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Ten Trends in 2006 China Telecom Market

       Telecommunications in China developed dramatically during 2005; much was done. Still, the industry is looking forward to even greater opportunities in 2006.

 With technological improvements, the development of additional business modes and with constant change ruling in the market place, new possibilities are emerging.

Aggressive change is driving the national economy, but with this change comes a range of uncertainties that may result in the creation of great wealth or catastrophic losses. It is a business activity that can easily be a “new thing” today and an “old thing” tomorrow, with its leaders riding the sometimes spiteful tiger of technological change and innovation.

The Kick-off of 3G Network

"After years of efforts, it's time for China to develop 3G," the chief of the Ministry of Information Industry (MII), Wang Xudong told the ministry's annual working conference in Beijing on December 27, 2005.

After proceeding cautiously, on December 27, 2005, the MII indicated that domestic operators should be ready for the rollout of 3G (third-generation) mobile telecoms services. This means that 3G services will likely be available in China in 2006.

Although the ministry has not set a clear timetable for 3G licensing, policies related to 3G technologies, services, fees, regulations and spectrum allocations should be worked out in 2006, according to Wang.

China's telecom operators and equipment-makers have been anxiously awaiting the go-ahead for 3G services, which will supposedly provide quicker data transmission and combine calling services with extras such as information downloading, e-mail and instant messaging services.

The enterprises engaged in 3G operations may soon get the opportunities they’ve been anxiously anticipating, to engage in network construction, business exploration and market cultivation with an eye toward the upcoming 2008 Beijing Summer Olympic Games.

Reshuffle of the Telecom Operators

Now that 3G licences will "almost definitely" be distributed in 2006, a reshuffle of the domestic telecom industry, using mergers, is likely. Improving their competitiveness will be a prime motivation. Insiders said the State-owned Asset Supervision and Administration Commission (SASAC), has been considering merging major telecom operators.

“Link the 3G (licensing) with deepening telecom reform, optimize the competitive landscape, improve regulation and supervision as well as promoting (Chinese) independent intellectual property rights," the chief of the Ministry of Information Industry (MII), Wang Xudong, said.

In a short notice posted on its Web site, the State-owned Assets Supervision and Administration Commission (SASAC) confirmed that the Great Wall Group will be merged with China Electronics Corporation (CEC), China Daily reported on August 3, 2005. The merger between State-owned conglomerates CEC and China Great Wall Computer Group could spark large-scale mergers and acquisitions between firms controlled by the State in 2006.

TD-SCDMA Stands out?

China has begun building large-scale trial networks based on its own home-grown third-generation (3G) mobile telephone standard. Yet the government still wants to give the home-grown 3G technology standard, TD-SCDMA, more time to mature.

Not yet put into commercial use, TD-SCDMA developments have reportedly been significant in recent months. Pre-commercial networks will likely be a major boost for TD-SCDMA development, which is playing catch-up with rival foreign standards such as the Europe-initiated WCDMA and US-backed CDMA 2000.

It is said that China will create a central role for the TD-SCDMA standard as part of its long-awaited roll-out of 3G services. It also fuels expectations that Beijing soon plans to issue a TD-SCDMA licence to China Telecom, the country’s leading fixed-line operator, which is running a Shanghai trial along with two other phone companies.

The timing of any move remains unclear and the uncertainty comes during speculation about a potential restructuring of the telecom market.

IPTV Usage will Soar

“The convergence of different media promises a great deal of growth for traditional content platforms such as television," says Thierry Raymaekers, Asia-Pacific managing director of technology solutions provider Irdeto. One of the biggest examples of technological convergence is the delivery of traditional television content across broadband networks to computers and television screens.

In December 2005, Siemens AG was picked to supply infrastructure for an in-the-works Internet-protocol television (IPTV) service. The service is a project of Shanghai Telecom and the Shanghai Media Group (SMG). It indicates that China has been targeted as top market for Internet TV.

“China is one of the largest IPTV markets in the world," said Andreas Mueller-Schubert, president of Fixed Networks Solution of Siemens Communications Group, Siemens AG. China is among the first in the world to put IPTV services in commercial trial operation, he added.

IPTV is the latest buzzword in China's telecoms and broadcasting industry. IPTV (Internet Protocol TV) enables broadband Internet users to access TV broadcasts both live streams and video on demand (VOD) via computers.

Statistics indicate that there are 360 million TV viewers and 25 million broadband users on the Chinese mainland and that there is a huge potential for development of IPTV services.

