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3G good to go with China Mobile
By John Gong |
March 2, 2009, Monday
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Print Edition
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THE long-awaited 3G licenses were finally awarded by the Ministry of Industry and Information Technology (MIIT) in early January.
As expected, China Mobile was awarded a license for the home-grown 3G technology, TD-SCDMA.
The other two carriers, China Telecom received a CDMA2000 3G license, while China Unicom will use WCDMA.
There is no denying that the 3G license in China comes late. This is largely due to the waiting time for the TD-SCDMA technology to mature. WCDMA and CDMA2000 (of course as its name unabashedly implies) are almost decade-old technologies with many carriers around the world already seeing full deployment for many years.
But this time around, TD-SCDMA is a force to be reckoned with, not so much for the technology's sake, but for the company that is behind it in full force.
China Mobile, with 450 million subscribers and 100 billion yuan (US$14.6 billion) annual profit, dwarfs any mobile carrier in the world. So when it says it is dead serious about pushing a new technology, the telecom world usually feels its pulse.
Mobile carriers have a love-and-hate relationship with 3G technologies. They are wonderful technologies, yet they are also awfully expensive.
The spectrum license fees paid by mobile carriers around the world have exceeded US$100 billion, let alone the investment made on infrastructure and handset subsidies.
Yet none of the carriers has made a convincing business case for 3G. China Mobile may finally change all that, viewed from three perspectives.
First, none of the three Chinese carriers pays any spectrum fees.
In the US, the Federal Communications Commission reaped as high as US$3 per pop per MHz in the 3G spectrum auctions. If China Mobile had to pay this amount, that would have been 1.3 billion times US$3 and then times 35 MHz, which is the total spectrum it gets, adding up to almost one trillion yuan!
Second, China Mobile has excellent cash flows to sustain the capital expenditures on base stations, controllers and mobiles switches in 3G. Since TD-SCDMA is an indigenous technology, most the equipment vendors are domestic companies bidding with very competitive prices.
Third, China Mobile has a huge subscriber base. Unlike China Telecom and other carriers, its penetration strategy is converting existing 2G customers to 3G as opposed to signing up new customers.
Its insistence on GSM/TD-SCDMA dual mode handsets is a clever strategy to maintain service quality in making up TD-SCDMA technical problems and network coverage deficiencies.
So far, the network infrastructure side seems to be in deployment at full speed.
However, the handset side is what the domestic vendors see as an embarrassment. The overall handset market in China (mainly the GSM handset market) is dominated by foreign companies, with Nokia, Samsung, Motorola, LG, Sony-Ericsson jointly taking about 70 percent of market share.
TD-SCDMA is supposed to change all that, as most of the TD-SCDMA handset manufacturers so far are domestic companies.
Foreign companies are indeed slow in developing TD-SCDMA handsets - only seven models are on the market so far.
TD-SCDMA is a wonderful technology. But it is never going to be fully indigenous if its handset market structure is going to replicate the same GSM story, where foreign companies steal much of the thunder.
Expenditures on handsets are usually twice as much as on infrastructure equipment. It is time that domestic leaders like Lenovo and Tianyu step up to the challenge.
(The author is an economist based in Beijing. His e-mail: johngong@gmail.com.)
As expected, China Mobile was awarded a license for the home-grown 3G technology, TD-SCDMA.
The other two carriers, China Telecom received a CDMA2000 3G license, while China Unicom will use WCDMA.
There is no denying that the 3G license in China comes late. This is largely due to the waiting time for the TD-SCDMA technology to mature. WCDMA and CDMA2000 (of course as its name unabashedly implies) are almost decade-old technologies with many carriers around the world already seeing full deployment for many years.
But this time around, TD-SCDMA is a force to be reckoned with, not so much for the technology's sake, but for the company that is behind it in full force.
China Mobile, with 450 million subscribers and 100 billion yuan (US$14.6 billion) annual profit, dwarfs any mobile carrier in the world. So when it says it is dead serious about pushing a new technology, the telecom world usually feels its pulse.
Mobile carriers have a love-and-hate relationship with 3G technologies. They are wonderful technologies, yet they are also awfully expensive.
The spectrum license fees paid by mobile carriers around the world have exceeded US$100 billion, let alone the investment made on infrastructure and handset subsidies.
Yet none of the carriers has made a convincing business case for 3G. China Mobile may finally change all that, viewed from three perspectives.
First, none of the three Chinese carriers pays any spectrum fees.
In the US, the Federal Communications Commission reaped as high as US$3 per pop per MHz in the 3G spectrum auctions. If China Mobile had to pay this amount, that would have been 1.3 billion times US$3 and then times 35 MHz, which is the total spectrum it gets, adding up to almost one trillion yuan!
Second, China Mobile has excellent cash flows to sustain the capital expenditures on base stations, controllers and mobiles switches in 3G. Since TD-SCDMA is an indigenous technology, most the equipment vendors are domestic companies bidding with very competitive prices.
Third, China Mobile has a huge subscriber base. Unlike China Telecom and other carriers, its penetration strategy is converting existing 2G customers to 3G as opposed to signing up new customers.
Its insistence on GSM/TD-SCDMA dual mode handsets is a clever strategy to maintain service quality in making up TD-SCDMA technical problems and network coverage deficiencies.
So far, the network infrastructure side seems to be in deployment at full speed.
However, the handset side is what the domestic vendors see as an embarrassment. The overall handset market in China (mainly the GSM handset market) is dominated by foreign companies, with Nokia, Samsung, Motorola, LG, Sony-Ericsson jointly taking about 70 percent of market share.
TD-SCDMA is supposed to change all that, as most of the TD-SCDMA handset manufacturers so far are domestic companies.
Foreign companies are indeed slow in developing TD-SCDMA handsets - only seven models are on the market so far.
TD-SCDMA is a wonderful technology. But it is never going to be fully indigenous if its handset market structure is going to replicate the same GSM story, where foreign companies steal much of the thunder.
Expenditures on handsets are usually twice as much as on infrastructure equipment. It is time that domestic leaders like Lenovo and Tianyu step up to the challenge.
(The author is an economist based in Beijing. His e-mail: johngong@gmail.com.)
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