The last decade has seen a fundamental shift in China’s state-owned telecom industry as nearly all the growth and most of the money has started coming from mobile rather than fixed-line services.
Now, though, this closely guarded sector stands on the brink of a new age – or so we have been led to believe. For fixed-line incumbents China Telecom and China Netcom, as well as mobile operators China Mobile and China Unicom, the future is dominated by dreams of third-generation (3G) networks.
First conceived in 2000 after phone users showed a healthy appetite for receiving updates from the Sydney Olympics by SMS, the idea was to have faster, better services in place for Beijing 2008. Market reports projected that there will be an estimated 40 million 3G subscribers by the end of 2008, and by the end of 2011, about a third of all mobile subscribers in China will have access to the technology.
For fixed-lined operators, 3G represents an opportunity to transition into the high-growth wireless market as demand for their own services flattens out. Mobile operators aren’t looking at anything seismic – 3G is simply a larger piece of an existing market, albeit one with a more lucrative twist.
3G will have the ability to transfer voice and non-voice data simultaneously – e.g. e-mail, instant messaging and downloading information – adding an additional dimension to the currently popular text messaging wireless value-added service (WVAS) and ring-back tones (CRBT).
Progress has been slow but then the stakes are high. There are now 495 million mobile subscribers in China, making it the largest such market in the world. Fixed-line users number 372 million and broadband users 97 million. In the first five months of 2007, the telecom industry ‘s revenues reached US$37.9 billion, up 9.6% year-on-year, according to the Ministry of Information Industry (MII).
China’s 3G transition has been made more complicated by TD-SCDMA, a homegrown rival to established 3G technologies WCDMA and CDMA2000. The idea is that by developing its own standard China will not have to pay royalties to the developed world – nations responsible for the vast majority of telecom technology.
However, problems met in the development of TD-SCDMA – and the issue of its compatibility with rival standards in international roaming services – have repeatedly delayed the roll-out of 3G.
There has also been much speculation about the restructuring of the industry’s four players in the buying, sharing, and merging between networks. In response, the MII recently announced that licenses will not be issued for any 3G standard until restructuring between the telecom giants are complete.
The most rampant speculation is the merger between China Netcom and China Unicom, but these rumors were denied.
In June, China Mobile announced plans to build a new TD-SCDMA network infrastructure in eight major cities across the country, beginning trial tests in October 2007. It signed a US$2.28 billion contract with ZTE, China’s biggest publicly listed telecommunications equipment maker, to supply mobile phone network equipment.
Initially, ZTE or its domestic rival Huawei are expected to provide most of the handsets for the 3G network – China Mobile wants two million for the eight-city launch – but this hasn’t stopped foreign players getting involved.
Siemens and Nokia, Lucent Technologies, Nortel Networks, Ericsson and Motorola have all made alliances with China’s telecom giants.
Although the immediate future of 3G is still unclear and the telecom industry remains one of China’s most tightly regulated, foreign firms are still bullish about capitalizing on the growth of China’s large mobile user base.