Global Insight Perspective | |
Significance | China has issued 3G licences, as its large-scale telecoms industry restructuring has nearly completed. |
Implications | The move could result in investments of some US$41 billion on 3G deployment in 2009 and 2010, opening up huge business opportunities for 3G network equipment and handsets. |
Outlook | The deployment of 3G will enable the Chinese operators to offer more advanced mobile data services and generate fresh revenue streams. In the short term however, heavy network investment requirement, high marketing costs and 3G handset subsidies, will drag down their profitability. |
China Mobile, which controls about 70% of the country's mobile subscribers, was granted a 3G licence to operate on China's home-developed 3G technology TD-SCDMA. China Unicom was issued a licence to offer 3G services based on the W-CDMA technology, while China Telecom received a licence to operate on CDMA 2000 1X EV-DO. The licences were granted after China's state council approved the licensing last week.
Outlook and Implications
- Heavy 3G Investments: The licensing will allow the Chinese operators to migrate to the next-generation mobile networks, a move which could result in investments of some US$41 billion on 3G deployment in 2009 and 2010, of which US$29 billion could be spent this year, according to an earlier statement by Minister of Industry and Information Technology Li Yizhong. The development is undoubtedly great news for telecoms equipment vendors, opening up huge business opportunities for 3G network equipment and handsets. The likes of Ericsson, Nokia Siemens Networks, and Alcatel Lucent will all win some 3G network deals, having established strong partnerships with the Chinese telcos. The local equipment vendors, such as Huawei and ZTE, will particularly fare well in the TD-SCDMA segment.
- Technology Differences: The adoption of TD-SCDMA will be a competitive disadvantage for China Mobile, as the home-developed 3G technology has only gone through test trials and is less mature than the Western 3G technologies to be deployed by its rivals. Nevertheless, China Mobile has started promoting its 3G services, under the "G3" brand and has been running commercial trials of TD-SCDMA services in 10 cities, including Beijing, since April last year. A disappointing initial customer uptake however, prompted the operator to cut tariffs of the services. According to Wang Jianzhou, president of China Mobile, subscribers to China Mobile's TD-SCDMA trial services totalled 337,000 at the end of November last year. The operator plans to expand its TD-SCDMA services to 28 additional cities by June this year.
- Competition Landscape: Facing increased competition from China Unicom and China Telecom, China Mobile will inevitably lose some market share in the long term. The task of rolling out TD-SCDMA and its limited presence in the fast-growing broadband segment are China Mobile's main weaknesses. However, in the short to medium term, the operator's leadership in the mobile market will remain solid, as China Unicom and China Telecom have yet to significantly expand their network coverage to compete more effectively with China Mobile on a nationwide basis. Based on its extensive network coverage, China Mobile will continue to see success in expanding into the massive rural markets (where a large bulk of the country's potential new mobile users reside).
- Impact on Operator Profitability: China had 633.84 million mobile subscribers at the end of November last year, a mobile-penetration level at about 47.3%. Mobile penetration rates in the urban areas are much higher, where operators will primarily focus at the initial stage of their 3G development. Operators will develop services such as internet browsing, video conferencing, gaming, financial services, and mobile TV etc. Offering advanced mobile data services will help operators generate fresh revenue streams and improve average revenue per user (ARPU) levels in the long term. In the short term however, heavy network investment requirements, high marketing costs, and 3G handset subsidies, will have a negative impact on their profitability. Domestic economic slowdown could also weaken consumer spending to some extent, while rising competition is likely to trigger tariff cuts by operators.
- Opportunities for Foreign Players: China has kept the opportunities for deploying 3G services solely for its three domestic telcos. IHS Global Insight does not expect China to allow foreign players to operate directly in the telecoms sector anytime soon, but foreign companies can enter the market through investing in local telecom service providers. Currently, foreign investments in basic telecom service providers are capped at 49%, while foreign ownerships in value-added telecom service providers are limited to 50%. In practice, any major foreign investments in the basic telecom service providers are still subject to government approval. A number of leading foreign telcos have made a foray into the Chinese market. Vodafone has a 3.3% stake in China Mobile, while Telefónica and SK Telecom holds 4.21% and 3.79% of China Unicom (the merged entity of Unicom and Netcom) respectively.