- 1. CONFIDENTIALChina’s Mobile Telecom ServicesIndustry OverviewGCO Practice DevelopmentMay 2002This report is solely for the use of Firm personnel. No part of it may be circulated, quoted, or reproduced for distribution without prior written approval from McKinsey & Company.
- 2. ACKNOWLEDGEMENTS AND REFERENCESMGMs and CSS involved in the relevant studies include the following:Tony Perkins (BEI)
Stefan Albrecht (BEI)
Chipper Boulas (HKO)
Peter Kenevan (TOK)
Perchow Joseph Chang (SHA)
Andrew Wu (HKO)
Hai Wu (BEI)
Jane Xing (HK)
Yi Feng (BEI)
Sheng F Li (SHA)
Yoshinobu Takanuki (TOK)
Graeme Hunter (JOH)
Julia Yang (BEI)
Eric Xu (BEI)
Jason Liu (BEI)
Shirley Chen (BEI)The series of PDs include the following:# China Macroeconomic Environment
# China’s Mobile Telecom Service Industry Overview
# China’s Internet Industry Overview
# China Telecom Equipment and Services Overview
# China’s Mobile Handset Sector Overview
# China Telecom Industry Regulatory Overview
# Key Success Factors and Case Studies of MNCs Entry to China1
- 3. KEY MESSAGES1. China’s mobile telecom service market is huge and fast growing, representing US$21 billion market size in 2001 and US$38 billion in 2005. This market is supported by the world’s largest subscriber base at 145 million, already comprising 15% of the world’s total in 2001 and growing to potentially 218 million in a low case or 300 million in a high case by 2005
2. The competitive landscape for mobile services has evolved from a single regulator and operator to today’s duopoly of China Unicom and China Mobile, both of whom are unassociated with the Ministry of Information Industries. A second breakup of China Telecom is expected to form two large telecom operators, China Telecom and China Netcom Group, who are likely to receive mobile licenses. A fifth telecom operator, China Railcom, also has the potential of receiving a third generation license and building a mobile business. For now, China Mobile dominates the market with 82% value share and 72% subscriber share and owns much of the high value user base. However churn is already high and is expected to increase with continuing pricing pressures and increased competition.
3. Wireless data services are expected to grow quickly in China to a market of potentially over US$4 billion by 2005, used by 43% of all mobile users. Interest from consumer surveys have been high and operators and other players are actively building services in the market. While early WAP services have failed to catch on, SMS has grown exponentially with up to 20 billion SMS messages in 2001. The early adopters will be mobile professionals and modern youth, who will require services and devices tailored to their needs.
4. Regulatory changes loom, particularly with the accession of China to the WTO. While foreigners will be unlikely to set up MVNOs, WTO will allow greater participation of foreigners in basic and value added services, although geographic limitations will exist through 2004 and Chinese players will be required to own at least 50% of telecom service ventures (51% for basic services). Regulatory risks remain, with no means to appeal regulator decisions, unclear interpretation of regulation including WTO commitments, and the government’s track record of intransparent and unpredictable decision making. (See separate regulatory PD for details)
Appendix
Players profiles
3G technology standards choices2
- 4. KEY MESSAGES1. China’s mobile telecom service market is huge and fast growing, representing US$21 billion market size in 2001 and US$38 billion in 2005. This market is supported by the world’s largest subscriber base at 145 million, already comprising 15% of the world’s total in 2001 and growing to potentially 218 million in a low case or 300 million in a high case by 20053
- 5. 1997-2001 MOBILE SERVICE REVENUE GROWTH OF 30% CAGR HAS OUTPACED OTHER TELECOM SERVICE SECTORS AND IS PROJECTED AT 16% THROUGH 2005Revenues
US$ Billions CAGR vs. other industries (1997-2001)
PercentMobile Fixed linePagingCAGR
30%CAGR
16%
Source: Deutsche Bank; McKinsey analysis4
- 6. * Revenues do not equal the product of ARPU as subscriber figures are provided for year end, not average subscribers during a year. Detailed information on the timing of new subscriptions and churn required for the calculation of average subscribers during a given year is not available
** All CAGRs are calculated on the announced data
Source: Deutsche Bank; JP Morgan; MIIEXTRAORDINARY SUBSCRIBER GROWTH IS THE PRIMARY DRIVER OF REVENUE EVOLUTION, MORE THAN MAKING UP FOR LARGE DECLINES IN ARPU DUE TO STIFF COMPETITIONMobile revenues*
$ Billions Number of subscribers – low case
Millions CAGR
30%CAGR
16%CAGR
83%ARPU
US$/monthCAGR
-24%CAGR
-7%Penetration initially low
Government backing for increasing subscriber numbers
Relatively low fixed line penetration
Low-end prepaid subscriber increaseDrivers Decline due to increased prepaid and lower spending by late entrants
Tariff reduction as competition increases
Slightly off-set by increase in data traffic in later years CAGR
19%20823526329117161515Announced Effective 5
