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Wednesday, May 16, 2007

China, the X Factor of Mobile Broadband

China represents significant market opportunities for mobile broadband due to its large market size, growing number of middle-class consumers, and love for mobile gadgets. Both mobile and broadband services have enjoyed significant growth, with 461 million and 137 million subscribers, respectively, at the end of 2006. Although the government has not yet granted 3G licenses, both Chinese landline and mobile operators show strong interest in 3G, Mobile WiMAX, and future mobile broadband technologies. Facing decelerating landline growth, the two landline operators, China Telecom and China Netcom, are eager to seek new opportunities in the lucrative mobile market. On the other hand, China Mobile and China Unicom, the two mobile carriers, want to leverage mobile broadband to offer new data and entertainment services and WiMAX to offer broadband access services since they lack landline infrastructure.

There is no question that foreign technologies companies will benefit from the Chinese market, but one thing is clear – the Chinese government is using 3G as an opportunity to shift more revenue opportunities to local technology companies such as Huawei, ZTE, Putian, and Datang Mobile. The government is determined to make TD-SCDMA, the often-neglected international 3G standard, a market reality in the 3G horse race. China has spent three years waiting for the technology to mature, and it has convinced the largest mobile operator, China Mobile, to adopt the standard. According to several Chinese newspapers and magazines, including Cai Jing, an authoritative business magazine, China Mobile has quietly launched 3G TD-SCDMA networks in selected cities (starting with the Olympics cities such as Beijing and Qingdao) under the name of “trial networks” and is now ready to issue RFPs for large-scale network and handset equipment purchases. The orders are reported to be worth more than $3 billion, and foreign vendors are expected to partner up with local Chinese companies in order to win the contracts. The Chinese government intends to let China Mobile deploy TD-SCDMA commercial services without an official license in order to ensure that the technology has a head start over UMTS and CDMA EVDO.

The Chinese government may also use the advent of 3G as an opportunity to restructure the telecom industry. According to telecommunications experts in China, both China Telecom and China Netcom will be allowed to enter the mobile market. China Unicom, the smaller mobile operator, is likely to be split into two parts, with China Telecom absorbing its CDMA network and China Netcom getting its GSM network. This way, both China Telecom and China Netcom will have a smoother learning curve for their entry into the mobile market. This arrangement will also help China Unicom to solve some of its challenges, including operating two parallel networks. It is overloading its GSM networks, and its CDMA network is significantly underutilized.[1]

WiMAX companies are paying close attention to the Chinese market since telecom operators in China recently have begun showing more interest in the technology. All four operators own 3.5GHz spectrum in various markets and are either testing the technology or deploying networks in limited markets. Despites significant efforts by Intel to set up partnerships with several key cities in China to develop WiMAX markets, the future of WiMAX faces several uncertainties, including spectrum, regulation, market positioning, and locally-brewed technology alternatives. In China, the 3.5 GHz spectrum was allocated for fixed broadband wireless usage, not mobile, and the narrow bandwidth (less than 4 MHz) limits its usefulness for mobile implementations. The government has not announced any spectrum allocation plans for mobile WiMAX. As a result, most of the WiMAX activities to date are limited to fixed WiMAX (Figure 5-10). For mobile broadband, the Chinese regulators may again favor local technologies. Datang Mobile and other TD-SCDMA constituents are promoting a migration path of evolving TD-SCDMA into TD-HSDPA and TD-SCDMA LTE by leveraging MIMO and OFDMA. They argue that the performance will be at least on par with Mobile WiMAX. Then there’s McWiLL, a little-known technology outside of China, yet a serious potential contender for mobile broadband. McWiLL is a derivative SCDMA technology focusing on broadband Internet applications. It was considered a strong candidate by South Korean operators before the South Korean government decided to promote WiBro instead. Its technology capability has been proven in real-world networks, delivering 2 Mbps at full mobility. It is likely to have support from the government since Chinese companies own most of the IPRs. The main roadblock for McWiLL is the lack of a well-established value chain. It is our opinion that WiMAX may have the best success in China if it figures out a way to integrate with either the TD-SCDMA or McWiLL migration path.
[1] Cai Jing, TD-SCDMA Becomes Reality amidst Heavy Debates, 3G Licensing Further Delayed, Wang Hu, February 2007

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