re: A Good Hard Look at China Mobile Wireless & the QUALCOMM Opportunity
These two articles out of Asia clipped below are informative, and reasonably objective, IMO.
Some highlights.
* China now has 100 million mobile phone subscribers, more than any other country except the United States. Is China going to be the first country to become more mobile than fixed? Is 3G close at hand for China or a long way off?
China Unicom selected Lucent Technologies Inc., Motorola Inc., Nortel Networks Corp., Samsung Electronics Co., Telefon AB L.M. Ericsson and five Chinese manufacturers as their partners to deploy an $8.5 billion CDMA system for 50 million users throughout the country.
* Qualcomm Inc., which developed the CDMA technology, stands to earn tens of millions of dollars in royalties on CDMA equipment and handset sales and possibly hundreds of millions if handset sales grow and China Unicom follows through with its plans for the network.
* China Unicom is (also) expanding its GSM capacity to support another 200 million users, extending the coverage of its digital and IP networks to over 300 cities.
* China Mobile, the larger of China's two mobile telecoms ... will concentrate on expanding its GSM services and implementing GPRS (General Packet Radio Services) and 3G (third generation) services. It plans to introduce GPRS services next month.
I need to point out one questionable comment in the first article (and clipped above) which states:
"China Unicom is expanding its GSM capacity to support another 200 million users"
I am wondering about the validity of the statement. It does not jive with what I thought to be the case.
China Unicom currently has about 23% market share in the GSM dominated China market. They have recently stated that they aim to have 100 million mobile subscribers by 2005, 40 million of them on the new CDMA network about to be constructed, which means that they plan to have 60 million subs on their GSM net. This represents an increase of about 45 million GSM subs in the same time frame that 40 million CDMA subs are projected to be added. Recently Unicom vice president Li Zhengmao told Reuters that "We think that, currently, the GSM network will reach its capacity of about 60 million subscribers in two to three years time,".
Darned if I know where the capacity for 200 million GSM subscribers is coming from, in what otherwise seems to be a very well written article, but perhaps the article meant to refer to a China Mobile expansion rather than Unicom? That would make more sense relative to published reports.
>> China's Mobile Tipping Point
David James
May 21 2001
The Feature
What a difference 20 years makes in China - now that the government has discovered the telecom growth hormone in Chinese medicine.
Twenty years ago, China had some 260 million fewer people, and its market economy reforms had just begun. The country's one telephone company, China Telecom, had only about seven million customers, the majority being businesses, not homes. Today there is a new China, now the world's third largest economy, and the differences between old and new are most striking in its telecommunications sector.
Gaining Mobility
Five major carriers and many lesser service providers are now serving some 145 million fixed line customers and 100 million mobile customers. Apart from mere numbers, China has one of the fastest growing telecom sectors in the world in terms of usage, services and infrastructure.
According to China's Ministry of Information Industry (MII), the country's telecom sector will grow at an average rate of at least 20 percent per annum over the next five years, and the total number of telephone users will reach 500 million, a penetration rate of 40 percent of this huge country. Currently, the penetration rate for all of China is 7.7 percent. In Beijing it is 27.7 percent and in Shanghai 24.5 percent.
Mobile communications, with 40 percent of all telephone subscribers, is the area of greatest telecom growth in China. While overall telecom revenues in 2000 increased an impressive 25 percent over the previous year, the revenues of China's two mobile carriers, China Mobile and China Unicom, increased by 31 percent and 58 percent respectively. According to Hanh Tu, vice president and general manager of service provider operations, Cisco Systems (China), the mobile market is growing at about 1.5 million per month, and will reach 300 million subscribers by 2005.
China's mobile usage is well past the tipping point. Kaili Kan, dean of the School of Business Management, Beijing University of Posts & Telecommunications, and former senior deputy director of the Economic & Technological Development Research Center of China's MII, predicts that the number of mobile subscribers will exceed the number of fixed subscribers well before 2005.
Chinese Medicine And The Brothers Chen
The telecom growth hormone in Chinese medicine is IP (Internet Protocol) telephony. In China, this has had a lot to do with two brothers named Chen who ran a small computer shop in the Fujian Province.
In the mid 1990s, the Chens and other computer shops and Internet service providers discovered how to provide domestic long distance and international IP calls to the public over the country's telephone network backbone. By 1998 these small firms were hugely successful, taking more and more traffic and revenue away from China Telecom, which was the official domestic and international long distance monopoly. They charged a fraction of what China Telecom charged. Customers loved it.
China's MII and China Telecom resisted and blocked IP telephony operations at every opportunity. In March 1999, a local subsidiary of China Telecom confiscated the Chens' computers and IP equipment and sued them in court. China Telecom won at the trial level, but the Chens appealed and the decision was overturned.
