China's $10B Backhaul Bonanza
Each of the operators are expected to spend roughly the same amount on backhaul during 2009 and 2010: China Mobile Communications Corp. is expected to spend $3.8 billion; China Unicom Ltd. (NYSE: CHU) is forecast to spend $3.6 billion; and China Telecom Corp. Ltd. (NYSE: CHA) will spend $3.5 billion, according to the new report, "Mobile Backhaul in China: Sizing the Market Opportunity."
While $10 billion sounds like a lot, it is a fraction of what the Chinese operators spend on capex annually. For example, China Unicom's capex outlay for 2009 is expected to be 110 billion Yuan Renminbi (US$16.1 billion), and of that, $1.4 billion is expected to be dedicated to backhaul equipment, making backhaul account for 8.7 percent of the operator's total capex spend this year. (See China Unicom Plans Massive Capex Hike, China 3G Update: App Stores & iPhones, and China: 1 Billion Lines Served .)
So which suppliers are most likely to benefit from the backhaul spending spree? The Chinese backhaul market is a "fierce battleground" for large and small vendors, writes the report's author Xuefei Peng, noting that the market is saturated with not much room for new entrants.
In the current vendor landscape, China Mobile's suppliers are as follows, ranked in order of contract size: ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), Huawei Technologies Co. Ltd. , Nokia Networks , Ericsson AB (Nasdaq: ERIC), and FiberHome Technologies Group . China Unicom's backhaul suppliers are Huawei, Ericsson, and Alcatel-Lucent (NYSE: ALU); while China Telecom's top two vendors are Huawei and ZTE.
As the three operators are each rolling out a different 3G technology -- China Mobile uses the homegrown TD-SCDMA; China Unicom uses WCDMA; and China Telecom uses CDMA2000 -- the report reckons that duplicated network infrastructure will be inevitable and present a bigger opportunity for vendors.
— Michelle Donegan, European Editor, Unstrung