- 7. * 05 forecast use low case, net subs after inactive and multi-sim-card reduction
** Major European countries include: UK, France, Italy, Germany, Netherlands, Spain, Sweden
Source: JP Morgan; WEFA-WMM; MII; McKinsey analysisJapanCHINA IS THE WORLD’S LARGEST MARKET IN TERMS OF SUBSCRIBERS, HAVING OVERTAKEN THE US IN 2001USMajor European** countriesCAGR
= 30%CAGR
= 14%CAGR = 7%Number of mobile subscribers
MillionsCAGR
= 13%2000
2005China – low case*China – high case*CAGR
= 22%6
- 8. CHINA’S MOBILE SUBSCRIBER BASE IS GROWING MORE RAPIDLY THAN ANY OTHER MAJOR MARKET, COMPRISING 15% OF WORLD TOTAL IN 2001 * Afirca, Eastern Europe, Middle East, Canada
** Forecast of 02-05 use the high case, net subs after inactive and multi-sim-card reduction
Source: JP Morgan; Gartner 2001; Deutsche Bank; Merrill Lynch; Piper Jaffray19971998199920002001E2073004827279651,1781,3931,633100% = Global mobile subscribers
Million subscribers; percentWestern EuropeUSSouth and LatinJapan and Asia PacificChina**Rest of world*CAGR
1997-2005
percent2918452847452002E2003E2004E2005E1,8507
- 9. CHINA’S MOBILE MARKET IS PROJECTED TO GROW SIGNIFICANTLY * 02-05 forecast are net subs after inactive and multi-sim-card reduction
Source: IDC report; JP Morgan report; McKinsey analysisNet subscriber* additions
Millions199719981999200020012002E2003E2004E2005E–10847133-98-4711Annual growth
Percent1237912131516Penetration
Percent47.143.946.345.75.511.516.939.435.9Low caseHigh caseLow–10847103-9225-13HighLowHigh12379121619238
- 10. 0%5%10%15%20%25%CHINA’S SUBSCRIBER BASE OF 218 MILLION IMPLIES A 47% PENETRATION OF AN ADDRESSABLE MARKET OF 460 MILLION BY 2005 * Low case, net subs after inactive and multi-sim-card reduction
Source: JP Morgan; DRI; Asiandemographics.com; Literature search; Analyst reports; Team analysisIncome per capita (US$ p.a.)2001Addressable market
Number of mobile subscribers
Implied penetration of the addressable market2005E345 mn
145 mn
42%463 mn
218 mn*
47%China income distribution and addressable market
Percent1,8151,77220012005China’s addressable population for mobile services is projected to increase by 8% p.a. for the next five years to 460 million in 2005
The key assumptions in determining the income threshold are:
Chinese consumers willing to spend 5-10%% of their income on communication services – higher than the average of 3.5-4% for more developed markets as a greater portion of income is available for non-essential goods as a result of China’s relatively low living cost
Half of this assumed spent on mobile services (5.5%)
Unicom’s prepaid ARPU will decrease from USD 8.3 for 2001 to USD 8.1 for 2005; therefore the threshold income will drop from USD 1,815 (8.3*12/5.5%) for 2001 to USD 1,772 for 2005 (8.1*12/5.5%)2005
Addressable market: 35%
Addressable population: 460 mn persons2001
Addressable market: 27%
Addressable population: 345 mn personsPercent of population9
- 11. MOBILE SUBSCRIBER PENETRATION OF LESS THAN 7% IN 2000, LEAVES SIGNIFICANT ROOM FOR GROWTH Source: JP Morgan; IDC report; Gartner; Literature search, EIU100%199619971998199920002001E2002E2003E2004E2005EMobile subscriber penetration in 2000
PercentItalySwedenNetherlandsUKSpainGermanyFranceUSChina**All
subscribersData service
subscribers1,2181,2301,2421,2541,2651,2761,2871,2981,3091,319As percentage of total population – low case*
Millions (total population)China Urban*** * 02-05 forecast are net subs after inactive and multi-sim-card reduction
** Penetration over total population
*** Penetration over urban population.0.61.01.92.96.68.91.12.03.97.10.412.013.415.016.410
- 12. CHINA’S RICHER PROVINCES GENERALLY HAVE MORE SUSCRIBERS AND ARE GREATER PENETRATED…Population
MillionsPenetration
Percent, 2000Subscriber CAGR
Percent, 1998-2000Number of subscribers
MillionsProvinceGuangdongLiaoningZhejiangJiangsuShandongFujianHeilongjiangShanghaiHebeiSichuanBeijingHenanAnhuiHubeiHunan Source: China Statistical yearbook, JP Morgan Report, McKinsey analysis11
- 13. …WHILE THE POOR WESTERN AND INTERIOR PROVINCES HAVE LESS SUBSCRIBERS AND ARE LESS PENETRATED * Growth rate from 1999 - 2000
Source: China Statistical yearbook, JP Morgan Report, McKinsey analysisPopulation
MillionsPenetration
Percent, 2000Subscriber CAGR
Percent, 1998-2000Number of subscribers
MillionsProvinceJilinGuangxiYunnanShaanxiChongqingShanxiTianjinInner MongoliaJiangxiGansu XinjiangHainanNingxiaQinghai TibetGuizhou 12
- 14. KEY MESSAGES2.The competitive landscape for mobile services has evolved from a single regulator and operator to today’s duopoly of China Unicom and China Mobile, both of whom are unassociated with the Ministry of Information Industries. A second breakup of China Telecom is expected to form two large telecom operators, China Telecom and China Netcom Group, who are likely to receive mobile licenses. A fifth telecom operator, China Railcom, also has the potential of receiving a third generation license and building a mobile business. For now, China Mobile dominates the market with 82% value share and 72% subscriber share and owns much of the high value user base. However churn is already high and is expected to increase with continuing pricing pressures and increased competition.
