China Mobile starts to push 3G strategy & partnerships, good news for Dell ?

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 show the direction it is taking in the medium term. After the on-off discussions with Apple regarding the iPhone, the wireless carrier seems to be pitching heavily into the PC hardware vendors, as well as choosing suppliers to expand its TD-SCDMA network to cover rural mainland China.

China Tech News reports this morning that China Mobile (NYSE : CHL) has selected six PC makers, including Lenovo Group, Founder Technology, Tongfang, Haier, HP, & Dell, as its 3G netbook partners. What is more interesting is the strategy behind this, following Western mobile operators who have been pushing mobile broadband dongles since 2007, China Mobile will offer subsidies to users who buy its 3G netbooks. Consumers will be able to enter  the serial numbers of the device and the numbers of the built-in TD-SCDMA module of the netbook, with their mobile phones to activate the 3G services.

Dell (Nasdaq : DELL) have already announced their first joint hardware offering with CHL, the Inspiron Mini 10. Dell is obviously keen to tap into the huge potential of the Chinese mobile internet market, IDC has forecasted that the market will explode by 276% in 2009 alone. This carries on from existing deals Dell has struck with Vodafone, AT&T, Starhub & Maxis.

“Dell actively listens to its customers to provide highly stylized, personalized products with unparalleled connectivity. China Mobile’s fast mobile broadband 3G service perfectly complements the wireless and entertainment capabilities of the sleek, portable Inspiron Mini 10.” — Michael Yang, vice president & general manager of Greater China Consumer

“China Mobile is China’s only operator solely focusing on mobile communications with the world’s no. 1 network and the largest customer base. We are happy to add Dell’s Inspiron Mini 10 to our growing number of 3G mobile broadband devices, providing travelers and social networkers with easy and convenient wireless Internet access.” -– He Zhili, Marketing Director of CMCC

Now with the Chines propensity to build homegrown standards, TD-SCDMA being a prime example, China Mobile looks as though it is ready to turn its back upon the traditional handset vendors. Rumours abound that it is looking into releasing its own mobile operating system, Open Mobile System (OMS), which is based on Google’s Android, however utilising operator specific variations at all layers. In a final snub to Apple, CHL is also rumoured to be building it’s own app store to support OMS. As Dell has not made made any significant inroads, to date, into the Western mobile markets, China Mobile could provide a much needed distribution channel. There are positives for both parties, Dell is new to the handset game & so would be expected to be flexible in how it develops handsets, China Mobile has a distribution base of more than 470 million subscribers, a very juicy number.

Market research firm Interfax has reported that Lenovo has already been tapped up to partner with China Mobile on an Android based handset :

“We will collaborate with China Mobile to launch an Android phone, and we will cooperate closely over research and development relating to the open source platform,” Wang Yan, a brand manager at Lenovo Mobile, said.

Meanwhile, China Mobile is forging ahead with its network rollouts, AsiaInfo Holdings, Inc. (Nasdaq : ASIA) has announced that it has been selected to provide networking equipment with 11 China Mobile subsidiaries, to support China Mobile’s Phase II TD-SCDMA rollout. The new system will support wireless broadband service, data card service, mobile video and other 3G-related services. In 2007, AsiaInfo provided BOSS software for Phase I of China Mobile’s TD-SCDMA network construction, thus becoming the first vendor to develop billing and customer relationship management software to accommodate China’s 3G rollout.

“Pushing forward the construction and operation of the TD-SCDMA network is one of China Mobile’s key goals for 2009, and our longstanding relationship with the carrier brings us a number of opportunities in the 3G realm,” said Steve Zhang, AsiaInfo’s president and chief executive officer.

Spending on wireless infrastructure equipment in China is expected to rise to $6.2Bn in 2009, up 13.2% from $5.5Bn in 2008. In contrast, global carrier spending on wireless infrastructure gear in 2009 is expected to decline by 3.5%to $39.7Bn, down from $41.1Bn in 2008. It is clear that a lot of companies are banking on 3G in China & China Mobile’s dominance of the sector to see them through to 2010, when the wireless markets will look to expand in resppnse to consumer demand. Dell’s courting of China Mobile could be a big pay day for the computer manufacturer, as traditional routes to market dry up on declining retail spending in Western markets, China could provide a much needed fillip. Personally I am not ready to move on Dell just yet, however, it will be interesting to see what falls out of this relationship & I will be monitoring closely.

China looks to 3G networks to help stimulate economy

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%.