You are reading “Market Research Telecommunications”, one entry from Oasis Market

Published:

20.01.10 / 6am

Market Research Telecommunications

The telecommunications industry in China is dominated by three state-run businesses: China Telecom, China Unicom and China Mobile. The three companies were formed by a recent revolution and restructuring launched in May 2008, directed by Ministry of Information Industry (MII), Nationals Development and Reform Commissions (NDRC) and Minister of Finance. Since then, all the three companies gained 3G licenses and engaged fixed-line and mobile business in China.

As a result of China’s entry to the World Trade Organization (WTO) in 2001, a new regulatory regime is now being established and foreign operators are gradually being allowed to access the market. Although Chinese customers keep complaining that they need to pay higher prices for products and services and receive lower-quality services than customers in America or Europe, foreign travellers often feel that telecommunication services in China are cheap and convenient.

As China’s 2nd generation of mobile communications equipment market is dominated by European and North American companies and because of the unique characteristics of mobile communications, most of China’s mobile communications equipment demands are filled by imports. The quickly rising Chinese manufacturers, however, led by Huawei Technologies and ZTE are turning to South American, Southeast Asian and African countries for business opportunities and are increasingly raising their market share in China.

As of 2009, Huawei Technologies is expected to surpass Nokia-Siemens Networks and Alcatel-Lucent to become the 2nd largest manufacturer of telecommunications equipment.

In 2005, China’s Ministry of Information Industry (MII), the most important government regulator in the telecommunications industry, projects that Chinese telecom carriers will invest $25 billion to recruit 45 million fixed line telephone subscribers and 58 million cellular phone users. MII expects the number of fixed line telephone users to reach 361 million and the penetration rate to reach 27.6% by the end of 2005 and the number of cellular users to reach 392 million and a penetration rate of 30%. With such an investment, Chinese telecom carriers expect to generate revenues of USD 76.5 billion, 10.4% more than that in 2004.

As of Aug-2009, there were a total of 720million mobile phones in active use, representing a penetration rate of 54% of the population.

Introduction

The Chinese telecommunication sector’s growth rate was about 20% between 1997 and 2002. China fixed-line and mobile operators have invested an average of 25 billion US dollars on network infrastructure in the last years, which will be more than all western European carriers combined. As a result, with 1.3 billion citizens, China owns the world’s largest fixed-line and mobile network in terms of both network capacity and number of subscribers.

Only one out of ten Chinese citizens had a phone five years ago. Today more than one out of three have a fixed telephone subscription and more than 1.25 million cellular subscribers sign up in China every week.

China’s accession to the World Trade Organization (WTO) on December 11th, 2001 resulted in the gradual opening of the telecom services market to foreign companies.

China’s two mobile operators, China Mobile and China Unicom, will continue to expand their mobile networks in 2005 in a way that not only increases network coverage but also gives flexibility to offer more data services to their customers. They will continue to have great demand for base stations, switches and network optimization solutions.

Historical overview

Before 1994, the Ministry of Posts and Telecommunications (MTP) provided telecom services through its operational arm, China Telecom. Pressured by other ministries and dissenting customers, the Chinese government officially started the telecom industry reforms in 1994 by introducing a new competitor: China Unicom. China Unicom could hardly compete with the giant China Telecom.

In 1998, due to a ministerial reorganization, the MTP was replaced by the new Ministry of Information Industry (MII). The MII took two large scale reshuffling actions targeting the inefficient state-monopoly.

In 1999 the first restructuring split China Telecom’s business into thee parts (fixed-line, mobile and satellite). China Mobile and China Satcom were created to run, respectively, the mobile and satellite sectors but China Telecom continued to be a monopoly of fixed-line services.

The second restructuring in 2002 split China Telecom geographically into North and South: China Telecom - North kept 30% of the network resources and formed China Netcom (CNC) and 70% of the resources were retained by China Telecom - South or simply the new China Telecom. Parallel to this double fission, the telecommunications division of the Ministry of Railways (MOR) established a new actor in 2000: China TieTong.

