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Competitors Try Curbing China Mobile’s 4G Urge

The wireless Internet technology race is intensifying a longstanding rivalry between China’s largest mobile phone operator, China Mobile, and its smaller competitors China Telecom and China Unicom.

Since 2011, China Mobile customers in fifteen cities nationwide have been accessing the Internet through the telecom’s exclusive high-speed 4G application network called TD-LTE. It’s a trial service the telecom hopes to expand nationwide after winning a government license, probably by the end of the year.

If China Unicom and China Telecom executives get their way, mobile phone customers outside these trial zones will not be surfing the Internet via their larger competitor’s 4G technology anytime soon.

China Telecom, for example, is reticent to bow to the market forces that would push the company to offer 4G services like China Mobile. The reason is financial: China Telecom, a company source told Caixin, wants to extend 3G’s lifespan as long as possible because it has yet to recover the more than 100 billion yuan invested in slower-speed 3G technology since 2007 for its customers.

China Unicom, meanwhile, is posing a separate challenge to China Mobile’s objectives by choosing not to use TD-LTE—a technology wholly developed in and for China—but rather build its own Internet access system based on a 4G technology adopted by U.S. and European telecoms called FDD LTE.

From a regulatory perspective, and although each company is state-owned, China Mobile appears to have the upper hand. Neither China Telecom nor China Unicom appear ready to climb aboard the TD-LTE bandwagon, but neither are they standing in the way of the licensing process, nor what their executives consider an inevitable march toward nationwide 4G services.

Caixin learned from sources at the Ministry of Industry and Information Technology (MIIT) that the government plans to issue 4G network licenses to telecoms with TD-LTE before starting the licensing process for telecoms with FDD LTE. The second licensing period could follow the first by several months or even a year.

And in March, MIIT Minister Miao Wei said the government might issue 4G licenses by the end of the year.

The government’s goal, the sources said, is to encourage telecoms to adopt TD-LTE.

Shifting Shares

China Mobile needs a license to step beyond trial operations and launch full commercial 4G services. It’s betting on success by investing heavily in network infrastructure.

China Mobile Chairman Xi Guohua told the media at the sidelines of the National People’s Congress in March the company plans to install 200,000 base stations for 4G services in one hundred cities nationwide, covering about 500 million people. The company also plans to buy about 100 million 4G-ready smartphones for customers who sign up for its service plans.

In the years since rolling out 3G services in 2009—after an eight-year commercialization process—China Mobile has slipped in the race for customers who need Internet access on mobile phones.

The company’s share of the 3G market in China fell to 63 percent in March from 72 percent, or 522 million customers, in 2009. Over the same period, China Unicom’s market share grew to about 21 percent and China Telecom’s expanded to 15 percent, from a respective 20 percent and 8 percent.

At least some of the blame for China Mobile’s slide can be pinned on its snail-like 3G technology called TD-SCDMA, which limits Internet download speeds to no more than 2.8 Mbps.

The WCDMA technology for 3G used by China Unicom, however, can reach 21 Mbps, while China Telecom’s CDMA2000 technology averages 3.1 Mbps nationwide and 9.3 Mbps in some parts of the country.

China Mobile also lost a considerable number of high-end users to its rivals, whose nationwide coverage is better.

In the early days of 3G, none of the telecoms offered high-speed services. But China Mobile’s rivals quickly accelerated speeds for their customers as the electronics industry responded to international demand for WCDMA and CDMA2000 equipment. Indeed, in some countries WCDMA technology has been giving 3G customers a nearly 4G experience with download speeds of 80 Mbps.

Standards set by an international trade association require that 4G systems provide upload speeds of at least 50 Mbps for uploads, and 100 Mbps for downloads.

China Unicom’s WCDMA technology is more mature and successful than its rivals, which helps explain the company’s cool reaction to 4G licensing. A company source said a major 3G network investment spree that started in 2008 has paid off with customer-satisfying high-speed services, and that maintaining the network costs no more than 10 billion yuan a year.

Indeed by early 2014, the source said, China Unicom’s 3G network is expected to achieve data transfer speeds of 84 Mbps and thus rival China Mobile’s expected 4G network.

Three Chinese electronics companies—Datang, ZTE, and Huawei—have been manufacturing 3G equipment compatible with China Mobile’s TD-SCDMA standard. Only a few non-Chinese manufacturers such as Ericsson and Alcatel-Lucent have built equipment based on TD-SCDMA.

