Light Reading
The next 12 months look set to radically alter the mobile services landscape in China.

Year of the Horse: Can China Telecoms Break Into a Gallop?

Robert Clark
News Analysis
Robert Clark
3/10/2014
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China's Lunar New Year, a traditional festival marked by feasting and fireworks, has now become an annual telecom benchmark.

As the Year of the Horse dawned last month, operators and analysts once again scrutinized the volume of New Year messages exchanged over the period. The total sent over this year's holiday period year fell 40% to 18.2 billion.

A survey by research firm iiMedia concluded that just 57% of China's 1.23 billion mobile subscribers used operator SMS over the period, down from 68% last year, while 19% used the local messaging platform WeChat, up from 11%.

The figures underline the rapid rise of WeChat, which has signed up more than 270 million users worldwide since launch three years ago, mostly in China, with assists from high telco charges and the government crackdown on microblogs.

The three operators have made half-hearted responses, partnering with WeChat (in the case of China Unicom), Netease (China Telecom), or coming up with their own (China Mobile), but none of these has gained traction.

Yet even as operators grapple with OTT, the China market faces more change than it has seen in years.

For one, 4G has arrived and this almost certainly means the return of China Mobile as the alpha-operator.

In the last five years China Mobile's tepid 3G offering, based on TD-SCDMA, has meant it has been losing market share. Today has 63% of the total customer base, but just 47% of the 3G customers.

So it has seized on the arrival of LTE TDD to embark on one of the largest and fastest rollouts ever. The network is already commercially available in 16 cities and by year-end the operator expects to have half a million basestations deployed in 340 cities.

Its two rivals were openly dismissive of TDD a year ago, but have climbed aboard now that the MIIT has made it clear it's the only game in town. The ministry handed out LTE TDD licenses to all three operators in December. It's an industry guessing game as to when it will distribute FDD licenses, but no-one believes it will be before the second half of this year.

Both China Telecom, which started selling 4G last month, and China Unicom, which is set to launch on March 18, are building hybrid networks, with TDD primarily deployed for capacity in urban areas.

The other TDD pay-off for China Mobile is it has finally been able to strike a deal with Apple. (See China Mobile Gets the iPhone.)

Although 40% of Chinese mobile users already have a smartphone, Apple still appears to have plenty of upside. It improved its market share by a point to 7% in Q4, ranking just behind Samsung, and according to one survey is the most desired smartphone brand.

But this is also the year in which the first MVNOs are expected to hang out their shingle. They are unlikely to win significant market share in 2014, or ever, but the specter of these new competitors will likely force the MNOs to cut prices.

Each operator is required to partner with at least two MVNO players, and the first trials will start in the second quarter.

While the market rules are still vague, and the wholesale price appears to be absurdly high, many of the incoming MVNO players have strengths of their own. Some are online retailers with millions of registered customers, and others are well-supported Internet companies such as Alibaba-owned HiShare.

This mild liberalization, open to Chinese companies only, comes at a time when the government is promising to curb the role of the state in the economy. If true, the arrival of the virtual operators may foreshadow wider participation in of the sector by private players.

Robert Clark, contributing editor, special to Light Reading

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3/13/2014 | 4:30:07 AM
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