China looks to 3G networks to help stimulate economy

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After repeated delays, China is set to award 3G licenses by beginning of 2009. China’s Minister of Industry and Information Technology (MIIT) Li Yizhong announced on December 12 that 3G network licenses will be issued by the beginning of next year and the country’s three restructured telcos are expected to invest CNY 200 billion (US$29 billion) on network upgrades to support the rollout. This is the culmination of more than 10 years development of the Chinese 3G standard TD-SCDMA & this years general restructuring of the domestic telecoms market in both fixed & mobile sectors.

The three main players in the Chinese mobile sector, China Mobile (NYSE – CHL), China Telecom (NYSE – CHA) & China Unicom (NYSE – CHU) are being awarded licences based in a Byzantine effort to keep control, whilst at the same time hedging bets on the success of particular technologies.

Beijing’s move comes as the industry completes a restructuring that the government says is intended to create “healthy competition”. China Mobile dominates the industry with a market share of more than 70 per cent. As part of the restructuring, China Mobile is taking over China Tietong, a niche player, while China Unicom is merging with China Netcom, a leading fixed-line company. China Telecom is taking over those mobile operations from Unicom that use the CDMA standard dominant in the US, while Unicom is to concentrate on the European GSM standard. The introduction of 3G is expected to spark heated competition as China Unicom and China Telecom seek to catch up with China Mobile.

As expected, China Mobile, the market leader, will receive a licence for TD-SCDMA, the country’s homegrown 3G standard. China Unicom, the second-largest player, is to receive a licence for W-CDMA, the European standard. China Telecom,  the incumbent fixed-line operator but a newcomer in mobile services, will be given a licence for CDMA 2000, the US standard. Previously, it was expected that China would issue the 3G license in the second quarter of 2009 or even later. However, to meet operators demand for the 3G licenses and to motivate China’s economy and stimulate domestic demand, the government has pulled forward the license allocation.

Apart from the time needed for restructuring of the telecom industry, it is seen by many that the delay in 3G awards is to give breathing space needed in national efforts to further develop and rollout its home-grown technology. As the largest global wireless market, with currently 630 million mobile users and 250 million Internet users, China has wanted to wean itself off western technology.

Expenditure on 3G networks is seen by the Chinese government as one of the measures to offset the slowing economic growth. The rewards in terms of intellectual property that can accrue from the success of China’s TD-SCDMA will be massive and much attention will be focused on how it stands to the rigours of full commercial operation.

 “Huawei and ZTE China’s biggest telecom hardware suppliers, stand to benefit the most from 3G investments while non-Chinese vendors face a shrinking share,” said Duncan Clark, chairman of telecoms consultancy China BDA

That said, Alcatel Lucent (NYSE – ALU) recently announced a deal with China Mobile, Motorola (NYSE – MOT) has announced a vendor contract with China Telecom & Nokia (NYSE – NOK) via its Nokia Siemens Networks JV, has already signed more than $500M of contracts this year, in addition, Nokia is committed to providing TD-SCDMA compatible handsets to China Mobile, which is a particularly lucrative piece of business.

In my view, TD-SCDMA is unproven & after tests earlier this year, handset returns were running at 12%, compared with a GSM industry standard of 2%. The fact that the two smaller players are using well developed network technology, which have a plethora of applications & services already running, means that China will get what it neeeds, equilibrium in the mobile sector. My thoughts run to shorting CHL into the first quarter & running long on both CHU & CHA.

Am looking forward to revisiting this in a few months time.

UPDATE 1 (19/12/08) : China TMT reports on the network vendors here  Chinese telecom equipment suppliers to outdo overseas companies in 3G era

As virgin territory for 3G suppliers, competition in China will be fierce. Foreign equipment suppliers are eagerly awaiting China Unicom’s WCDMA tender, in which they expect a larger market share than in China Telecom and China Mobile’s past tenders. For example, it has been reported that Ericsson is aiming to capture at least 30 percent of China Unicom’s WCDMA equipment tender, while Nokia Siemens has also set its sights high. Some industry analysts have told Interfax that price wars will be far more brutal than in China Mobile’s TD-SCDMA tenders, as the government will take a more hands-off approach

UPDATE 2 (29/12/08) : China Telecom CDMA contracts as reported by China Tech News

China Telecom’s CDMA tender result for 342 Chinese cities came out in mid-October 2008 and statistics at that time showed ZTE and Huawei gained 25% share of the tender, Alcatel-Lucent gained 19%, Motorola gained 16%, Nortel gained 14% and Samsung gained 2%.

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13 responses to this post.

  1. [...] now we have news that apart from pulling forward the long anticipated 3G rollout, as reported on MyStockVoice in an earlier post, China is beginning to stockpile oil & gas via imports whilst building an [...]

  2. [...] Following on from the 3G licence distribution that we reported on MyStockVoice late last year, China looks to 3G market to stimulate economy, market leader China Mobile has unveiled a number of new partnerships & device releases that [...]

  3. [...] on from the 3G licence distribution that we reported on MyStockVoice late last year, China looks to 3G market to stimulate economy, market leader China Mobile has unveiled a number of new partnerships & device releases that [...]

  4. [...] on from the 3G licence distribution that we reported on MyStockVoice late last year, China looks to 3G market to stimulate economy, market leader China Mobile has unveiled a number of new partnerships and device releases that show [...]

  5. [...] beeline, mobifone by Paul Harper Given the hype surrounding the recent 3G license awards in China and India, it was perhaps easy to overlook the award of 3G licenses in Vietnam this April. Vietnam, [...]

  6. [...] from outside the US. With recent advances in 3G licensing in Asia, notably Vietnam, India & China, Nokia (NYSE : NOK) looks well set to come out as the real winner from the mobile broadband [...]

  7. [...] Posts China looks to 3G networks to help stimulate economyBrazil remains bullish on oil as Petrobras sets new production record in MarchMiners to benefit from [...]

  8. [...] we reported earlier this year, China looks to 3G networks to help stimulate economy, each of the operators is working on a different standard, China Telecom will work on the US [...]

  9. [...] as we have news that apart from pulling forward the long anticipated 3G rollout, as reported on MyStockVoice in an earlier post, China is beginning to stockpile oil & gas via imports whilst building an [...]

  10. [...] we reported earlier this year, China looks to 3G networks to help stimulate economy, each of the operators is working on a different standard, China Telecom will work on the US [...]

  11. [...] on from the 3G licence distribution that we reported on MyStockVoice late last year, China looks to 3G market to stimulate economy, market leader China Mobile has unveiled a number of new partnerships & device releases that [...]

  12. [...] we reported earlier this year, China looks to 3G networks to help stimulate economy, each of the operators is working on a different standard, China Telecom will work on the US [...]

  13. China has to start develop 3G after getting license in 2009

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