www.21ask_--_ 中国管理资讯网www.21ask_--_ 中国管理资讯网13
- 15. CHINA’S MOBILE OPERATOR LANDSCAPE HAS EVOLVED SIGNIFICANTLY, CULMINATING IN SECOND BREAKUP OF CHINA TELECOMNo mobile licenses currently
Source: Literature search; EIU Pyramid; Industry reportsChina TelecomChina UnicomBecame the second mobile network operator in mid 1994
However, China Telecom as the sole provider of both basic and wireless telephony services made it difficult for Unicom to growChina UnicomChina RailcomChina UnicomMinistry of Posts and
TelecommunicationsCreated in 1994 when former MPT separated into regulatory and operating functions
China Telecom ownership transferred to Ministry of Finance, with regulatory functions placed in the new Ministry of Information Industries (MII)China TelecomChina Mobile (CMCC)China TelecomChina Mobile (CMCC)Under the government’s anti-monopoly plan, in the 1st half of 1999, China Telecom was split into 4 operating companies: CT fixed, China Mobile, CT Paging, CT Satellite
The change became official on April 20, 2000 Prior to 1994, the MPT acted as the regulator and sole operator of telecommunications
In 1993, announcement was made to separate operating and regulatory functions along with the establishment of a 2nd operatorGreat WallEstablished in 1995 to harness PLA’s radio spectrum
The company undertakes “the CDMA project” at the direction of the governmentGreat WallDue to government commitment to separate PLA from commercial activities, Great Wall dissolved with decision to transfer CDMA assets to China Unicom made in October 2000 (transfer yet to be completed)2nd largest fixed line network
Established December 2000
Offers limited GSM service over it’s railway networkPre 1994
Regulator and Operator1994 to 1999
Virtual Monopoly1999 To 2002 Deregulation/Breakup2002 and beyond 2nd breakup
and future landscapeChina NetcomEstablished in Sept.1999 with internet backbone
Likely license winner Jitong JitongSetup in 1994 to develop data communication serviceBegan to offer VoIP services
Leading player in voice over IPChina Netcom GroupChina RailcomChina Telecom broken up into North and South with CT North merging with China Netcom and Jitong to become China Netcom GroupChina Telecom South continues operation as China Telecom
Operating CDMA local loop services in several citiesChina Mobile unaffected by second breakup, surviving proposal to merge it with Jitong, given concerns about consequences of forced mergers for publicly listed companiesChina Unicom unaffected by second breakup, surviving proposal to merge it with Railcom
While Great Wall CDMA asset transfer has yet to be completed, Unicom will become first major operator in the world with both CDMA and GSM services, with launch of its own CDMA network in 2002Operator bidding for 3G license, with openness towards adopting China’s 3G standard, TD-SCDMA14
- 16.
