China Mobile formally launched 4G services in mid-December and in the process set out some of its ambitious investment plans. Already the mobile operator has pilot trials in over 150 locations (with some 200,000 LTE base stations) across the country, covering 500 million people, and these will provide the ‘kernel’ of 4G service offerings.
When the 4G spectrum was awarded to operators in December last year, China Mobile received spectrum in the 1880MHz-1900MHz, 2320MHz-2370MHz and 2575MHz-2635MHz bands. China Unicom has frequencies at 2300MHz-2320MHz and 2555MHz-2575MHz, and China Telecom has 2370MHz-2390MHz and 2635MHz-2655MHz.
In some ways the December award of the 4G spectrum and announcement of services was confirmation of a de facto market presence – you could be forgiven for thinking 4G services were already a reality in most major cities.
China Mobile drew the short straw in the 3G market, and as a results it services were relatively less attractive in the market than those offered by rivals China Unicom and China Telecom. This is reflected in market share data, as China Mobile is estimated to have just over 45 per cent of the 3G market.
In part, the relatively weaker performance in the market has been due to the decision that forced China Mobile roll out services based on TD-SCDMA. Both China Unicom and China Mobile are able to offer 3G uplink speeds of up to 20Mbit/s and, symbolically, supply Apple handsets (China Mobile finally caught up this month when it too began selling custom TD-SCDMA and LTE iPhones). Moreover, in some geographic markets China Unicom and China Telecom are providing high speed fixed line broadband services giving consumer wider choice and intensifying the competitive challenges to China Mobile.
China Mobile was granted 2300Mhz spectrum in 2009 for the deployment of its TD-SCDMA network – subject to the indoor use restriction, China Mobile has been using this spectrum for LTE trials along with spectrum in the 2500Mhz band. For consumers, these allocations mean China Mobile is able to offer 20Mbit/s uplink and 10Mbit/s downlink speeds and therefore directly addressing the perceived gap in its 3G offering compared to China Unicom and China Telecom.
China Mobile knows it has to upgrade its fast broadband services and thus it is expected that the company will aggressive adopt 4G services. It will use TD-LTE for its 4G services and has already confirmed an investment of some $3.2bn for almost 210,000 base stations.
The key question is what will drive this transformation of the market fortunes of China Mobile? Consumers appear to want faster speeds but are also influenced by the devices on offer. They appear to be willing to pay for design and brand value – hence the strong market showing of Samsung and Apple in the consumer handset markets. Up to now, though, China Mobile has been unable to offer Apple devices and so the much heralded agreement with Apple for the iPhone 5s has been seen as tipping point in the fortunes of China Mobile (as well as Apple whose shares rose 3.8 per cent on the announcement of the deal) of the mobile devices.
China Mobile therefore seems to positioning itself to win over new customers to 4G networks, recycle their existing 3G customers to new handsets and thus drive net revenue growth. In effect, China Mobile is using 4G to throw down the gauntlet to the other operators whose 3G revenues are robust and cannot see the same degree of revenue enhancement from 4G services. In fact the opposite may be true that 4G service may erode margins at both China Unicom and China Telecom rather than drive new net earnings.
Howard Williams is Emeritus Professor at the University of Strathclyde Business School.
Next, in part three of our series, we investigate China’s spectrum policy, and the final part will take a closer look at the details of the Third Plenum as they relate to telecoms policy.
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