Wireless in China Today "From Little Red Book to Little Red Phone"

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Wireless in China Today "From Little Red Book to
Little Red Phone"

• Stephen Hope
• Orange Labs

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Contents

• The Chinese Telecom Service Market
• 3G What, How Much and When?
• The 2008 Olympics
• Technology Neutrality
• Mobile TV
• WiMax
• Impact Assessment
• Conclusion

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China Telecom Service Market
China TieTong - from 2004 formerly
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China Mobile Market (As at Mar 2007 source
MII. Figures in brackets 2004 figures at first
mission)
????
China
Unicom
????
32 (37)
China
Mobile
109(83)m GSM Subs 38(25)m CDMA Subs
68 (63)
316(188)m GSM Subs

• There are also 91(50)m PHS Subscribers as Fixed
  Line Wireless extensions (China Telecom and
  China Netcom

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A Changing but still Growing Market

• China Mobile had 45 of total telecom service
  revenue (85Bn) in 2006.
• Q1 07 19.5 Revenue Growth for China Mobile vs
  4.2 China Unicom
• Growing mobile-fixed substitution impacting on
  China Telecom and China Netcom the Fixed
  Operators
• Revenue Growth 2.2 and 0.2 respectively
• Currently 91(50 in 2004)m PHS Subscriber base
  operated as Fixed Line Wireless extensions by
  China Telecom and China Netcom
• predicted to shrink to 3m by 2011 as Mobile
  Operators have aggressively implemented CPP
  (Calling Party Pays).
• Capital Investment reduced in preparation for
  Broadband and new 3G licences
• The previous model of both Called and Calling
  Party Pays the norm in 2004 was the key
  reason for the growth of the PHS market.

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A Changing but still Growing Market

• The number of CDMA subscribers remained static in
  2006
• China Unicom likely to spin off its CDMA assets
  and sell them to China Telecom in 2008
• Net Subscriber additions still at 5 to 6 million
  per month - 80 China Mobile 50 Rural
• Increasing Rural Market Penetration through low
  cost handsets is key for subscriber growth

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3G What, How Much and WhenThe Waiting Game

• In 2004 3G Award of Licences was widely expected
  within the next year.
• Speculation was that China Mobile would receive
  W-CDMA, China Unicom CDMA-2000 and China Telecom
  a TD-SCDMA Licence.
• In 2007 3G Licences ... still awaited
• A deliberate government strategy to encourage the
  development of Chinese IPR?
• An expected Leadership reshuffle may further
  delay licence awards until 2008
• Large scale trials in all the 3 technologies.

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The rise of TD-SCDMA (1)

• Much of the IPR in TD-SCDMA is owned by Datang,
  in partnership with Siemens
• In 2004 early trials TD-SCDMA significantly
  lagged other standards in commercialisation
• Slow take up of 3G worldwide allowed external
  investment to be maintained to develop own
  standards and IPR rather than paying Qualcomm etc
• In 2007 the picture has changed..

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The rise of TD-SCDMA (2)

• "China already has 3G (TD-SCDMA) Networks
  deployed
• The trial networks have been extended
• TD-SCDMA Forum stated Feb 2007 that 20000 users
  with more than 40 different terminals from 14
  companies have participated in the 1st round of
  trials
• 2nd round will use significantly higher numbers
• A key driver is the 2008 Olympics

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The 2008 (Political?) Olympics (1)

• January 2007 - MII announced TD-SCDMA had passed
  a series of tests and selected as a 3G technology
• China Mobile have been asked by the Chinese
  Government to build and operate a TD-SCDMA
  network in 10 cities including the 6 Olympic
  Games Cities.
• This fulfils the Chinese Government pledge for 3G
  coverage for the Olympics
• During the time of the 2007 mission
  infrastructure contracts were awarded
• Datang 27 and ZTE 46 (414M ) of contracts to
  date
• Other players are shown in the table

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The 2008 (Political?) Olympics (2)

• Announcement in July 2007 by China Potevio (born
  out of China Putian, largest Chinese handset
  manufacturer and IT manufacturer) of successful
  handover between 3G TD-SCDMA and 2G GSM (both
  packet- and circuit- switched) will improve the
  potential business model for China Mobile
• This TD-SCDMA deployment is without a licence.
• Any future 3G Licence award is seen as being a
  separate activity from the "Trial"
• It is anticipated that China Mobile will receive
  a licence for TD-SCDMA
• .but NO timescales for award of 3G licences