Source: Literature search; industry interviewsBeforeAfter CT break-upMOST RECENT BREAK-UP OF CHINA TELECOM TO LEAD TO A LANDSCAPE OF 5 OPERATORS COMPETING ACROSS BOTH MOBILE AND FIXEDLicensesLicensesAnnouncement on November 26 to merge Jitong with China Netcom and China Telecom Northern unit
Competition will increase as merged telecom giants obtain licenses for comprehensive telecom operations, including
Fixed-line phone
Mobile phone
Internet-related services
Original plan to merge China Mobile with Jitong and China Unicom with China Railcom, met with strong dissent from the capital markets who saw this as an affront to China Mobile and China Unicom’s governance as publicly held companiesMobileMobile
FixedMobile (GSM-R)
FixedFixedFixedFixedGROUPChina Telecom NorthChina Telecom SouthMobile
FixedMobile
FixedMobile
FixedMobile
FixedChina RailcomChina RailcomMobile
FixedHave license15
- 17. PROFILES OF CURRENT AND LIKELY FUTURE PLAYERSChina assetsMobile strategyCurrent partnershipsLicense prospects*Still to be decided
~96 million mobile subscribers
~30 million mobile subscribers
Services covering over 180 cities
Largest national telecom network covering 2,000 cities
First operator to introduce internet access cards, and announced on-line shopping card to be launched in 2001
Internet backbone covering 17 major cities
Started IP phone services in January 2000
2nd largest network in China; covering all major cities (>500 cities)
Be technology leader, thus eager to enter 3G
Focus on high-end customers
Trialing GPRS with 7 vendors
Strongly supporting WAP
Shifting attitudes on technology, now first player to cover both GSM and CDMA
Focusing attention on developing CDMA networks
Trialing GPRS with 4 vendors
Compete on service offering with existing operators, leveraging government and supplier expertise
Active with WLL and local mobility
Go straight to 3G if possible
Obtain mobile license as quick as possible regardless of technology standard
Roll out wireless data services even if it means taking GSM/GPRS first
May focus initially on GZ, BJ, SH
Likely intends following 2-tier structure
Obtain 3G license to target high-end users
Use 2G PHS to target voice subscribers
Vodafone
HP
Hutchison
KDDI
SK Telecom
Telstra
AT&T
Japan Telecom
British Telecom
News Corporation
Goldman Sachs
SingTel
NoneExistingExistingCurrent players
China Mobile
China Unicom
Likely future players
China Telecom
China Netcom
China Railcom * Government likely to grant 2 licenses; undecided when, and what type; none to be awarded in 2001
Source: Piper Jaffrey; Merrill Lynch; Literature search16
- 18. OTHER PLAYERS UNLIKELY TO ATTAIN MOBILE LICENSES
Source: Goldman Sachs; EIU Pyramid; McKinsey analysisCentury Mobile
Jitong
Foreign JV Entrants
New telcosWho they areBasis for entryObstaclesConsortium of 10 enterprises who have joined together to try to set up mobile enterprise
Set up in 1994 to develop data communication services
Potential JVs involving foreign companies
New players expanding into telecom
Some government contacts
Originally considered takeover of Great Wall’s assets
Owns 70% of VoIP market
Government has indicated desire to see multiple operations with multiple service offerings
Government may be pressured to show market progress and WTO benefits
Foreign operators and entities eager to invest
Desire to enter wireless given opportunities and convergence of technologiesGreat Wall assets moved to China Unicom
No current discussion regarding mobile services observed
Low capability to utilize mobile spectrum if allocated
WTO agreements do not require that new telecom licenses be issued to new entrants
Nationwide presence of foreign investment not possible for initial 3 years under WTO
MII will likely limit the influence of other ministries on their turf (e.g., blocking SARFT entry into Internet)17
- 19. EXISTING AND POTENTIAL MOBILE OPERATORS HOLD BROAD BUT DIFFERENT COMPETITIVE POSITIONINGS AND SERVICE OFFERINGSBasic services China MobileChina Unicom China TelecomChina Netcom Mobile voice service
Mobile data service
IP
Multimedia service
Mobile voice service
Mobile data service
IP
Multimedia service
Local call
DLD
IDD
Paging
IP
Multimedia service
Local call
DLD
IDD
Web hosting
Network element lease and sale
IP
IDD
Web hosting
Lease and sale of bandwidthValue-added services Fax
Voice mail
Caller ID
Call waiting
SMS
VPN/VPDN
IDC
Fax
Voice mail
Caller ID
Call waiting
SMS
VPN
Fax
Voice VAS
Caller ID
VPN
IDC
ISDN/DDN
EDI
ISP
E-mail
Data communication
Public multimedia services
Source: MII; Asiacom; Analyst report18
- 20. EACH EXISTING/POTENTIAL MOBILE OPERATOR HAS STRENGTHS AND WEAKNESSES
Source: Literature Research; McKinsey Analysis; IDCChina Mobile
China Unicom
China Netcom
China Telecom
China RailcomStrengthsWeaknessesIncumbent operator serving higher value customers
Dominates market with 74% of subscribers and 84% of revenues
Allied with Vodafone whose CEO sits on board
Access to global capital via CMHK
Offers complete package to corporate customers
Able to underprice CM and attain market share
Government and policy support to promote competition
No frequency constraint due to CDMA network (13 m sub capacity)
Access to global capital via Unicom Hong Kong
Strong management team with executives hailing from successful startup (Asia-info), consulting firms and bulge bracket investment banks
Strong governmental connections with Jiang Zemin's son onboard
Remains dominant fixed-line operator
Dominant in data communications and in Internet service
2nd largest fixed-line network
Facing 2G spectrum shortage in major cities 2002/2003
Unicom has 10% price advantage by regulation
Management and business structure not yet completely set up
Weaker brand and public penetration than CMHK
Facing complexity of dual network management
Infrastructure spend high to build CDMA network
Lacks fixed-network reach
Has no mobile operating license
Lacks mobile expertise
Regulatory concerns as MII law prohibiting JVs with SOEs targets relationship with SARFT (one of the founders)
Has no mobile operating license
Lacks mobile expertise
Carries monopoly culture and lacks business-driven aggressiveness
Bound to financially nonviable rural area expansion of fixed-line network
Uncertainties in its break-up plan
Has no mobile operating license
Lacks mobile expertise
Lacks scale and supportExisting/
potential operator19
- 21. MOST OPERATORS HAVE EXISTING PARTNERSHIPS WITH FOREIGN PLAYERS * China Railcom is involved in no relevant partnerships
Source: Literature Research; Analyst reportsChina Mobile
China Unicom
China Telecom
China NetcomPartnerType of partnership Vodafone
HP
Hutchison Telecom
KDDI
SK Telecom
Telstra
AT&T
Japan Telecom
British Telecom
News Corporation,
Goldman Sachs, etc.
