Global Insight Perspective | |
Significance | China Mobile has issued a tender for the construction of a trial network based on China's TD-SCDMA 3G technology in eight cities. |
Implications | With the extended TD-SCDMA trials unlikely to be completed before October this year, the issuance of 3G licences in China could be further pushed back to late this year or early next year. |
Outlook | The local telecoms equipment vendor, ZTE Corp, and Datang Telecom Technology are expected to be the main TD-SCDMA equipment providers in China Mobile's procurement, with each company likely to get one-third of the total contract. Alcatel-Lucent is likely to come out on top of the foreign vendors. |
China Mobile Communications Corp, China's largest mobile operator, has invited bids for contracts worth 20 billion to 30 billion renminbi (US$2.6-3.9 billion) to build a trial network based on the country's home-grown TD-SCDMA 3G standard in eight major cities, including the capital, Beijing, Shanghai, Tianjin, Shenyang, Qinhuangdao, Guangzhou, Shenzhen and Xiamen.
China's second-largest telecoms equipment vendor, ZTE Corp, and Datang Telecom Technology are predicted to be the main TD-SCDMA equipment providers in China Mobile's procurement, said the Beijing-based industry body, TD-SCDMA Forum, in a statement, adding that each company's share of the total contract will be no less than 30%. This would leave foreign vendors to share a maximum of 40% of the orders. Chen Haofei, secretary-general of the TD-SCDMA Forum, told Reuters that he expected the likes of Nokia and Ericsson to be restricted to around 5% of the contract, adding that Alcatel-Lucent was likely to win the lion's share of the one-third of contracts expected to go to foreign vendors.
Outlook and Implications
- Further Delay for 3G Licensing: After years of delay, China has yet to allocate 3G licences. The timetable for issuing 3G licences in mainland China will depend on the outcome of the TD-SCDMA network trials. Beijing is likely to issue licences for all 3G standards, including the U.S.-based CDMA 2000 1X and Europe's W-CDMA, once TD-SCDMA has passed the trials. The country has extended TD-SCDMA network testing to 10 cities from five. However, with the latest round of trials unlikely to be complete before October this year, the issuance of 3G licences could be further pushed back to late this year or early next year. Nevertheless, China Mobile's trial extension will be paving the way for its official 3G launch, as the country aims to offer high-quality broadband internet access for visitors to the 2008 Olympics in Beijing.
- Foreign Vendors Likely to Lose Out: 3G roll-out in China will trigger another round of heavy network investment and upcoming competition between equipment vendors for lucrative deals. When China built its current 2G/2.5G mobile networks, foreign vendors received almost all the contracts. However, this situation is set to change, with local vendors such as ZTE, Datang and Huawei set to win back some market share through TD-SCDMA contracts. In comparison to Western vendors, the Chinese companies are more focused on the product development based on their home-growth 3G standard. ZTE has been named as one of the first vendors to be awarded the country's TD-SCDMA network entry certificate. The TD-SCDMA equipment covered by the certificate, issued by the Ministry of Information Industry (MII), falls into four categories: core network equipment, radio network controller equipment, base equipment and application platform equipment. Datang was also awarded the same certificate, while TD Tech, a joint-venture company set up by Siemens and Huawei Technology in March 2005, is likely to get the certificate soon.
- 3G Demands in China: China ended 2006 with 461.08 million mobile subscribers at the end of 2006, representing a mobile penetration level of 35.3%. The country added a total of 67.6 million mobile phone users during the course of 2006, retaining a robust growth rate. However, as the more-developed market near China's east coast becomes increasingly penetrated, a large proportion of customer additions are now driven by new users in the less-penetrated central and western regions as well as in the rural markets. The increasing proportion of low-income customers, however, is dragging down the operators' average revenue per user (ARPU) levels. The operators have therefore been eyeing 3G as a potential growth driver for ARPU/revenues. 3G will help the current operators refine their existing strategies of customising their mobile content offerings and targeting specific industry segments. An industry survey has shown that there is considerable interest in 3G among Chinese consumers, although the high starting price for 3G handsets may mean that initial uptake is slow (see China: 2 January 2007: Survey Indicates Chinese Interest in 3G).