Amid the gloom of the economic crisis, the issuance of 3G licences in China has caused many telecom executives’ eyes to light up with dollar signs, despite the challenges presented by the country’s three different 3G standards. The three Chinese network operators are slated to spend $20 billion on 3G infrastructure in 2009, so it’s is easy to see why. However, although the launch of 3G services is in full swing, early indications suggest those dollar signs should be replaced by yuan signs.
ZTE and Huawei are the main beneficiaries of 3G infrastructure spending, between them taking more than half the market and reversing the traditional dominance of foreign providers of 2G technology. Aggressive pricing and access to capital that allows generous vendor financing schemes have dampened the hopes of many foreign executives. It’s the same story in the handset market. Nokia lost ground in China’s home-grown 3G standard, TD-SCDMA, failing to bid in China Mobile’s first two tenders because its local chip supplier filed for bankruptcy. For its launch China Mobile has selected LG, ZTE and Yulong as handset providers.
The battleground for 3G in China will not be voice calls but mobile Internet, and in this respect China has learnt from the protracted development of 3G services in mature markets. Although Chinese operators have been unwilling to subsidise the cost of 3G phones heavily, we’ve seen substantial subsidies for bundles of notebooks and netbooks. ZTE again grabbed the biggest slice of China Mobile’s first major tender in this area. And rumours are getting stronger that Skytone could launch the first Android netbook as early as June. Although the impact on the Chinese market will be modest, I’m intrigued by reports that Skytone is also talking to Wal-Mart. That would give the story an interesting twist.
When assessing the outlook for 3G in China, I’m reminded that there’s still a lot of life left in 2G networks. China Mobile will spend a whopping $8 billion on bringing 2G coverage to rural areas this year. With an enviable 483 million subscribers China Mobile’s upgrade to 3G will be evolutionary, not revolutionary. We should also consider the perceived technological inferiority of TD-SCDMA, which China Mobile has been mandated to roll out.
The progress of Chinese infrastructure providers is by no means confined to their home market. With ready access to capital, they’re a combination of vendor financing and low prices to steal a march on their rivals. The effects can be seen in press campaigns in UK and US broadsheets linking cyber-espionage with network equipment installed by Huawei. It reminds me of similar campaigns against Japanese manufacturers in the 1980s.
The disappointed executives might be cheered up by the thought that with the rise of Long-Term Evolution (LTE) technology, the pendulum could easily swing back in their favour. Whatever currency will be in fashion then, it will remain fascinating to watch.
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