SingTel
EquantVodafone owns 2% equity share in China Mobile (HK)
Strategic alliance agreement with Vodafone to be CMHK’s long term preferred partner in areas including R&D technical expertise, standard and protocol development etc.
Wireless data R&D JV between majority owned subsidiary Aspire and HP
Hutchison owns 1.5% of China Unicom (listed)
Joint development of technology for high speed mobile phone
KDDI to supply CDMAOne mobile phones
Strategic Alliance to aid China Unicom’s CDMAOne network development and 3G transition
Strategic alliance to aid Unicom develop CDMA network
AT&T owns 25% of Shanghai Symphony Telecommunications
MOU in fixed line, mobile phone and fast-data transmission areas for client companies
MOU signed in 1998 to cooperate in technology and business opportunities
Joint venture providing end-to-end data communication service for MNCs set up in 1999
Partners bought 12% of China Netcom for $324 million in private placement
Strategic alliance to provide safe, efficient data transmission for Singapore companies with subsidiaries, partners in China
Service agreement to co-develop VPN offeringsOperator*20
- 22. IN MOBILE TELECOM SERVICE MARKET, CHINA MOBILE WILL LIKELY REMAIN THE DOMINANT OPERATOR IN BOTH REVENUE… 100%= 1998199920002001E2002E2004EChina UnicomChina Mobile2003E2005E363710Other operators 000008.411.816.221.127.932.034.538.4US$ Billions, percentCAGR 1998-2005E
Percent6718N/A
Source: McKinsey Analysis21
- 23. …AND SUBSCRIBER* SHARE1997China UnicomChina Mobile3100%=5112543851451551761972181998199920002001E2002E2003E2004E2005EOther operator(s)Millions, percent * 02-05 forecast are net subs after inactive and multi-sim-card reduction
Source: Deutsche Bank; JP Morgan; McKinsey analysis22
- 24. * 02-05 forecast are net subs after inactive and multi-sim-card reduction
** Acquired by CMHK from parent in Oct 2000
Source: JP Morgan; Industry interviews; McKinsey analysisPROPORTION OF EACH OPERATORS’ SUBSCRIBERS* INCLUDED IN LISTED ENTITYMillions, percentChina Mobile23.537.866.3111.0108.4112.9118.7126.61998199920002001E2002E2003E2004E2005E666168656666CMHK100%=Unicom1.55.218.744.047.055.263.567.81998199920002001E2002E2003E2004E2005E626365616162Unicom Listed100%=8682CMHK Provinces
Beijing**
Fujian
Guangdong
Guangxi**
Hainan
Hebei**
Henan
Jiangsu
Liaoning**
Shandong**
Shanghai**
Tianjin**
ZhejiangUnicom (HK) Provinces
Anhui
Beijing
Fujian
Guangdong
Hebei
Hubei
Jiangsu
Liaoning
Shandong
Shanghai
Tianjin
Zhejiang4128Listed company23
- 25. CHURN IS ALREADY SIGNIFICANT WITH BOTH OPERATORS AND WILL CONTINUE TO INCREASE DRIVEN BY INCREASING COMPETITION WITH IMPACT GREATEST ON CHINA MOBILEPercentChina Mobile HKChina Unicom Comments
China Mobile's broader network coverage leads initially to far lower churn rate than for China Unicom
China Unicom's rapidly expanding network and higher-quality CDMA connection will increase CMHK's churn going forward
Intensifying competition causes both sets of churn rates to rise
As networks become similar, customers appreciate lower China Unicom price
Source: Analyst report; Company annual report24
- 26. Comments
Decreasing trend due to
Increased competition and lower tariffs
Increased mix of low-value prepaid users
Deepening penetration which increases low-value usership
China Mobile's ARPU higher due to
Higher prices than China Unicom
Greater concentration of high-end users because of breadth of coverage and market presenceCHINA MOBILE ENJOYS GREATER ARPU, ALTHOUGH LISTED COMPANIES FOR BOTH OPERATORS GENERATE GREATER ARPU THAN UNLISTEDCMHKUnicom (listed)CM (unlisted)Unicom (unlisted)US$/month
Source: Deutsche Bank; McKinsey analysis25
- 27. * 100% = 75.9 million subscribers in 2001 and 111.9 million in 2005
** 100% = 28.6 million subscribers in 2001 and 54.9 million in 2005
Source: Goldman Sachs; Morgan Stanley; Team analysis-6CHINA MOBILE'S ARPU EXCEEDS CHINA UNICOM'S DESPITE A LARGER PROPORTION OF PREPAID CUSTOMERSBlended ARPU
US$/monthCMHKChina Unicom (listed)20012005CAGR
Percent-5Prepaid vs. postpaid ARPU comparison
USD/monthCAGR
Percent-5200120050CMHKChina Unicom (listed)-1-4Prepaid subscribers as percentage of total subscribers
PercentCAGR
Percent19*20012005CMHKChina Unicom (listed)43**WAChina Mobile’s ARPU exceeds China Unicom's despite a larger proportion of prepaid customers due to a far higher postpaid ARPU
China Mobile's higher postpaid ARPU is due to its high-end customer base and superior marketing as well as China Unicom's lower tariffs chargedPrepaid
Postpaid
Blended26
- 28. Share price
