Cover story: In the balance
This article originally appeared in Total Telecom magazine [Issue: 65]
01 September 2008
The Beijing Olympics have put the spotlight on China like never before. But the People’s Republic is also on the brink of a new phase in its telecoms industry.
The Beijing Olympic Games were always going to make 2008 a landmark year for China. But it is also shaping up to be a significant year for the telecoms industry in the People’s Republic, as it initiates the long-awaited restructuring of its fixed and mobile operators and finally sets the conditions for issuing 3G licences.
The restructuring process promises to be more of a marathon than a sprint as six operators are folded into three fixed-mobile giants. But the new industry landscape is likely to present significant opportunities for foreign vendors, and also potentially for foreign operators in the longer term. Vodafone, for example, holds a 3.30% stake in China Mobile, while Telefonica owns a 7.22% stake in China Netcom, although some holdings could be diluted following the restructuring says Pyramid Research.
Analysts also predict that a reinvigorated industry could help push Chinese technologies to the forefront of the global telecoms market, and see mainland operators increasingly spread their wings overseas.
“This is not the first time the government has restructured the industry; the significance this time is it will lead to 3G licences being issued by the end of this year,” says Dr Cynthia Leung, senior research analyst at Ovum.
The restructuring, announced in May and expected to take six to nine months, will ultimately lead to the creation of three fixed-mobile operators: China Telecom will buy the CDMA network of China Unicom; China Unicom’s GSM network is to be merged with China Netcom; and China Mobile will gain China Tietong (see box).
ABI Research expects that the new Netcom/Unicom will win a WCDMA 3G licence, while China Telecom is set to get a cdma2000 licence. China Mobile is now expected to launch commercial 3G services using China’s own local 3G standard, TD-SCDMA, having trialled the technology for the first time at the Olympic Games.
“2008 could well represent a watershed year in Chinese telecoms,” says Jake Saunders, vice president of ABI Research Asia-Pacific. But it is still a question of “if” rather than when, he says. “You never really know what China’s regulators will do until they actually issue the licences.”
The regulator still has a difficult balancing act to perform, says Mark Natkin, managing director of Marbridge Consulting in Beijing. “No one said it was going to be easy. There is pressure to develop a domestic 3G standard before allowing foreign 3G standards to be licensed.” (See box p.20).
Daniel Yu, an analyst at Pyramid Research, agrees: “Licensing should be this year; the major factor holding it back has been the maturity of TD-SCDMA.”
In fact if TD-SCDMA is a success, there is a possibility that WCDMA technology will not be used at all. But if the home-grown standard does not gain traction, China Mobile could also get a WCDMA licence.
At present analysts are still trying to pin down what will be the wider implications of the restructuring both for Chinese and foreign players, and how the country’s 3G technology choices will shape the market in the coming years. There has also been speculation that China could leapfrog 3G altogether, instead evolving its homegrown technology into a more advanced standard such as long-term evolution (LTE).
“The next six months will be basic organisational stuff—people, the assets—then [they] work out what’s the strategy and capital allocation,” says Jonathan Dharmapalan, partner and head of Ernst & Young’s Global Telecommunications Center in Beijing. “We are only half way through the restructuring exercise. We have only talked about fixed line, broadband and mobile. We have not got into cable, Internet and... <full story>
This article originally appeared in issue 65 of Total Telecom magazine. Read the full story here.
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