doubt whether Globalstar and the other satcoms mobile systems due to be launched by the end of the century will recruit many users in China (Globalstar reckons it will have 200,000 users by 2002), there is no doubt that new and developing wireless communications technologies will continue to help China achieve its economic potential.