The court observed that there was no law or regulation against the practice. Then, in a stunning reversal of policy, the government decided to fully authorize IP telephony as a new value-added service rather than a part of the long distance market. In that way China avoided spending years, as the United States did when AT&T was a long distance monopoly, debating whether to open the long distance market to competition.
In late 1999 the MII granted trial IP telephony licenses to three major carriers, China Telecom, China Unicom and Jitong Corporation. China Netcom and China Mobile were later granted licenses as well. The trials were all successful, and the licenses were soon made final.
The Chinese people have been flocking to IP services ever since, many buying mobile phones and prepaid calling cards, because they are less expensive than traditional circuit switched services. As a result, and because the business is profitable for the carriers, there are now strong motivations for the rapid expansion of China's packet switching infrastructure, especially for mobile services.
China Mobile, with a 75 percent market share of the mobile market, now provides IP telephony services to 262 cities in China, and China Unicom, with the remaining 25 percent market share, provides IP services to 293 cities. "I expect that China will make the transition from circuit switching to packet switching faster than any other country," says Kan.
And rates continue to drop. China Mobile lowered its rates to foreign countries up to 50 percent last month. Calls to the United States, Canada, Japan, Korea and Australia are now about $.29 per minute. Domestic long distance calls remain at about $.05 per minute.
Marching Toward 3G
Strong demand for mobile services is driving development of new mobile technologies in China and a swift build out of infrastructure. Of China's 100 million mobile subscribers, more than 80 million are GSM (Global System for Mobile communications) users. The remainder are CDMA (Code Division Multiple Access) and analog users.
China Mobile, the larger of China's two mobile telecoms, has announced that it will soon terminate its analog services, which currently have only 3.25 million subscribers, and will concentrate on expanding its GSM services and implementing GPRS (General Packet Radio Services) and 3G (third generation) services. It plans to introduce GPRS services next month.
China Unicom is also on the move. Last month it selected Lucent Technologies Inc., Motorola Inc., Nortel Networks Corp., Samsung Electronics Co., Telefon AB L.M. Ericsson and five Chinese manufacturers as their partners to deploy an $8.5 billion CDMA system for 50 million users throughout the country. The foreign vendors are participating in the deployment via local joint ventures with the Chinese partners.
Qualcomm Inc., which developed the CDMA technology, stands to earn tens of millions of dollars in royalties on CDMA equipment and handset sales and possibly hundreds of millions if handset sales grow and China Unicom follows through with its plans for the network.
In addition, China Unicom is expanding its GSM capacity to support another 200 million users, extending the coverage of its digital and IP networks to over 300 cities. Currently, China Unicom has 550,000 CDMA users on small-scale networks in Beijing, Shanghai, Tianjin, Xian and Guangzhou.
According to Peter Lovelock of Madeforchina, a telecoms and Internet consultancy in Beijing, the success of foreign companies in winning contracts for China Unicom's CDMA deployment indicates that foreign investment and technology transfer continue to be important factors in China's mobile development.
"It also demonstrates that there are still significant opportunities for foreign involvement in this sector," Lovelock says. Lovelock heads the Insight Division of Madeforchina and is also deputy director of the Telecommunications Research Project at the University of Hong Kong.
China's fastest growing mobile communications service, says Lovelock, is Mobile OICQ - to be known in China as QQ - a short message service (SMS) that in some provinces accounts for 400,000 messages per day. The service, provided through inter-linkages of mobile operators' GSM, SMS and WAP (Wireless Application Protocol) systems, enables mobile phone users to exchange short messages while online with other users. Rough statistics show that at least three million messages are exchanged through Mobile OICQ each day in China. The total volume this year is forecast to be over ten billion messages.
3G or not 3G
Despite strong mobile growth and demand, China's 3G strategies and commitment seem tentative. According to Kan, the government is still considering which 3G system or systems it will adopt. "The government and operators do not see the 3G market coming soon in China. Thus, China is most likely to take a wait and see attitude," he says. The decision will not be made before 2002, according to the MII.
One reason for the government's delay in adopting a 3G system might be its hope that a proprietary Chinese system will emerge. The Chinese Academy of Telecommunications Technology, with help from Siemens of Germany, has developed and patented a 3G technology for China called TD-SCDMA (for Time Division-Synchronous Code Division Multiple Access). The system was tested last month in Beijing, but the trials were widely deemed unsuccessful. China's two mobile operators are provisionally planning to adopt versions of CDMA, CDMAOne for China Mobile and CDMA2000 for China Unicom.
Meanwhile, according to Lovelock, Japan has proposed to China that the two countries jointly develop a new low-cost Internet technology for 3G mobile phones that will enable users to send and receive dynamic pictures smoothly.
