BMI China Telecommunications Report Q3 2011.pdf

Q3 2011 www.businessmonitor.com telecommunications RepoRt issn 1748-4472 published by Business monitor international ltd. cHina INCLUDES BMI'S FORECASTS Business Monitor International Mermaid House, 2 Puddle Dock, London, EC4V 3DS, UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subsbusinessmonitor.com Web: http:/www.businessmonitor.com © 2011 Business Monitor International. All rights reserved. All information contained in this publication is copyrighted in the name of Business Monitor International, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher. DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. CHINA TELECOMMUNICATIONS REPORT Q3 2011 INCLUDES 5-YEAR FORECASTS TO 2015 Part of BMIs Industry Survey Googles threats to quit China after accusing the government of hacking may set a precedent over the future actions of other foreign firms. Opportunities ? Appeal among younger segments of the population regarding online content, particularly in relation to multimedia services such as gaming, video and music. ? Accessibility to the internet through universities, internet cafés and schools has meant that demand for online content continues to thrive. ? Growth of broadband sector likely to lead to expansion contracts for manufacturers such as Alcatel Shanghai Bell and Huawei. ? Growing number of regional cable operators supplied with broadband licences leading to lower tariffs. ? First WiMAX services and demand for mobile broadband services are rising rapidly, which will aid growth of the broadband sector. Threats ? The greater sophistication and ownership of mobile services represents a threat to broadband, with the possibility of mobile broadband services becoming more widely accepted rather than fixed broadband. ? High international gateway and backbone network fees charged to cable operators by fixed-line operators could stifle growth in the broadband market. ? Fixed-line and broadband sectors remain dominated by China Telecom, offering few options for customers. China Telecommunications Report Q3 2011 © Business Monitor International Ltd Page 9 China Mobile Market SWOT Strengths ? The size of the mobile market; China Mobile is the worlds largest operator in terms of subscriber numbers. ? China has launched its own domestic 3G mobile technology standard TD-SCDMA, which will challenge CDMA2000 and W-CDMA. ? Strength of domestic manufacturers Huawei Technologies and ZTE grows and both firms are likely to continue winning TD-SCDMA equipment contracts. ? 3G equipment spending on the back of licence awards will fuel the telecoms capex spend during 2011 for China and the wider Asia Pacific region. ? Government determination to invest in Chinas telecommunications industry ensuring that it becomes innovative. ? Demand for mobile broadband will aid growth of 3G subscribers. Weaknesses ? Many rural areas have neither fixed-line nor mobile telephony services available. ? Many local handset manufacturers (Soutec, Eastcom and Kejian) are beginning to suffer as Nokia, Motorola and Samsung have all picked up in handset sales due to better distribution. ? Handset sales in general are being impacted as customers refrain from upgrading. ? Economic downturn in the export-reliant China has meant that migrant workers have relinquished their services as they leave for their hometowns; local, regional-based operators have reported a drop in mobile revenues. ? Falling ARPUs due to the continue dominance of the prepaid market, and subscriber growth arising from rural areas. Opportunities ? 3G licences awarded in 2009. Several infrastructure providers are investing heavily in 3G research and development (R largely led by China Mobile, which has been aggressive in expanding its network to rural areas; has meant a smaller postpaid base. BMI estimates there were a total of 202.1mn subscribers on postpaid services, which accounted for 24% of the total. During the year, we believe the total number of postpaid subscribers had risen by 11.3%, while over the quarter it was up by 0.4%. This was down from the 3% increase estimated in the previous quarter, but an improvement from the 9.4% q-o-q fall in Q210. During the first quarter of 2010, the number of postpaid subscriber is believed to have risen by 16.9%. As we have mentioned earlier, postpaid remains a minority, with operators investing heavily into 3G and VAS services. However, although growth in the 3G market is on the rise, it still remains insufficient to offset the steady growth rate of the 2G market, which continues to improve in terms of applications offered and quality of services. ARPU a figure that was not achieved. Besides