| EastPoint's view on hot topics in China |
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China Telecom Restructuring |
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China Telecom Carrier Update |
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China Mobile approved for TD-SCDMA network construction in 28 cities |
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China Mobile plans to invest RMB 100B (~US$ 15B) on GSM network expansion |
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China Unicom intends to invest RMB 100B (~US$ 15B) on mobile business in 2 years |
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China Telecom plans to spend RMB 80B (~US$ 12B) on CDMA business in 3 years |
| China Telecom collected bids for its CDMA network expansion |
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China Telecom Manufacturers |
| Chinese twins: Huawei and ZTE |
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iPhone in China |
| iPhone's deadlock in China |
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Why the telecom restructuring? |
| - Government (largest shareholder of all carriers) guided restructuring |
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- To develop a balanced carrier landscape:
China Mobile dominated for too long, upset fixed carriers desperate to go mobile |
| - To issue three 3G licenses to 3 qualified carriers in a competitive telecom environment |
| - To leverage the current 2G networks and avoid duplicative investment |
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How's the
telecom restructuring? Previously there were 4 large carriers: China Mobile, China Telecom(fixed line), China Unicom and China Netcom(fixed line), and 2 small carriers: China Tietong and China Satcom.
During the restructuring, |
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Carrier landscape after the restructuring Three all-service (mobile+fixed) carriers will exist in the market - China Mobile: 422M GSM subs, TD-SCDMA license mostly likely - China Unicom: 129 GSM subs, 108M fixed line subs, 24M broadband subs, WCDMA license mostly likely - China Telecom: 43M CDMA subs, 214M fixed line subs, 41M broadband subs, CDMA2000 license mostly likely |
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| Opportunity behind the restructuring |
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- Huge opportunity for Telecom manufacturers - China Mobile will upgrade its GSM network to EDGE, and it needs to build its nationwide TD-SCDMA network - China Unicom will upgrade its GSM network to EDGE, and to WCDMA/HSPA when 3G license is issued - China Telecom will invest heavily in its current CDMA network, and upgrade to EVDO when 3G license is issued - China Telecom and China Unicom will increase CAPEX on fixed network and unified networks to gain competence again China Mobile - Large market request for 3G and multi-mode devices |
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| Outlook of three carriers after the restructuring |
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China Mobile: - Largest carrier globally in terms of both sub and market value - The mobile giant will still dominate for at least 3 years - Pro: huge sub base & first mover in China 3G area - Cons: TD-SCDMA is less mature in technology and commercial operation China Unicom - Pros: large GSM sub base; technical evolution from GSM to WCDMA to LTE is clear and well-supported - Cons: have to compete with giant China Mobile for high end subscribers China Telecom - Pros: cheaper CDMA EVDO upgrading cost - Cons: limited mobile operation experience; difficulty in increasing subscribers; weak CDMA eco system |
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| China Mobile approved for TD-SCDMA network construction in 28 cities |
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- Ministry of Industry and Information
Technology has allowed China Mobile to build TD- SCDMA trial networks throughout China - Currently China Mobile's trial networks exist in 10 cities - It will create a preliminary nation wide TD-SCDMA network, even though it¡¯s still called ¡®trial¡¯ |
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| China Mobile plans to invest RMB 100B (~US$ 15B) on GSM network expansion |
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- The amount of investment is much higher
than that in TD-SCDMA construction - China Mobile won't rely on TD-SCDMA solely - China Mobile hasn't given up its intent to acquire WCDMA license - The GSM expansion will give China Mobile further advantage over other two carriers - The investment will build foundation for launching large scale mobile broadband service |
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| China Unicom intends to invest RMB 100B (~US$ 15B) on mobile business in 2 years |
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- Most of the investment will be 3G (WCDMA)
related - China Unicom targets 1/3 3G market - CU needs to address the issues of merger with China Netcom and the convergence of its mobile and fixed line business |
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| China Telecom plans to spend RMB 80B (~US$ 12B) on CDMA business in 3 years |
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- The CAPEX will focus its current CDMA 1X
network expansion, EVDO evaluation and device purchasing - China Telecom targets 100 millions CDMA subscribers (current figure is 43M) - The difficulty is how to attract enough subscribers, facing the fact that first time subscribers are scarce and the competitors are strong |
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| China Telecom collected bids for its CDMA network expansion |
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- The bid include CDMA network expansion in
81 cities - Bidding price announced: Alcatel Lucent RMB 14B, Nortel 12B, ZTE 8B£¬Huawei 0.69B - Huawei¡¯s super low bidding price reflects that it's eager to expand its share in China CDMA market - China Telecom will leverage Huawei¡¯s low price to bargain with other manufacturers - Final result will be issued around the beginning of September - This is only the first round of China Telecom¡¯s CDMA network expansion |
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| Chinese twins: Huawei and ZTE |
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- Huawei and ZTE rank in the 3rd and 7th
places in global telecom market, according to Informa - Core competence: HR cost advantage; competitive products; rapid market response - Regional strategy: starts from less developed market, and goes for matured market later on - HR cost advantage: R&D personal cost: 25k US$/y for Huawei & ZTE, 200-300k US$/y for European peers - Competitive products: focusing on key functions, removing dispensable functions; speeding up product upgrade - Rapid market response: shortened time to market; larger service team and faster customer feedback; customized technical solutions - Risks: price war; high account receivable; global economy slowdown; high debt ratio; blockade by developed countries - Huawei¡¯s specific concern: high account receivable (42% of revenue, in 2007) - ZTE¡¯s specific concern: high inventory cost (62% of total cost, in 2007) |
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| iPhone's deadlock in China |
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- Apple eyed on huge China market for long,
but the long negotiation with China Mobile hasn¡¯t yielded any solid result - Driving forces: Apple needs to reach sales target and China Mobile wants popular handsets to maintain high-end customers - The deadlock lies in Apple¡¯s revenue sharing model. China Mobile refused this model that Apple used with North America and European carriers - Insiders said Apple agreed to give up the revenue sharing model and turn to handset subsidy model, meaning China Mobile will subsidize Apple for each iPhone sold - Current issues focus on subsidiary amount, China Mobile¡¯s iPhone marketing promotion, TD-SCDMA support, etc. - At present, 0.4M iPhone are being used unofficially on China Mobile's network |
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