Analysts predict that China's IPTV market will be worth 300 million yuan (US$36.2 million) this year, and might grow to 1.67 billion yuan (US$201 million) by 2009.

Real-name Cell Phone Subscription

The long-debated real-name subscription of mobile phone users will start in 2006, said the Minister of Information Industry, Wang Xudong, on December 28, 2005.

About 200 million users of prepaid cell phones will be required to register their real names. Among the 388 million cell phone users in China, only those who pay afterwards using cell-phone services are asked to register their ID information upon subscription, while those who pay in advance have no personal information registered at all.

There will be 820 million cell-phone subscribers or more by 2006, the Ministry of Information Industry has predicted.

"It will be quite difficult for operators to convince their prepaid users to register their names," said Chen Jinqiao, head of the policy research division with the Telecommunications Academy under the Ministry of Information Industry (MII).

Real-name cell phone subscription has stirred controversy from the day it was proposed. Telecom operators feel it will be inconvenient to collect their users' information and subscribers feel their privacy will be threatened.

“Black Mobile Phone”

China's love affair with mobile telephones has created a thriving black market trade in smuggled, cloned, and refurbished handsets. The growth and vitality of the black market has become a major challenge for struggling domestic vendors.

In June 2005, several domestic handset vendors, including Bird, TCL, Amoi, Konka, and ZTE gathered in Guangzhou to tackle the rising problem, saying that the sale of black-market mobile phones seized one-third the Chinese telecom market share. They warned that an unrestricted black market could deal a serious blow to the local industry.

Domestic vendors are leading the fight against black market handsets, because it’s having a significant negative effect on their low cost market, but a solution to the problem is unlikely to emerge any time soon.

National Mobile Phone Brands up in Rankings

Compared to the market share of the first half of 2005, homemade brands experienced a slight rise in their rankings in the first seven months of last year, according to statistics released by Sino Market Research on September 5, 2005.

Statistics revealed that Nokia remains unparalleled in China with a market share of 21.5 percent, while Motorola, Samsung and Bird took the top three in the second group with a market share of 8 percent and 12 percent. The fifth to seventh were Sony-Ericsson, Lenovo and Amoi, from 4.5 percent to 5.5 percent.

TCL, Haier and Konka came in at below 3.5 percent in the fourth group, followed by other phone makers at below 2.5 percent.

Price Competition

Rumours have been swirling that low-price Motorola mobile phones are available on the Chinese market. This comes because of a price-adjustment made by a domestic mobile phone retailer.

Actually, Motorola, the world’s second largest mobile phone maker, launched India’s cheapest GSM (Global System for Mobile communication) handset, the C115, on December 23, 2005. It is the only handset maker to be awarded a tender to produce sub-US$40 and sub-US$30 phones by the GSM Association. The company will launch its sub-US$30 phone in 2006.

If 3G licenses are released in 2006, as expected, the Chinese mobile-phone market could easily see a price because of competition in the sector.

Industrial Alliance

Four newly licensed domestic mobile-phone manufacturers, Skyworth, Changhong, Daxian, and Malata, announced on October 29, 2005, that they will form an alliance to bring about a "group breakout” in competing with foreign handset-makers.

The move underlines the growing desire of Chinese telecom-manufacturers to increase profit margins in the face of foreign competition.  

Domestically made mobile phones reportedly hold 40 percent to 50 percent of the current China handset market. Of these, about 10 percent are made under a foreign brand or by a foreign-invested company. Despite this sizable market share, low-end production has resulted in low profits. The high-end market is dominated by foreign brands, explaining the new alliance's decision to target the mid-range market.

International Corporation

In recent months, Chinese enterprises have displayed unprecedented enthusiasm for overseas mergers and acquisitions (M&A).

The Shenzhen-listed TCL Group, a leading electric appliances maker in China, announced on December 28, 2005, that Philips Electronics China B.V. has acquired an additional 5 percent stake in the listed company for 200 million yuan (US$24.7 million) in cash to become its third largest shareholder.

Siemens AG announced on June 7, 2005, that the Taiwan-based BenQ Group will acquire its entire money-losing mobile phone business with more than 6,000 employees worldwide. According to the agreement, BenQ will acquire all of Siemens' development and manufacturing locations in Manaus, Brazil, and Kamp-Lintfort, Germany, along with administrative functions as well as its sales and marketing organization.

Globalization creates big challenges, but it also offers enormous opportunities for Chinese companies, especially those who want to build up brands in the international market. In order to increase competiveness, overseas mergers and acquisitions will be a trend for Chiniese telecom enterprises in 2006, analysts said.