These resources consisted of a 2,200,000 km long nation-wide optical network, based on Asynchronous Transfer Mode (ATM), Synchronous Digital Hierarchy (SDH) and Dense Wavelength Division Multiplexing (DWDM) technologies and several submarine cables, in particular with the USA, Japan, Germany and Russia.

To sum up, in the last decade the Chinese telecom industry has changed from a state-run monopolistic structure to state-run oligopolistic structure.

In May 2008, MII, NDRC and Minister of Finance announced the third restructuring proposal and also launched three 3G licenses. With the rapid development and serious competition, Chinese telecom operators face challenges on shrinking landline users, too rapid growth on mobile business, low profit services and great gaps among the carriers. The third revolution was to combine six main telecom operators into three, aiming of developing 3G business and full telecom services, and avoiding monopolistic and over competition.

Regulatory environment

The MII is responsible, among other duties, for elaborating regulations, allocating resources, granting licenses, supervising the competition, promoting research and development and service quality as well as for developing tariff rates. The MII has built up a nation-wide regulatory system composed of Provincial Telecommunications Administrations (PTA) with regulatory functions within their respective provinces. A number of other significant institutions also influence the industry, such as the State Development and Reform Commission (SDRC).

Following its WTO accession, China is starting to make plans, including adopting western-style telecommunications law and setting up an independent regulatory and arbitration body to deal with the telecom operators.

Foreign participation

Prior to its WTO accession, China’s policy protected the national emerging telecom industry since it was and is a national priority sector. Only foreign equipment vendors were allowed to invest in China. Authorization for the investments was conditioned on technology transfer. International telecom carriers were banned from accessing the market.

As part of the WTO commitments, the Chinese government is opening gradually the carriers market to foreign investors. There are some geographical limits to this opening but they will be progressively relaxed. In 2005 foreign investors will be allowed for form joint ventures, investing up to 50% in Internet services in the whole country, up to 49% in the mobile sector in 17 major Chinese cities and up to 25% in fixed-line basic services in Beijing, Shanghai and Canton (Guangzhou). Finding a Chinese partner to form a joint venture with, preferably a major carrier is mandatory for a foreign company wishing to access the Chinese market.

Foreign investments come, in order of importance, from the United States, Canada, Sweden, Finland, Germany, France, Japan and South Korea. Main companies from these countries already have one or more Joint Ventures. Notice that many of them result in divorce .

Market overview

As of July 2006, China has 366 million fixed-line subscribers and 431 million mobile customers(MII). Chinese telecom operators focus their effort on voice. Revenues from data only account 5%. New technologies are being deployed to provide differential services. These technologies include ADSL, wireless LAN technology, IP (Internet Protocol) telephony and services associated with mobile communications such as Short Messaging Service(SMS), Multimedia Messaging Service (MMS), ring tone download etc. Chinese operators are often cautious in purchasing cutting-edge technologies. Mobile communication, especially Global System for Mobile (GSM) is the most profitable sub sector and reports 46% of all total revenues.

Halfway between mobile and fixed, Xiaolingtong is a limited mobility service based on Personal Access System (PAS) / Personal Handy Phone System (PHS) technology. It consists of a wireless local loop that provides access to the fixed-line network. With over 50 million users, PAS/PHS competes in big cities head to head with traditional mobile services since prices are typically far cheaper.

Telecom operators

As of 2009, the telecom operators in China are exclusively Chinese: two fixed-line operators with nation-wide licenses - China Telecom and China Unicom - three mobile carriers - China Telecom (CDMA and CDMA2000), China Mobile (GSM and TD-SCDMA) and China Unicom (GSM and WCDMA). The State has control and majority ownership of all of them. Most of them are financed in Hong Kong.

• China Telecom is one of the largest telecommunication SOE in China

  Market Research Telecommunications on YouTube: