- Buyers Guide
Aerospace & Defense Electronics Supplement
Early Returns: U.S. Export Control Reform Positive
A&D Test & Measurement
Efficient Design and Analysis of Airborne Radomes
The year is leaving us nothing short of dramatic events. While the world is mired in the worst economic slump, China defies the gloomy reality with bold moves and fanfare. Some are indeed commendable, like unstoppable Huawei in the international market, but others are not so glamorous despite unrelenting flaks such as 3G launches and iPhone sales.
In case you missed some of the key events in the world’s largest telecom market in 2009, here is a brief recap of new opportunities, misfires and looming risks.
In May China launched 3G service after nearly ten years in the making. With three standards, China has become the most divergent – and somewhat confusing – 3G market in the world. In an effort to balance competition and create a “fair and open” environment, the government gave TD-SCDMA, a largely unproven technology, to the most capable player China Mobile. They gave the most popular WCDMA to the smallest operator China Unicom. The policy so far has had no apparent effect; Unicom is still trailing the other two six months later.
The closely watched event soon turned sour as operators met an elusive target. Initial sales suffered from a shortfall of handsets and tepid interest in netbooks. The public also complained about network coverage and the cost of service that rendered little value over 2G. By the end of October, total 3G customers stood at 4.8 million, and between 20-60 percent of them opted for data cards not handsets. Despite a slow start, the service may have turned the corner after October registered the fastest growth of the year. The situation may continue to improve with an increasing supply of handsets, operator subsidies and service incentives, but it is still a long shot for the goal of 50-80 million customers a year and 240 million in three years.
Unicom hails the event in late October as a “milestone” in 3G and hopes that it will help catapult WCDMA to the top. However, that wish is hampered by the pricy models sans Wi-Fi and service plans. Only 5,000 models were sold during the first four days, compared to over a million iPhones in use bought from the black market with Wi-Fi, of course, and a lot cheaper. Other problems include a lack of apps designed for the Chinese.
iPhone does open a new stage in smartphones. China Mobile met Unicom’s announcement with sales of its OPhone based on Google’s Android platform and “Mobile Market,” an app site for OPhone. Not to be undersold, China telecom has revealed that it is in “active” talks with RIM to sell Blackberry and other models. The situation got even muddier when Apple said that it is developing a CDMA chipset for the iPhone, a move apparently courting China Telecom. China Mobile insists it’s door to iPhone remains open after talks with Apple halted. It appears future competition will extend iPhones against OPhones, blackberries and other smartphones.
Despite uncertainty in 3G, China Mobile is pushing the next-gen TD-LTE in the hopes that it will reap the benefits ahead of the competition. MIIT has set up a working group to collaborate with the operator and the plan is joined by equipment manufacturers like Datang Mobile, Huawei, ZTE, Putian, Ericsson, Alcatel-Lucent, Motorola and NSN. China Mobile plans to roll out LTE during the World Expo in Shanghai next May and may turn to commercial service if successful.
The focus on LTE has cast heavy shadows over WiMAX, a one-time favorite. While Huawei and ZTE still pursue WiMAX sales overseas, the chance for WiMAX as a public service looks slim if not already done. It is unthinkable for operators to build an extensive WiMAX network after spending tens of billions on 3G and anxiously awaiting financial rewards. WiMAX may find a niche in private service such as traffic monitoring, emergency and security. In city projects like these, WiMAX is used as a backhaul linking Wi-Fi hot spots for access.