HK$SHARE PRICES FOR BOTH OPERATORS HAVE DETERIORATED IN 2001 PRIMARILY DUE TO PRICING PRESSURESCMHKChina UnicomChina Mobile announces new lower tariff packagesShare price took a hit on fears that tariff cuts and spending on a new CDMA network will eat into earningsMII announces cancellation of registration feeMarket capitalization
US$ billions120.469.520.917.5
Source: Hong Kong stock exchange; DataStream27
- 29. NONETHELESS, BOTH OPERATORS STILL ENJOY HEALTHY EBITDA AND RETURN ON ASSETS, DRIVEN BY LOWER COST BASES, ESPECIALLY COMPARED TO CHINA TELECOMUS$ Billions, 2000Player*** RevenuePercent of revenue Percent of revenue CMHKChina Unicom
(listed)China TelecomEBITDAN/ANet profitROA
Percent0.154.744.8N/A18.813.80.5 * Total China Mobile revenue 14.3 billion
** Total China Unicom(Listed + unlisted) mobile revenue is US$1.9 billion; listed portion contributes 1.5 billion (balance paging and fixed line)
*** Netcom and Railcom financials N/A
Source: JP Morgan 28
- 30. KEY MESSAGES3. Wireless data services are expected to grow quickly in China to a market of potentially over US$4 billion by 2005, used by 43% of all mobile users. Interest from consumer surveys have been high and operators and other players are actively building services in the market. While early WAP services have failed to catch on, SMS has grown exponentially with up to 20 billion SMS messages estimated for 2001. The early adopters will be mobile professionals and modern youth, who will require services and devices tailored to their needs. 29
- 31. RESULTS OF A CHINESE WIRELESS SURVEY (2000) INDICATED STRONG INTEREST IN MOBILE DATA SERVICES * Internet user number is significantly higher than Internet subscription number, because of the sharing Internet access among users
Source: Mobile user survey, 2000Very interestedInterestedNot interestedNeutralVery disinterestedKey sample characteristics
Interview of 100 randomly chosen respondents in Shanghai, Beijing and Guangzhou, representing a good cross-section of different types of mobile users
68% of respondents express interest in receiving data services
20% of respondents are fixed line internet users*
Median Internet usage of 30 hours/month
Median mobile bill of RMB 300/month30
- 32. CONSUMERS HAVE GREATEST INTEREST IN EMAIL AND MOBILE VAS
Source: Mobile user survey, 2000 InterestedNeutralNot interestedE-mailInter-net
brows-ingNews/
sports/
Enter-tain-mentStock
quotesCity mapFlight/ train sche-dule and reser-vationYellow
pagesPercentage of respondentsInterest in content delivered over mobileFor content, Chinese consumers show greatest interest in email, flight/train scheduling and reservation, and news
For transaction, mobile VAS and m-banking are the most popular m-commerce applications for Chinese consumersMobile VAS (billing, location, etc.)Mobile
bankingInter-active
gamesPercentage of respondentsInterest in transactions delivered over mobile31
- 33. CHINA’S WIRELESS DATA SERVICES EXPECTED TO GROW QUICKLY
Source: IDC report; Literature research; McKinsey analysisESTIMATEVoice only
Data and voiceNumber of mobile subscribers
Millions, Percent4387145155-161176-207197-253218-30005E04E03E02E01E'00'9943%26%15%9%4%Revenue from wireless data
US$ billions05E04E03E02E01E2.61713.33.02.7Wireless data service ARPU/month/actual user
US$Low case
High case5.42.51.10.40.1155CAGR32
- 34. HANDSET AND PDA MANUFACTURERS WILL FURTHER DRIVE MOBILE DATASource: IDC; CCID; SINO-MR; Gartner; Interviews; Cahners In-Stat Group; literature search; Team analysisNumber of handset units sold
Millions20002001E2002E2003E2004E2005E23%30%45%63%86%90%45.054.946.657.565.644.6Number of PDA units sold
Millions20002001E2002E2003E2004E2005E2%2%11%31%56%82%6.88.311.917.325.05.6Number of mobile device units sold
Millions20002001E2002E2003E2004E2005E23%30%44%58%74%69%45.255.850.367.286.144.7CAGRCAGRNon-internet
enabledInternet
enabledOther Wireless 24%14%7%2%0.3%0.3%Internet enabled handset Wireless PDA14%42%-28%42%8%-28%CAGR193%35%-4%183%Non-data enabled20012005Comparison of unit shipment in China vs. US
MillionsChina
US33
- 35. NUMEROUS PLAYERS INVOLVED IN THE PRC WIRELESS DATA MARKET
Source: Literature search Leading PRC portals launched WAP site
Supported by equipment vendors and local operatorsPRC wire-line
portalsPlayersEstimated numberSummaryKey Player (examples)Actively launching WAP / GPRS trials in Hong Kong
Announced interest in PRC
Acquiring startups to strengthen capability
Developing relationships with PRC OperatorsInternational
m-portals/HK operatorsSmarTone /BT
Sonera
SK Telecom
Hutchison
New WorldWAP sites launched
