China’s mobile sector grows up superfast

March 2, 2014 6:28 pm

China’s mobile sector grows up superfast

By Daniel Thomas, Telecoms Correspondent

The bustling shopping streets of Shanghai drive home the image of a country glued to mobile devices, often at the expense of passers-by shouldered out of the way by workers hurrying past with smartphone in hand.

The Chinese telecoms market was similarly urgent for the 75,000 people who descended on a bustling Barcelona last week for Mobile World Congress, the industry’s biggest annual conference.

While Europeans and Americans have had superfast 4G services for several years, the nearly one billion people signed up to China Mobile, the world’s largest mobile carrier, are only now being given their first sight of so-called 4G or LTE technology.

But such is the scale and speed at which China’s telecoms industry moves – driven by state policy – that there are already more 4G mobile masts installed in China than in the whole of Europe. That gap will accelerate with a further wave of huge tenders expected by the leading equipment makers in the next few months.

China’s adoption of 4G is not just a story about bringing faster internet speeds to the world’s most populous nation. The type of 4G technology – a standard called TD-LTE – used by China Mobile and its rivals means that there are wide-ranging ramifications for device makers such as Apple and Samsung, as well as telecoms equipment makers such as Ericsson and Nokia. Not to mention homegrown technology champions such as Huawei, which benefits more than most from the telecoms boom in China.

“The telecoms industry has been the poster child of the Chinese economic boom. A global standard based on a Chinese design is a prestige thing, and also an economic boon to the Chinese telecoms vendors,” says Tom Mowat, lead analyst for Analysys Mason’s Asia-Pacific team.

The need for speed

4G technology is capable of delivering the internet over mobile phones almost instantly, opening up new services and applications as well as a vast market for western technology groups such as Apple, which will finally be able to sell its iPhones to the company’s 750m customers.

“By 2016, we estimate that China Mobile will be used for one in 10 handsets globally,” says Mr Mowat, emphasising the importance of the region to handset makers.

Rapid adoption of superfast internet technology will also underscore the country’s own economic and social development. While Chinese companies were previously seen as cheap imitators of western groups, introduction of superfast networks has meant a new generation of web-orientated businesses such as WeChat and Alibaba that already compete with rivals in Silicon Valley.

If at first you don’t succeed

This is not the first time that China has sought to take a lead by means of its telecoms networks. The battle for the 3G market has been fought with unblinking perseverance between GSM and CDMA standards during the past decade. This was a battle that China Mobile – which favoured the TD CDMA standard – lost. Most global networks now conform to GSM standards.

That is why there was no iPhone on China Mobile’s network for so many years – and also why so many visitors to the Beijing Olympics complained about the poor mobile service at such an important event for the country’s political leaders.

“The government had to force it down the throat of China Mobile and even then the company could not really make it work,” says Duncan Clarke, chairman of BDA, an inward investment group.

With 4G, China’s TD standard is not necessarily a technology in competition with the more common FDD-LTE technology, since both can coexist for handsets. That means equipment makers will not be forced into choosing between competing technologies – and as such will give the TD standards a much higher chance of success.

The Chinese market is also more mature now – and the sheer scale of the rollout this time involving all three of the country’s telecoms groups means that there is a much higher chance of putting the TD technology at the heart of the global telecoms market.

A global standards battle

The scale of the 4G programme gives the adopted standard considerable momentum – and gives China the opportunity to take the lead in the next generation of global broadband technology.

In an intensifying global battle about future technology standards, analysts say China sees the advantages in sponsoring a less-popular form of technology through widespread domestic take-up. To date, there are only about 17 TD-LTE mobile networks commercially available worldwide – or one in 40 LTE connections globally.

“The world’s largest operator running this sort of network immediately turns [TD LTE] into a very successful global standard,” says Mr Mowat.

Dividing the spoils

There are some ironies in China’s bold ambitions for the introduction of superfast mobile broadband, given that the internet in China can often be incredibly slow because of the “Great Firewall” that blocks or filters foreign sites.

But the speed of the rollout needs to be seen in the context of a telecoms industry largely controlled by the state.

“China Mobile has $65bn on its balance sheet so it can afford to build out very quickly. The government sees its balance sheet as a useful tool,” says Tucker Grinnan, regional head of telecoms for HSBC in Asia.

The lion’s share of the work to build the masts and other parts of the 4G network has been won by Chinese groups such as Huawei and ZTE, which deny direct links to the state.

Western groups such as Ericsson, NSN and Alcatel-Lucent have also won sizeable contracts, but some executives at those groups have expressed dissatisfaction about China Mobile awarding all three western manufacturers a seemingly arbitrary 11 per cent each of its Rmb20bn ($3.25bn) 4G contract.

Beyond 4G

Chinese technology groups are not stopping at 4G in the race for technological leadership, with Huawei already committing resources to the next generation of so-called “5G” technology.

CCS Insight, a UK-based research group, forecasts China will become leader in next-generation mobile technology in the next two years, leaving behind Europe where authorities are belatedly pushing the industry to invest “to regain former glory”.

Huawei said that by 2018 it would invest a minimum of $600m in research in 5G technology capable of mobile speeds more than 100 times faster than 4G. That investment is much more than has to date been claimed by any western rival – even though Brussels’ commissioner Neelie Kroes has committed time and money to making this a priority for European tech groups.

Indeed, this has now become a battle of regional interests to seek an edge in next-generation technology.

The march towards superfast mobile internet in China has been accelerated by government efforts, and the desire to form a market to benefit its technology champions.

China’s consumers will also benefit from world-class network quality, with resulting benefits to the internet groups already growing rapidly in the country – even though government censors will probably continue to keep a close tab on the content that travels China’s new internet superhighway.