What Does China Know That We Don't?Tuesday, December 02, 2008
I just returned from a trip to Asia where I attended the China Mobility Summit and Mobility World in Beijing and then had a few meetings in Tokyo before returning home. It was a good trip and I learned a lot more about what is going on in Asia and what lies ahead there.
It is hard to believe that neither China nor India, the two largest emerging markets for wireless services, have not yet issued licenses for 3G services. India has issued licenses for WiMAX and networks are being built, but China has decided that WiMAX will not be permitted in its country, perhaps because it is pushing TD-SCDMA, its own TDD (Time Division Duplex) technology.
But the title of this Commentary refers to recent activity in China, which, as we all know, has a different type of government than we do. However, that does not mean its ideas are any less valid and it does not mean it is not trying to provide the best possible wireless services for its citizens at the best possible pricing. It does mean, though, it has the ability to make changes in how its wireless network operators do business.
At the China Mobility International Summit 2008, there were several keynote speakers. The first was Xi Guohua, Vice Minister of China's Ministry of Information Industry (MII), who kicked off the event with an update on the status of wireless networks in China and the move toward providing licensing for 3G networks. China recently combined six network operators into three to continue to provide competition while making sure each operator has an opportunity to survive. Today, there are 625 million wireless subscribers in China, which represents 50% of the population. This represents a tremendous upside to its wireless service industry as citizens of China can afford to add wireless services to their communications capabilities.
Vice Minister Guohua stated that 3G is extremely important to China and that it will provide access to broadband services for those already using wireless and extend broadband access to those in China who do not have it today. And he promised that 3G licensing will take place very soon in China. But this will be handled quite differently than in the United States and other countries because along with reducing the number of wireless operators from six three, a 3G technology has been assigned to each of the three.
Vice Minister Guohua also talked about TD-SCDMA heading toward the TDD version of LTE, which they are calling TD-LTE. This, too, poses a threat to WiMAX, as China plans to make both TD-SCDMA and TD-LTE a standard that will be recognized around the world and will certainly compete with WiMAX if it works as well as China Mobile and the Chinese government says it does. In my estimation, China will have a difficult time making TD-SCDMA or TD-LTE a world standard, but that does not mean it won't try. To my thinking, the issue is whether Intel will continue to promote WiMAX on its world tour by making grandiose promises or if it eases up on the hype as more WiMAX mobile systems come online and WiMAX's true capabilities become known.
Note: The Sprint Xohm (Clear) WiMAX system, now commercial, is providing data speeds of 2-4 Mbps down and 1 to 1.2 Mbps up from the devices, coverage averages about two miles per cell and not the 30 KM promised by Intel, and the Baltimore system currently has 170 cell sites, going to 300 over time, which is a far cry from the number promised by Intel.
The Vice Minister concluded his speech by talking about how China is going to drive TD-SCDMA and its newer version TD-LTE to a worldwide standard by making sure there are plenty of devices and applications that can take full advantage of the technology.
After his speech, representatives from the three networks each spoke for a few minutes. China Mobile, a GSM provider, will be moving to TD-SCDMA and is responsible for moving it forward to TD-LTE and driving it as a world standard.
China Mobile will be rolling out TC-SCDMA, the homegrown 3G technology that is a competitor to WiMAX since it is a TDD technology (this is probably the reason China is not permitting WiMAX in its country). China Mobile's Vice President spoke extensively about TD-SCDMA in his presentation and the fact that of its 356,000 cell sites (yes, the number is correct), 1,600 are already running TD-SCDMA and were used during the Olympics. China Mobile said it was a huge success.
China Telecom has become the CDMA operator in China and has some ambitious plans to move to 3G and then 4G services. It presently provides coverage in 340 cities including 82 major metro markets and it plans to invest $80 billion in network expansion. Plans call for moving to EV-DO Rev A, adding mobile TV and what is being called "instant multimedia," and moving toward LTE in the three to five year timeframe. China Telecom also wants to work with other CDMA operators in order provide better CDMA roaming services. (It already does a great job with voice. When I first arrived in Beijing, I received two SMS messages on my Verizon phone, one telling me how to dial a call to the United States and another giving me a customer service number to call if I had any problems.)
China Unicom, the final network operator in China, is using GSM but will be moving to WCDMA when the licenses are released and then on to 4G (LTE). Zham Juna, Vice President, stated it would start with a single HSPA carrier and then increase the number of carriers based on need. It was interesting to me that he spent a little time on its technology roadmap and then the rest of his time talking about becoming a "green" network operator. Toward the end of his speech, he mentioned that China Telecom is pushing for Software-Defined Radios (SDR) in order to make its transition from GSM to HSPA and then LTE as smooth as possible.
