re: Gartner Dataquest on 3G in China
>> China to Allow More 3G Mobile Competition?
Nick Ingelbrecht
Bertrand Bidaud
Song Sauk-Hun
20 September 2001
China will "definitely" allow more operators to enter its mobile phone market during the transition to 3G technologies, according to newspapers quoting Han Xia, deputy director of China's telecoms regulator, Telecommunications Administrative Bureau of the Ministry of Information Industry (MII). Mr Han also said "Our national mobile communications market is monopolized by two competitors, which is unreasonable and unsuitable to the development of the national mobile communications market."
Information source: Sina.com and South China Morning Post (September 2001)
Gartner Dataquest Analysis
As Hong Kong entered the final stage of an exhausting two-year program to allocate 3G spectrum, it is encouraging to hear telecoms regulators in Beijing setting out some milestones for the implementation of 3G in mainland China.
It is especially interesting that China's telecoms regulator is quoted as using the words "definitely" and "unreasonable and unsuitable." After 52 years of "command economics," history shows that China's decision-making processes generally defy definitive, quick, or clear-cut outcomes and usually entail long periods of consensus-building and bargaining between vested interests. The key questions are: What is the target audience of Mr Han's remarks? What sort of time frame is planned? Finally, what, in practice, will this decision mean?
The first question regarding the target audience provides the logic behind Mr Han's remarks. The government wants to push forward the long-delayed privatization of China Telecom, but cannot proceed until it resolves the company's status as a mobile operator, and the related issue of its restructuring. China Telecom's valuation can easily be augmented by several hundred million dollars if it is awarded a cellular operating license. It provides its personal handyphone system/personal access communications system (PHS/PACS) service to more than 2.5 million customers in 80 of China's smaller cities through an internal MII notice. Given the miserable state of the financial markets both domestically and abroad, China Telecom certainly needs a cellular license to create a compelling IPO story for investors. It is worth noting that China NetCom, which includes President Jiang Zemin's son among its board members, is also pushing hard for a mobile license and as much foreign funding as possible.
With regard to the timeframe of Mr Han's comments, 3G services are unlikely to be widely introduced across China before 2005, bearing in mind that Guangzhou, Shanghai and Beijing will probably introduce "trial" services in 2003. 3G licensing is also being delayed pending the successful development and commercialization of the locally developed time division-synchronous code division multiple access (TD-SCDMA) standard, which has run into successive delays at the field trial stage this year. The government is supporting the domestic manufacturing sector by ensuring TD-SCDMA is sufficiently mature before allowing competing 3G technologies entry to the market, although it is unlikely to force all carriers to implement it.
Under government direction, and as outlined in the "Tenth Five-Year Plan" (2001 to 2005), the two incumbent carriers - China Mobile and China Unicom - are focused on providing low-cost, basic cellular services to consumers. Given that population growth in China exceeds fixed network expansion, this is the only way the government can ever hope to increase teledensity. There is, therefore, a four-year "window" for the award of further 2G licenses. However, China Telecom said 18 months ago that it expected to receive a GSM 1800 license within months — it is still waiting.
In practical terms, we can expect China Telecom to receive a mobile license ahead of its flotation, and Netcom may "sneak in" to secure a second franchise. However, this hardly equates to a "license to print money." Average revenue per unit fell 41 percent in China in 2000 on a blended basis, and will decline at a compound annual growth rate of minus 17.9 percent during 2001 to 2005. Spread across a base of 343.7 million connections in 2005, this means operators will collect, on average, US$7 per month per cellular connection. Even if foreign investors could achieve far greater investment exposure to the China cellular market, would they really be wise to "pay top dollar" to enter a market with such low levels of profitability? <<
- Eric - |