By the end of September Internet users stood at 360 million and could top 380 million by year’s end. While impressive, that number represents below 30 percent penetration in the country. To gain a better understanding of the potential, read key categories behind growth:
• Broadband users passed 100 million in October with CAGR of 18 percent [MIIT]
• By June nearly 88 million people shopped online and doled out 119.5 billion yuan (US$17.6 billion) [CNNIC]
• Online advertising will hit 20 billion yuan (US$2.9 billion) in 2009, up 18 percent from a year ago [China Online Advertising Society]
• Nearly two-thirds of Internet users play games. Online games will reap 25 billion yuan (US$3.7 billion) in revenue in 2009, about 35 percent of the gaming industry and is rising [China Gaming Industry]
• 91 percent of internet users use search engines at least once a month. The average online time is 2.4 times more than in front of a TV, 14.5 times reading print media and nearly 20 times on radio [China IntelliConsulting]
• 120 million use social networks with 330 million registered accounts [CNNIC]
And mobile internet:
• By 3Q, 175 million used handsets for internet access; the number is expected to grow rapidly fueled by online services and enabled handsets as a norm [Analysys]
• 20 million cell phone customers used mobile payment for a total 18 billion yuan (US$2.6 billion), up 64 percent from 2008 [China UnionPay]
• Mobile search is expected to grow 120 percent in 2009. Most interest in news, shopping and entertainment [iResearch]
• Mobile games market will reach 1.8 billion yuan (US$264 million) in 2009, up 38 percent [iResearch]
• Mobile IM has 250 million registered users, about 90 million are active IMers; primary use: social networking [Operators; Analysys] In 2009, 80 million people read books on their cell phones which generates 60 million yuan (US$8.8 million) in revenue, up 60 percent [China Institute of Publishing Science]
Huawei and ZTE
The rise of two equipment manufacturers has jolted the industry which used to be reined by their big brothers. No more. Earlier this year Huawei rose to the fourth largest equipment vendor. By September, it climbed to the second spot surpassing Alcatel-Lucent and NSN. Huawei’s revenue soared nearly five folds in four years and almost doubled its market share from a year ago. The company is on target for $30 billion in contract sales in 2009 or 28 percent growth. It is only a matter of time before Huawei catches up with Ericsson and becomes the largest equipment vendor in the world.
Currently in the fifth place, ZTE has made its own mark in 3G at home and overseas. The company expects a 25 percent increase in revenue with a gross margin over 30 percent, one of the highest in the industry. The archrival of Huawei clinched a 35 percent share in 3G equipment bids and built a stronghold in emerging markets in South Asia and Africa. What was the secret to their success? Competitive pricing good enough to beat competitors, then build a reputation with technology, quality and service.
China is the largest handset manufacturer in the world, cranking out approximately 550 million handsets each year. But did you know that China is also the largest source of so-called white-box models? The recession has had little effect on the thousands of brand-name imitators that are expected to ship a staggering 150 million sets in 2009. The main reason for the rise of cheap handsets is huge profit margins by using low-cost parts and evading inspection and certification cost. Surveys show white-box handsets sell well in small cities because of their sleek looks and low price.
Data is hard to come by on how much legit handset sales suffer from no-name underdogs, but the large number is good enough to tip off companies like Nokia, Samsung and Motorola. In addition to raids, confiscation and heavy fines, they also sell low-cost models to counter fake rivals. Being dinged at home, white-box companies have turned their prowls to emerging markets in Southeast Asia, the Mideast and South America where demand for low-cost handset is high. In India, for example, Chinese white-box handsets have taken away 30-40 percent of sales from brand names companies. The next target for the white-box handset: smartphones.
CMMB was supposed to be a big hit in 3G, but the mobile TV service is yet to figure out how to make money for China Satellite Mobile Broadcasting Corporation, the operator of CMMB under SARFT, the agency that regulates broadcasting. The idea is to feed live TV and digital audio programming to handsets and other devices for a fee whereby SARFT will drive a wedge in the lucrative telecom market and compete with in-net broadcasting service by wireless operators.
Started in 2006, SMBC’s ambition was to use UHF transmitters and a high-power satellite to reach 500 million cell phone users by 2011. So far, the CMMB Alliance has recruited over 100 members for chipset, network equipment and mobile devices, but most progress is symbolic. By the end of 2009, CMMB was available in 150 cities, but only a million customers have signed up. What’s more, SMBC is running into a series of problems. Many cell phone users decry SARFT policy on charging a monthly fee; there is limited selection in programming; satellite launch has been pushed back for over a year, and SMBC is having difficulty in funding because of indifference at local bureaus. CMMB will stay as an alternative video service to 3G, but don’t bet on anything spectacular.
What to watch in 2010
• 3G will remain somewhat uncertain despite great promise. Operators will struggle to find the magic bullet that can ignite explosive growth like it did for 2G, but the road to success can be long and bumpy.
• The internet that connects everything. First envisioned by China Mobile, the service combines mobile devices, RFID and the internet to monitor and manage everyday life. The concept blows more hype than real issues in technology, financing and operations; the real goal, if any, is to ante up one’s position in 3G.
• IPTV. After years of tug-of-war, the once touted forerunner in network convergence has climbed slowly to just over 2 million customers with entrenched barriers as telecom operators struggling for a profitable model. Like mobile TV, IPTV will likely play a minor role overshadowed by digital TV and HDTV.
Lin Sun has more than 20 years of experience in the Chinese telecom industry. Contact him at firstname.lastname@example.org.
Get access to premium content and e-newsletters by registering on the web site. You can also subscribe to Microwave Journal magazine.