As we have recently noted, China Mobile has played a strong hand recently in placing itself back in the driving seat of its country’s mobile broadband progress. With the awarding of the first 4G licences specifying unpaired TDD spectrum ‘ Mobile’s own platform ‘ it has seized back the initiative from its rivals. However, their relatively cosy competitive situation will be disrupted early next year by the arrival of China’s first MVNOs.
The largest cellco was wrongfooted in 3G by the government’s insistence on creating a homegrown mobile technology platform, which saw it having to use the underperforming TD-SCDMA while its smaller rivals, China Unicom and China Telecom, could access a global ecosystem with their well-tried W-CDMA and CDMA2000 technologies. However, it has invested heavily in grasping a 4G headstart with its huge TD-LTE trial networks, and can now switch these on for full commercial purposes. This time, it is Unicom and Telecom which are left with TDD spectrum that does not suit their strategies, and an unspecified period to wait for their preferred FD-LTE airwaves.
China Mobile’s lobbying – and the government’s desire to support a TDD platform in which its own players will lead the global ecosystem and IPR race ‘ have led to all three cellcos being given TD-LTE spectrum first. This will broaden the Chinese base but also robs the two smaller operators of the brief market advantage they had in 3G. China Mobile will leapfrog them in terms of data rates and network efficiencies, and is even almost certain to get an iPhone at last when it goes live with commercial 4G services on December 18, taking another source of competitive edge away from the others.
As expected, China finally awarded the commercial licences this week, sparking a battle between the major OEMs to share the spoils next year. A second phase of investment will follow once FDD spectrum and licences are awarded, but this could take at least another two years, as market leader China Mobile lobbies for unpaired spectrum to be the main basis of Chinese 4G.
While Mobile races to launch, the other two cellcos have run TD-LTE tests, but have more successful 3G networks and are well behind the leader in 4G roll-out. They now face the dilemma of whether to try to catch up in TD-LTE; or focus their mobile broadband strategies on expanding 3G capacity and coverage ‘ there is still plenty of growth left in their relatively young networks, and this would enable them to wait for FD-LTE spectrum, which would be easier for them to build out.
However, the decision will depend on the timing of those licences being issued, and the Ministry of Industry and Information Technology (MIIT) is making no comment on that. Some analysts think they will be issued in about a year’s time, but China Mobile is keen for the date to be delayed so all three operators use TDD spectrum and widen the roaming and ecosystem around its chosen technology.
The ministry said its next priorities will be to approve the first FD-LTE trials, when carriers apply for these, and to examine the viability of a hybrid FDD/TDD model, as already demonstrated by China Mobile’s Hong Kong subsidiary. The FDD-LTE licenses will also be issued ‘when conditions are more mature’, the regulator added.
According to the MIIT, China Telecom is building TD-LE trial networks in 42 cities across the country and is working on addressing interoperability between CDMA and TD-LTE. The operator said it would apply for an FD-LTE licence ‘as soon as was practicable’, while Unicom said in a statement that it would ‘continue to proactively apply for the launch of LTE FDD technology test run and aims to leverage on the 3G network in order to provide users with mobile broadband data services with a higher speed.’
China Mobile is planning to build more than 200,000 TD-LTE base stations in its 130MHz of new spectrum as well as in overlay form on 3G systems. This will be a combination of macro and small cell units, to roll out across the country in the coming two years and to cover 100 cities, and 500m people, by the end of 2014. It will be able to turn on commercial services on existing trial networks now it has the commercial licence. That means it will roll out services in 13 cities this month, including Beijing, Hangzhou, Guangzhou, Shenzhen, Qingdao, Nanjing, Xiamen, Shanghai and Chengdu.
In September, the operator announced the vendors for its first phase of TD-LTE procurement, worth a reported CNY20bn ($3.28bn). Nine vendors are involved – Ericsson, NSN, Shanghai Bell Alcatel-Lucent, and six domestic vendors (Huawei, ZTE, Datang Mobile, FiberHome Technologies, Potevio and New Postcom Equipment Company). Ericsson and ALU have confirmed they have 11% of the total apiece.
Analysts at Jefferies are maintaining their LTE capex forecast for China in 2014 at €12.14bn, according to Bloomberg, with China Mobile accounting for the majority of this in the first half of the year. TD-LTE will account for 30% of China Telecom’s equipment procurement and 20% of Unicom’s, the analysts say in a research note.
China Mobile is also reported to on the cusp of signing an iPhone deal with China Mobile at long last. The two companies have danced around one another for several years, though talks have broken down on several occasions and for a variety of reasons ‘ particularly disagreements over sales quotas, control of the brand and app store, handset subsidies and other issues. Jefferies predicts that 55m LTE handsets will be sold in China next year, 40m of them supporting the TDD flavour.
The MIIT also awarded China Mobile a licence to operate fixed broadband services, which was previously confined to its two competitors.
Meanwhile, the Chinese mobile market will be entirely shaken up next year ‘ not just by the launch of commercial LTE services, but by the country’s first MVNOs. Big brands like Alibaba ‘ ‘China’s Amazon’ ‘ are already looking to dominate the user experience with their apps and operating systems, and now they have the chance to be virtual operators too, pushing their own-branded devices and user interfaces.
This will, for the first time, face the three Chinese carriers with the dilemma that is common to their western counterparts ‘ to boost revenues and the usage of expensive new networks via MVNO deals, or try to exclude new entrants from taking over the consumer mobile experience and relationship?
China Mobile will be the first to support MNVOs, according to local reports, and is currently completing its screening process for potential partners. That would pave the way to the start of operations in early 2014, though it is not clear whether Mobile will immediately let virtual operators onto its new TD-LTE systems, or use them to generate revenue on its unloved TD-SCDMA 3G network. Although Mobile has been open about its desire to migrate from its 3G technology island as quickly as possible, for political reasons it is likely to have to retain TD-SCDMA for several years.
In May, the Ministry of Industry and Information Technology (MIIT) required Chinese infrastructure owners to support MVNOs, and requested detailed plans to partner with at least two privately owned brands by year end. This is part of cautious but important moves by the government to open the telecoms space for wider participation, investment and competition from the private sector, and to encourage innovative services.
By the end of October, the two smaller carriers, China Unicom and China Telecom, had nominated 14 and 16 potential MVNOs respectively, with nine of the applicants thought to be in common. China Mobile has been far more hesitant to comply with the MIIT demands, as it has been the most negative about the impact of MVNOs on its business model. It has been more aggressive than its rivals in creating its own mobile brand ‘ one of the roadblocks in the way of an iPhone deal in the past has been its determination to promote its own user experience over that of handset makers or web players. It has also invested heavily in TD-LTE and wants to ensure the initial returns benefit its own business.
Nonetheless, because of the scale of its network, it may well end up having its plans fast-tracked by the regulator so it becomes the first carrier to support an MVNO, in the first half of 2014.
Among the candidates which approached Unicom and Telecom ‘ and probably Mobile too ‘ online retailers and gadget vendors are prominent, a trend also seen in Japan. Among them are Alibaba, the ecommerce giant which also has its own mobile OS, Aliyun; and retailer Jingdong Mall, as well as electronics retailers Gome and Suning. However, according to reports in the 21st Century Business Herald, the first to go live is likely to be Tencent ‘ one of China’s biggest internet brands, with a wide range of portals, social and shopping apps and many other web services.
The cosy competition between three companies which could largely control the network, the branding and the user experience in the mobile market is certainly about to end.