Recapping, China has reduced the number of network players in the country from six to three and has assigned a 3G technology to each:
- China Mobile will be GSM adding TD-SCDMA and then TD-LTE
- China Telecom will be CDMA adding EV-DO Rev A and then LTE
- China Unicom will be GSM adding HSPA and then to LTE
One of the most discussed topics during the breaks was the issue of China being able to drive TD-SCDMA and TD-LTE to a worldwide standard with deployments in other countries. The consensus among those I talked with is that China will have a hard time promoting both technologies in light of the uptake of WiMAX in the TDD spectrum in many other parts of the world. However, if China can prove, as it believes it can, that TD-SCDMA and TD-LTE are more efficient and provide faster data rates than WiMAX, it might have a chance.
It is hard to imagine that the two largest emerging markets, China and India, have not yet permitted existing network operators to deploy 3G services. It appears as though China will finally issue the licenses in the first quarter of 2009, and India will not be far behind. At the Mobility World portion of the conference, we heard from a number of operators from Africa, Russia, Indonesia, and other Asian countries, all of which have deployed 3G technologies and are seeing a fairly large uptake for broadband data services. In many of these countries, 3G services are being used for both mobile and fixed access, especially in areas where there is no existing broadband coverage.
It should be interesting to follow the progress in China with its huge growth market, only 50% penetration, and currently without 3G services. Still, there are already 625 million voice and text subscribers on these networks and adding broadband capabilities should provide operators with a hefty uptake for broadband. As more subscribers start purchasing wireless services, I will bet that many of them will opt for wireless broadband from the beginning.
While I don't agree with requiring specific network operators to deploy specific technologies, to its credit, China is deploying the two most prevalent technologies along with its homegrown TD-SCDMA broadband services. It will be interesting to watch how many customers opt for one of the existing two world standards as opposed to TD-SCDMA. I would hazard a guess that the technology won't make any difference to those who do not plan to travel outside of China, but that it will make a difference to those who travel beyond its borders and want their broadband services as well as voice as they travel. If success for TD-SCDMA is based on the number of subscribers who opt for it in China, this may not be a realistic indication of how it would fair in other counties. There is a perception that wireless customers want their services no matter where they go, even if, in reality, only about 15%-20% of all customers actually travel outside their own region in a given year.
I do, however, agree with limiting the number of operators in a given market. China has done so by decree and in the United States we will limit the number of operators, yet again, by attrition as those without the resources to survive the rigors of so much competition are either sold off or go out of business. There appears to be this notion, partially created by Net providers, that more is always better. It appears that the U.S. Congress and FCC have become firm believers. Yet it has been proven time and time again that a given market can only sustain so many networks and the rest (usually the new entrants) will have a tough time even seeing a return on their investment.
In the United States, we have seen the expansion and contraction of the wireless communications industry several times-Sprint and Nextel, BellSouth and SBC, then Cingular and AT&T, and now Verizon and Alltel and Sprint's Xohm and Clearwire. We have also seen many of the tier 2 and 3 operators sell out to the big guys and many MVNOs have failed and are no longer in business. We have seen companies file for chapter 11 protection and then return from the dead to survive and grow (Leap), and both muni-Wi-Fi and Broadband over Power Lines come to market and then fail for a variety of reasons.
But even today, the FCC is adding more players to the wireless landscape. It recently approved unlicensed usage of TV white space for broadband, and attempted to auction the AWS-3 band, requiring the winning bidder to cover 95% of the U.S. population and give away a percentage of its services. Now reports indicate there is a plan to reinvent the 700-MHz D Block and include free broadband access along with public safety services.
A few weeks ago, I wrote about how our county of 400,000 will have a total of sixteen wired and wireless broadband service providers in the next three to five years while there are many areas within the United States that remain uncovered.
It seems to me that instead of promoting more networks in already built-out areas, the sensible thing to do is to establish broadband for Rural America. This cannot be done by authorizing new networks in the 2 GHz and higher bands-I believe it should be part of the shared D Block initiative. Using any of the existing or future 3G technologies and building out to cover rural America, this system could easily be used for both fixed and mobile broadband services.
You would not want to mix fixed and mobile broadband services in heavily populated areas because of the metrics of operating a mobile network and allocating bandwidth. However, you could, and we should, be able to use the same network for mixed broadband services in rural areas. This would provide better coverage for first responders, including those in rural areas that have little if any funds for system upgrades, and it would provide broadband for homes and offices in rural America as well as first responder and commercial access in more populated areas. There are many rural power companies and wireless and wired providers that could assist in the construction and operation of this network. And there is funding available from the federal government for rural services as well as from Homeland Security.
Encouraging more new networks in a nation already being well served makes little sense to me. Those already in place are competing against each other and if you have any doubt about that, I encourage you to compare our voice and data prices, as well as the number of available devices, to those in any other part of the world. With the exception of India, you will find that U.S. consumers pay less for both voice and data services than almost anywhere else in the world.
What does China know that we don't? It knows that less is better than more when it comes to networks that provide wireless services. I believe that over the next few years, this will be borne out by our own market forces. I predict that by 2010 we could be back to four nationwide networks and two smaller networks per region, which sounds about right to me for a population of just over 300 million!
Andrew M. Seybold