For Japan, the main purpose of cooperating with China on this project is to establish an international standard for 3G mobile communications. According to the Japan Economic News, the participants would include Japanese mobile phone operators NTT DoCoMo and KDDI and mobile phone manufacturers Sony, NEC and Fujitsu.
"Given China's success with the International Telecommunication Union in having its 3G technology standardized, Japan obviously hopes that its cooperation with China will gain it a voice in the standardization process," says Lovelock. When 3G comes to China, it will be big, claims David Williams, director of technology investment banking in Merrill Lynch's Corporate and Institutional Client Group in Palo Alto, California. "There will be immense opportunities for investors as well as Chinese and foreign companies," he says.
"Once technology issues are resolved and the market starts to move, 3G will be a platform shift with a new playing field. Legacy companies will find it hard to compete in this market owing to a more bureaucratic mentality and ties to older technologies."
Taking Their Medicine
The important thing about Chinese medicine is that most of the ingredients are natural. In economic terms, nothing is more natural than the laws of supply and demand. The huge demand for mobile communications in China suggests that the Chinese mobile Internet is just around the corner.
David James is president of Business Strategies International, a San Francisco-based consulting and venture-development firm specializing in Asia-Pacific business opportunities. <<
also ...
>> 3G Ignites Hopes of Telecoms: Report
Asiaport Daily News
May 21 2001
China's telecoms industry can't afford to miss the opportunity to develop the 3G telecommunications or it will take another decade to catch up to more advanced nations, warned speakers at a 3G Forum held recently.
China has become the largest mobile telecoms market and owns the most far-reaching network for mobile communications (GSM), said Yang Yigang, vice-president of Chinese Academy of Telecoms Technology (CATT).
However, foreign telecoms companies are the real winners in the Chinese market, he said.
More than 90 per cent of the China's 100 million mobile phone users are using foreign branded mobile phones, which earn almost all of the 100 billion yuan (US$12 billion) market.
Yang said that's because China had no patents in the first and second generations of mobile technology. Domestic firms must pay high patent fees or import most of the equipment.
"But in the 3G age, China has got bargaining power as we have raised our own patent-owned technology standard," Yang said.
The telecom industry is still in the second generation, which is represented by digital voice transportation. But given the 50 per cent annual growth rate of new subscribers and increasing demand for mobile Internet, 3G will soon replace 2G as the major player in the market.
There are presently three technology standards for 3G telecoms: WCDMA, raised by European and Japanese telecoms companies, CDMA2000, raised by US firms, and TD-SCDMA, raised by China's Datang Telecom.
Which technology standard China adopts will mean huge market opportunities for related companies.
"China will not decide which standard to adopt before 2002," said Wu Jichuan, minister of the information industry.
More than 400 billion yuan (US$48 billion) has been spent to import mobile equipments since 1995, when China started to develop mobile telecoms. Domestic companies have spent more than 10 billion yuan (US$1.2 billion) for patents, Yang said.
Yet in the 3G age, domestic patent-owned TD-SCDMA would save domestic companies great sums of money, said Yang.
TD-SCDMA provides phone and Internet service but is considered an immature technology compared with the other proposed standards by foreign telecoms operators.
Datang Telecom, a subsidiary of CATT, together with German-based Siemens, bet their future on TD-SCDMA and spent billions in the research and development of the technology.
The three technology standards have advantages to different segments.
WCDMA, raised by European companies, which also raised GSM used by China's 100 million mobile phone users today, could provide the most efficient network switch cost from the present GSM to WCDMA.
In Europe, a total of 70 new WCDMA networks will be launched in the near future. Early lab trials have shown that the technology is advanced.
CDMA2000 is developed on the base of narrow band CDMA, which was recently adopted by China Unicom. Unicom said its CDMA network would soon have 40 million users. Transfer from the narrow band CDMA network to CDMA2000 is the most efficient way for Unicom.
TD-SCDMA is the only telecoms standard ever created by a Chinese company. The government is showing support for it.
From a patriotic point of view, the technology should be adopted by the home market.
"If TD-SCDMA is adopted, not only Datang, but the country's telecoms equipment vendors will also get a boost," Yang said.
China Mobile, the country's dominant mobile telecoms operator, said it would choose its 3G standard based on one that has the most advanced technology and the lowest costs.
China Mobile researcher Huang Yuhong said the company supported the development of TD-SCDMA and is member of the TD-SCDMA forum.
Some experts noted that patriotism is not the key to making such a significant business decision. Only the most efficient technology standard could win the Chinese market, said Robert Mao, president of Nortel China. <<
- Eric - |