Datang and the government-affiliated Chinese Academy of Telecommunications Technology developed TD-SCDMA in the 1990s. ZTE, Huawei, and other Chinese companies later joined the effort to develop homegrown technology independent of foreign firms.

Chinese companies also dominate the manufacturing of TD-SCDMA-compatible phones and computer chips, although the U.S.-based manufacturer Qualcomm is also involved.

Companies including Datang, Huawei, Alcatel Shanghai Bell, and Qualcomm later developed TD-LTE, which more closely follows international standards than TD-SCDMA, with a framework that’s about 90 percent non-Chinese, said Wang Zequan, vice president of Alcatel Lucent’s subsidiary Alcatel Shanghai Bell. The other 10 percent of the system’s core technology is controlled by Chinese manufacturers.

Globalization Factor

The Chinese government has been encouraging global equipment manufacturers to participate in commercial development of TD-LTE equipment. Accepting the challenge to make compatible chips and mobile phones were Samsung and Qualcomm, which developed but in 2008 abandoned CDMA2000, China Telecom’s standard.

China Telecom now finds itself at a disadvantage for 4G development. It may be forced to choose between TD-LTE and a standard called FDD LTE, which is used in Hong Kong. And once a choice is made, it will have to spend heavily to build a 4G infrastructure from scratch.

China Mobile has been offering an FDD LTE service in Hong Kong since April 2012 with maximum download speeds of 100 Mbps. The company since then has been working to integrate FDD LTE with the mainland’s TD-LTE network.

China Mobile executives are anxious to see large-scale expansion of 4G beyond its trial cities including Shenzhen, Guangzhou, Hangzhou, and Wenzhou. A nationwide upgrade could potentially affect the nation’s 870 million 2G customers and 260 million 3G clients.

It would also encourage the electronics industry to move a notch higher on the industrial chain, said Cheng Dejie, a deputy chief engineer at the Sichuan Communications Design Institute. By issuing one or more 4G licenses, the government would “give incentives along the TD-LTE industrial chain and to high-end users,” he said.

“Once licenses are issued, China Mobile can seize on the 4G concept for a marketing campaign that blankets China,” said Nomura Securities analyst Huang Leping. “Although its network would not be completed and optimized quickly, the message people hear would be that 4G is stronger than 3G, which would help it retain a group of users.

“China Mobile may not return to the glory age of the 2G era,” Huang said. “But at least 4G would mean the company is no longer at a technological disadvantage.”

China Mobile has sought licensing since 2012, but regulators have moved slowly mainly due to lobbying against 4G by companies that use the TD-SCDMA standard, said Hou Ziqiang, a researcher at the Chinese Academy of Sciences Acoustics Research Institute.

A full-scale launch for 4G would basically end research and development of TD-SCDMA. Those Chinese companies like Datang and ZTE already deeply involved in this 3G technology have been assured by the government they’d be given a portion of the market for 4G equipment, an expert at MIIT’s Telecom Research Institute told Caixin.

China Mobile apparently won regulators over to TD-LTE after bringing officials from several central government agencies to Hangzhou and Shenzhen for network tests. Included were officials from MIIT, the state-owned Assets Supervision and Administration Commission, and the National Development and Reform Commission.

The tests proved the TD-LTE network is more efficient and cost-effective than the 3G system. And soon after the tests, the MIIT minister announced 4G licenses would be issued “within a year or so.” That promise was adjusted in March to mean by the end of 2013.

China is also keen to promote TD-LTE for the benefit of domestic companies in the global business sphere. Huang Xiaoqing, director of the China Mobile Research Institute, said commercial success of the system in China would help determine whether TD-LTE succeeds globally.

Globally, as of March, 156 commercial 4G networks were operating in sixty-seven countries, according to the Global Mobile Suppliers Association. These include 142 FDD-LTE networks and fourteen TD-LTE systems, including those run by Saudi Telecom, Japan’s Softbank, and Bharti Telecom.

Since China and the United States have assigned the same spectrum for TD-LTE services, the standard’s development on the mainland would better connect the Chinese and American markets.

In addition to its promotional campaign at home, China Mobile is leading a global push called the TD-LTE Initiative. The effort so far has attracted members from more than seventy telecom operators whose potential customers include 70 percent of the world’s population.

Nomura’s Huang said TD-LTE would an added boost in China if Softbank succeeds with its ongoing bid for U.S. operator Sprint. A deal would make Softbank the world’s third-largest telecom operator. China Mobile is the largest.