M-commerce enabler emerging and forming partnership with content suppliers or/and PRC operatorsPRC wire-less portal platformsMonternet
(China Mobile)
Uni-info
(China Unicom)Launched WAP service/portals with support of partners
GPRS trials in progress and scheduled for launch in October, 2001
China Unicom launched CDMA (64kbps) and 1XRITT (140kbps) in Jan 2002
China Mobile initiated 3G trials in November, 2001 PRC mobile
operators10-20
5-10 2-52China Mobile
China Unicom
Sohu.com
China____
Sina.com
Equipment Vendors34
- 36. OPERATORS ARE ESPECIALLY ACTIVE IN PURSUING WIRELESS DATA
Source: Literature search; Analyst reports; Team analysisOperators are actively pursuing wireless data servicesCompetitive pressureChina Mobile’s domination of the market is threatened by Unicom’s aggressive low price and value added services offerings
2 new operators may be granted licenses to enter wireless market after 2002
The lever of competition in mobile communication market will be VAS
High value mobile users express their willingness to switch operators in order to access wireless data servicesChina Mobile offers WAP service in all cities, and has gateways in 4 cities
Unicom also launched WAP service in 6 major cities
Both China Mobile and China Unicom are actively forming partnerships with mobile Internet application providers and ICPs to boost up their WAP offerings
Potential new operators, China Telecom and China Netcom also express strong desires to focus on wireless data services as a tool to gain customer base
Operators have introduced own wireless portals
Monternet by China Mobile
Uni-info by China Unicom35
- 37. WAP SERVICES HAVE FAILED TO TAKE OFF IN CHINA…
Source: Literature search; Gartner GroupWAP has failed to take offContent
Mainly informational services such as news, weather
Text content
Slow take off
450,000 subscribers in 2000
Less than 300,000 users in 2000
Major roadblocks to success
Slow speed (download, processing)
Limited compelling WAP content
Initial premium pricing and limited availability of WAP enabled handsets
Difficult input
Unstable connection
Limited coverage
Relative high mobile Internet charge
Small screen with unclear Chinese character displays
Hard to navigate
Lack of security36
- 38. ...BUT SMS IS TAKING CHINA BY STORM
Source: Literature search; Team analysisLesson learned
Mobile data services need to be simple, cheap, reliable, and fun20 million active users currently
19.9 billion messages sent in 2001
2% of CMCC revenue in 2000 was from SMS
Average daily SMS volume in Shanghai is 3 million in July 2001
China Mobile and China Unicom linking their SMS services
SMS enabled PDAs launched
Key success factorsFunContentGet and send text messages
Play simple games
Real time contest
Download ring tones
Download screen savers
Exchange jokesSMS is enjoying a fast take offLow usage cost
0.10 RMB per message
Reliable service
Proven technology
Improved and easier input
Nationwide coverage by CMCC and now by Unicom too
No new handset needed37
- 39. EARLY TAKE UP OF MOBILE DATA IS ENCOURAGING AS CONSUMERS ARE DEMONSTRATING WILLINGNESS TO PAYData service offeringsData service performanceBy operators
China Mobile
Product/service
SMS, including personalized information, flight/train schedule inquiry, stock quote and online chatting
WAP, including email, gaming and PIM
Pricing
RMB0.1 per ordinary message for sending with free for reception; RMB0.2-2 charged by service provider and CM for each specialized SMS
WAP pricing: RMB0.15 per minute for first 200 minutes, free for another 300 minutes and RMB0.15 per minute for any extra
China Unicom
Product/service
SMS, including personalized information, PIM, entertainment and stock quote
Online pager
Pricing
RMB0.1 per ordinary message for sending with free for reception; same charge for specialized SMS as CMBy ICPS
Mobile QQ (WWW.TENCENT.COM)
Product/service
Unified instant messenger (mobile QQ) enabling mobile to PC communication
Pricing
5 RMB monthly fee + 0.1 RMB per out going message with free incoming messages via CM mobile
No monthly fee, but 0.1 RMB per out going message and 0.05 RMB per incoming message via CU mobileChina Mobile
2001 China Unicom
2001Number of short messageSMS Penetration in user base***Percent of total revenue*15.9 billion29%4 billionN/A1.2%N/ASource: Semi-annual reports; Press release; Website; Interviews; Team analysis* Include both wireless data and VAS
** only CM QQ subs included
*** CMHK Number of short messageSMS Penetration in user basePercent of total revenue*QQ
1st half 2001Total subsMobile QQ subs20 million0.9 million**38