aiming to deploy a variety of 3G handsets to attract subscribers to sign up to its services, the operator is also at a disadvantage because TD-SCDMA remains under-developed compared to the other two standards. Further, the popular iPhone handset by Apple remains under an exclusive contract with China Unicom, which has been behind that operators success. China Mobile customers can only buy unlocked iPhone handsets, but these only work on China Mobiles older, international 2G network as they are not compatible with its 3G home-grown standard. As a result, the operator said it wants to use Wi-Fi as an interim solution until it launches a fourth-generation network. China Mobile announced in April 2010, that the firm will conduct trials of its TD-LTE networks in three cities H210, reports Digitimes. The operator intends to conduct the trials by deploying 100 TD-LTE base stations in each of the cities. China Mobile is also promoting TD-LTE technology to overseas markets as it sees huge prospects for the adoption of TD-LTE as a 4G standard by non-China-based operators. In July 2010, China Mobile and Ericsson will conduct large-scale field trials for TD-LTE technology in Q410. Following this, the operator announced it had received approval from the regulator in December 2010 to conduct a network trial in six cities including Shanghai and Shenzhen. However, China Mobile is not likely to receive a 4G licence within two years as the government wants operators to recoup the cost of their 3G investments. China Unicom About CNY1.5bn was invested in China Unicoms third phase of its W-CDMA network deployment. This phase covered 50 cities in seven provinces, and by end-2010, the operators 3G network comprised of 183,000 base stations, up by 70.8% from the previous year. China Unicoms 3G network coverage reached cities at country level and above throughout the country, as well as villages and towns in eastern developed area. China Telecommunications Report Q3 2011 © Business Monitor International Ltd Page 33 The previous two phases saw China Unicom cover 56 key cities, and the second phase, 228 cities. The operator sold about 47,000 W-CMDA handsets by August 2009 and China Unicom reached an agreement with Apple in August 28 2009 to sell the iPhone exclusively under a three-year agreement. It launched the iPhone on a commercial basis on October 30 2009. Furthermore, in May 2010, China Unicom decided to increase subsidies for Apple's iPhone in a bid to increase sales in China. China Unicom said that it will invest up to CNY5bn in subsidies in 2010. Demand for the iPhone has been slow in the country. However, the operator lost its exclusivity to supply the iPhone following the launch of the smartphone in September 2010 by rival China Telecom. Further handset agreements were made in January 2010, with the launch of its first W-CDMA/GSM dual- mode handset in partnership with Coolpad. The W700 handset model is aimed at high-end subscribers, who are interested in the operators 3G services but do not want to change their mobile phone numbers. Furthermore, the two companies introduced a star flagship product strategy and will help promote the phone. By integrating the resources of the two, they are planning a series of promotional activities, including advertising and a mobile phone fee subsidy programme. According to Zhang Zhijiang, general manager for China Unicoms technology department, following the introduction of Apples iPhone handsets, the launch of the W700 handset will better meet the diversified demands of high-end business users in China. Further handset procurements were announced in January 2011, with China Unicom reporting it would buy 5mn W-CDMA handsets comprising seven 3G handsets from Nokia, Samsung, Sony Ericsson, LG, ZTE and Huawei, with up to 1.2mn handsets procured of each model. The handsets were scheduled for launch on January 15 2010. This was part of a deal where a subscribers with a prepaid CNY800 contract received free Wo-branded 3G handsets. In March 2010, China Unicom awarded a US$800mn contract to Ericsson to upgrade its existing 3G network with HSPA Evolution equipment, as well as deploying IP and broadband network to link switches and base station sites. Work is expected to be completed by YE10. Further, in late January 2010,China Unicom selected Ericsson again. This time to deploy a gigabit-capable Passive Optical Network (GPON) solution from the Swedish vendor enabling it to provide a wide range of applications/services, particularly high-bandwidth unicast and broadcast video/TV. China Telecom Left with CDMA2000 as the remaining 3G licence, China Telecom announced that it aims to increase the number