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Technology Neutrality Licensing

• EU Commissioner Viviane Redding reported
  assurances that China would be 3G technology
  neutral.
• MII announced W-CDMA and CDMA treated equally and
  will be used in China
• More than one 3G license would be issued
• Operators allowed to choose which standards they
  wish to use
• Government would still determine the number of
  licences issued.
• Terms of WTO membership appear to have had some
  impact
• .but NO timescales for award of 3G licences

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Market Demand for 3G Services?

• In 2004 it was predicted that Mobile Demand would
  plateau at 500m out of 1.3Bn population due low
  income levels in rural areas.
• Current Mobile Market as of June 2007 is 451
  million GSM subscribers and 38 million CDMA
• CDMA subscribers still showing a slight but not
  dramatic increase in numbers
• GSM subscribers still increasing at 5m per month
  although the relative rate of increase has slowed
  !
• Mobile Operators particularly, China Mobile, have
  aggressively addressed Rural Areas through the
  introduction of low cost handsets and cheaper
  tariffs to maintain the growth.

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Market Demand for 3G Services?

• Also in 2004
• Voice the Key Revenue Driver
• SMS the main Data Revenue Driver
• In 2007 mobile ARPU levels at around 8.5 9 Euro
  have not increased over the past two years, Voice
  and SMS still being a key driver but the Chinese
  Telecom market as a whole saw a 34 increase in
  non-voice service income in 2006
• As with Europe, the mobile industry needs to
  further increase data usage in a static ARPU
  market for long-term growth, although subscriber
  numbers are still increasing
• The Olympics and 3G offers a significant
  opportunity for encouraging usage of data
  services across the full subscriber base
• China Mobile have announced some 34 new Olympic
  Services and working with many partners.

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Market Demand for 3G Services?

• China Centre for Information Industry Development
  published optimistic survey results in December
  2006
• 77 of China Mobile's customers were keen to buy
  3G Handsets when they become available citing
  Mobile TV, Video Calls and Mobile Internet as
  attractive services.
• BUT
• 76 of those surveyed buy handsets worth less
  than 2500 Yuan (320) with 25 going for handsets
  less than 1000 Yuan (128)
• Less than 24 would buy a handset over 2500 Yuan

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Market Demand for 3G Services?

• THEREFORE
• The cost of the handset from both an operator and
  end user perspective will have a significant
  impact on the economics of supplying a
  successful 3G service without some form of
  handset subsidy business model
• The introduction of the Calling Party Pays model
  with cheaper tariffs and low cost handset is
  succeeding in gaining a greater subscriber base
  from the rural market but these may not be able
  to afford the 3G handset without such a subsidy
• HOWEVER
• MII has recently issued 3G Video Telephony
  interoperability standards for TD-SCDMA and
  W-CDMA handsets and is expected to extend these
  to the PSTN and ISDN. This should significantly
  drive revenues, particularly for those living in
  the cities and wishing to communicate with their
  families in rural areas
• This standardisation activity is an example that
  Europe could follow !

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Mobile TV

• Regulatory Structure
• MII Ministry of Information and Industry
• SARFT State Administration of Radio Film and
  Television

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Mobile TV

• Like their European counterparts the Chinese
  Telecoms Operators view services through
  convergence of telecoms and broadcast as an
  important market and aim to introduce TV over 3G.
  Other standards being reviewed
• TV to the Mobile competes within a regulatory
  structure that protects the dominance of cable
  and investment in digital TV
• SARFT controls IPTV and content in mass media
• MII controls Telecoms
• MII and SARFT at times appear to act in
  competition
• Telecoms Operators must partner with a licensed
  media companies
• The Chinese Government trying to gain cooperation
  to ensure Olympics opportunities are realised

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WiMAX A Market in China, A Market for China? (1)