of 3G users to 35mn by the end of 2011, with the aim that 10mn would be 3G smartphone handset users. The operator is keen to boost 3G handset availability one of the key factors it regards will aid future 3G subscriber growth. The firms CEO Wang Xiaochu suggested mobile handsets manufacturers should speed up production of 3G smartphones, particularly those handsets ranging in China Telecommunications Report Q3 2011 © Business Monitor International Ltd Page 34 price between CNY700 and CNY2,000. In addition, investing in its network will help it grow its 3G subscriber base. China Unicom aims to spend US$11.7bn on network expansion and optimisation. As of August 2009, China Telecoms CDMA2000 network covers 342 cities and is expected to reach 500 cities by YE09. The operator launched commercial 3G services in Beijing for the first time in April 2009. A month prior to this, China Telecoms Beijing unit, Beijing Telecom, reported that it was ready to offer 3G mobile phone numbers, with its 3G network covering about 95% of the capital. At about the same time, it commenced offering free mobile internet access in preparation for the deployment of its 3G service. China Telecom is looking to extend its presence in the smartphone handset market. The operator released a 3G dual-mode handset with US-based Motorola in December 2009, based on the Android operating system. China Telecom is looking to deploy more four-channel internet-enabled mobile handsets in an effort to acquire a larger share of the smartphone market during 2010. China Telecom in May 2010, began selling a locally-produced tablet computer, the LifePad, in an attempt to stimulate extra demand for its 3G mobile services. The device, which includes a number of pre- installed applications such as email, ebook reader, stock trading and navigation, is similar in functionality to the Apple iPad, which China Telecom is also considering as an incentive for prospective 3G customers. 4G China is expected to offer commercial 4G services in 2012, providing subscribers with mobile download speeds 50 times faster than the current 3G network, according to the Ministry of Industry and Information Technology. According to MIIT director, Zhang Feng: “4G trials have begun in chosen cities nationwide and should last for 18 months before commercialisation.” The ministry had earlier in January 2011, approved plans to launch trials in six cities: Shanghai, Nanjing and Hangzhou in eastern China, Guangzhou and Shenzhen in the south and Xiamen in the southeast. The 4G trials include domestic and overseas telecoms firms including Nokia Siemens Networks, Alcatel- Lucent, Ericsson, Datang Telecom Technology initial deployments in Tianjin, Baoding, Wenzhou, Taizhou, Guiyang and Guilin were expected to be completed by May 2009. March 2009 na China Unicom selected Ericsson to supply W-CDMA networks and services for 15 Chinese cities including Beijing, Jilin, Jiangsu, Hubei, Heilongjiang, Liaoning, Anhui, Henan, Hainan, Shanxi, Sichuan, Yunnan, Shandong, Guangdong and Hunan. March 2009 na Huawei Technologies deployed China Unicoms first W-CDMA commercial network in Zhengzhou, Henan province. This forms part of the first phase of China Unicoms UMTS tender. The vendor was awarded over 30% of the operators total transceiver deployments. January 2009 na Multiple contracts awarded to Huawei, Motorola, Ericsson, ZTE, NSN and Alcatel-Lucent Technologies by China Unicom to provide network coverage for 55 cities in 30 provinces under first stage planning. January 2009 na Huawei Technologies awarded a CDMA network expansion contract by China Telecom for 30 major cities in China. The vendor had already completed the construction of 14,000 base stations and 310 core network equipments, meeting China Telecoms earlier goal. na = not available. Source: BMI China Telecommunications Report Q3 2011 © Business Monitor International Ltd Page 37 Mobile Content Regional Outlook The exact value of Asia Pacifics value-added services (VAS) market remains difficult to gauge as many operators do not provide a detailed revenue breakdown. However, it is certain that the industry is rapidly growing in light of the regions increasing prevalence of affordable high-speed mobile data connections and mobile operators efforts to launch new products and services in order to capitalise on the growth prospect. Swedish telecoms equipment vendor Ericsson envisages that there will be more than 50bn connected devices globally by 2020, and wireless technologies will be embedded in a wide range of products, many of which are traditionally not expected to be connected to the internet. This increase in connectivity enables a closer integr