• WiMAX products figure strongly in the portfolio
  of the major Chinese Infrastructure manufacturer
  such as Huawei and ZTE, like their other
  international counterparts, for international
  export
• Market forecasts from the MII suggest the Chinese
  Broadband Wireless Access market will comprise
  some 14 million users with a manufacturing market
  value of 25 Billion RMB
• The operators are mostly expected to be Local and
  National Government, Medical and Emergency
  Services - rather than the personal WiBro concept
  in S.Korea
• Whilst the MII presents a vision of WiMAX and 3G
  TD-SCDMA as complementary technologies, the
  informal view suggested that, unlike S.Korea
  where the Govt led the drive for WiBro, there
  will not be a policy that could undermine 3G
  market growth

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WiMAX A Market in China, A Market for China?
(2)

• An interesting SME Jushri which is a spin-off
  from the Shanghai Wireless Research Centre, well
  supported by both local and national govt, is set
  up to develop and industrialise BWA, first fixed
  and then upgrading to mobile access
• Working with China Netcom to deploy WiMAX
  equipment for the 2008 Olympics
• Their two target markets include Metropolitan
  Area Networks and the Emergency Services, plus,
  in the longer term, Interactive Broadcasting

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WiMAX A Market in China, A Market for China?
(3)

• Interactive Broadcasting - an initiative to
  evolve a Chinese development of WiMax dubbed
  "ChiMax
• Designed to support converged telecom and
  broadcast services in the UHF broadcast spectrum
• Based upon IEEE802.16e but incorporating
  additional locally developed IPR to overcome some
  inherent problems in current technology for this
  application
• A drive towards national and international
  standardisation
• ChiMax is a significant development but current
  regulatory differences between MII and SARFT
  could hold this back. Support from national
  government may be an indication of a change of
  approach
• WiMAX an internal market, not one for external
  players

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Impact Assessment
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Impact Assessment

• 3G TD-SCDMA
• The early cooperation between Datang and Siemens,
  followed by joint ventures and further foreign
  direct investment, has accelerated the
  development of the technology
• TD-SCDMA accepted at the ITU as a 3G Standard.
  Development continues but still lags behind
  W-CDMA development. This may hinder export
  potential, although domestic market potential is
  huge. (and, China Mobile is looking for
  acquisitions in Africa)
• Despite 3G licence delays, Chinese companies such
  as ZTE and Huawei have firmly established
  themselves as major international players in all
  3G technologies

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Impact Assessment

• Mobile TV
• Yet to happen in China
• A potential market enabler for 3G particularly
  for the Olympics in 2008
• Subject to significant regulatory hurdles
• TV over TD-SCDMA seems the most likely prospect
  in the first instance, although other standards
  being reviewed.
• Even if regulatory hurdles are overcome, mass
  market scalability and capacity issues of a
  comparatively immature technology would still
  give some concern for real time broadcast.

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Impact Assessment

• WiMAX
• WiMAX not a central plank of telecom policy in
  China
• International Chinese companies have WiMAX within
  their product portfolio but potentially not as
  mature as companies such as Samsung, for whom it
  is a major product investment
• In 2004 Chinese universities were noted to be
  carrying out WiMAX RD for Korean Companies, so
  expertise will be available in China
• The developments by Jushri in this area for Civic
  networks, including the Olympics and their
  development of ChiMAX to support converged
  telecom and broadcast services in the UHF band,
  are very significant but still potentially
  subject to regulatory difficulties
• There are significant opportunities in the
  Domestic market for Jushri but it seems unlikely
  they will be able to develop and grow rapidly
  enough to make an impact in both the domestic and
  international arena
• Strategically it seems unlikely that the
  government would support a technology competing
  with TD-SCDMA at this delicate point in the
  proceedings

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Conclusion

• Since the 2004 mission there is no doubt that
  Chinese telecoms infrastructure companies such as
  ZTE and particularly Huawei have become major
  international companies, supplying networks of
  all types worldwide.
• The sheer market size and revenue potential,
  albeit at a lower ARPU than Europe, makes
  companies such as China Mobile hugely powerful in
  developing and fulfilling Government telecoms
  policy and there is no doubt that they will
  succeed in driving 3G TD-SCDMA forward.
• Irrespective of the fact that the products are
  well made, much of the early success of Huawei
  and other major Chinese companies was because of
  the very favourable price differential between
  them and US/European manufacturers, due to the
  much lower cost base.
• With the growing economy and improving living
  standards for the city dwellers, and increased
  expectations, one can envisage this may not be
  the case in the longer term