- 40. “VIRTUAL PETS” IS ONE EXAMPLE OF SMS APPLICATION IN CHINA
Source: Linktone website; literature search Linktone’s “Virtual Pets” SMS game allows subscribers to educate their animal of choice - ranging from tigers to pigs to the popular koala - send it on dates and put it to bed, rather like the Japanese electronic pet, Tamagotchi
The cost is very affordable at RMB0.10 per SMSMoreBackMoreBack------2000------
Lunar狼吞虎咽的把饭吃光了。"谢谢主人,再来点吧。"米增加5;金币减少10;经验增加1。
Lunar has eaten the food like a tiger. “Thank you, master. Some more, please.” Use 10 gold coins to buy 5 rice units, add one experience point.MoreBack------2000------
申请侍应生职位成功,由于工作努力,获得30个金币!经验增加3
Your pet was successfully hired as a waiter. Because of his hard work, he has earned 30 gold coins, and three experience points.MoreBack------2000------
你的宠物魅力十足,cici想跟你做朋友 (跟对方说话请输入P空格cici空格再写内容),30字以内。
Someone has a crush on your pet! (To talk to the pig named cici, enter P_cici_ and a note) Do not exceed 30 characters. China, like Japan, combines a love of gadgets
with a “cult of the cute”39
- 41. QQ HAS BEEN VERY SUCCESSFUL IN GAINING SUBSCRIBER BASE WITH UNIFIED MESSENGINGMobile QQ in a semi-instant messaging type of mobile data application, which originated from the popular internet based instant chatting and messaging application, I.e., OICQ, where subscribers can chat with each other and be notified if their friends are on line at real time Basic functions:
Sending SMS between mobile phone and QQ
Using mobile phone to check information stored on QQ
Using mobile phone to check if friends are on-line
Service fee:
Services are free for users who only use OICQ on the Internet
Subscribers are charged for using mobile QQ via mobile phone
Fee structure for China mobile subscribers is : 5 RMB monthly fee + 0.1 RMB per out going message, incoming message is free of change*
Fee structure for Unicom subscribers is : no monthly fee, but 0.1 RMB per out going message and 0.05 RMB per incoming message TenCent claims to have 20 million subscribers in total
In fact, only 0.9 million of which are actual mobile QQ users from whom China Mobile collects monthly subscription fee for Ten Cent * While subscribers don’t need to pay for incoming messages, TenCent is required to pay 0.05 RMB for each incoming message to China Mobile
Source: Ten Cent, team analysis 40
- 42. FOUR KEY MOBILE DATA USER SEGMENTS CAN BE IDENTIFIEDSource: Survey research on 18 cities and >2500 mobile users; Team analysisMobile professionalsModern youthDescription Segment Conservative mainstreamIndifferent laggard Mostly managers or entrepreneurs
Use mobile phone mainly for business
Travel a lot and have significant roaming needs
Care about voice quality and network coverage
High personal income
High mobile data potential: already 25% of them use SMS frequentlyMostly under 30 years old
Use mobile phone mainly for personal communication convenience
Interested in new technologies and willing to try out new things
Many unmarried people, with high educational level
High mobile data potential: already 47% use SMS regularlyCare the most of mobile communication cost
Relatively lower income
Older than average and less educated
Lots of pre-paid users
Lowest ARPU
Very low SMS usage currently: <13%
Little potential for mobile dataMostly married, over 30 years old and under college education
Don't care much about technology and trend
Mainly use voice services for local calls
Very low SMS usage currently: <15%
Little potential for mobile dataShare of sub base
%41
- 43. MOBILE PROFESSIONALS, YOUTH MOST ATTRACTIVE BECAUSE OF HEAVY DATA USAGE AND HIGHER ARPU
Source: Judgment and analysis based on survey research on 18 cities and >2,500 users for China Mobile and rough estimates for China UnicomSegmentShare of total revenues
Percent of total revenueSMS use
PercentPC internet use
PercentMobile professionalsARPU
USDShare of total subscribers
PercentModern youthConservative mainstreamIndifferent laggard47<13ESTIMATE42
- 44. BOTH TARGET SEGMENTS WILL REQUIRE DEVICES WITH FEATURES CUSTOMIZED TO THEIR NEEDS
Source: Team analysisMobile professionalCustomer segmentMostly managers or entrepreneurs
Use mobile phone mainly for business
Travel a lot and have significant roaming needs
Care about voice quality and network coverage
High personal income
High mobile data potential: already 25% of them use SMS frequentlyMostly under 30 years old
Use mobile phone mainly for personal communication convenience
Interested in new technologies and willing to try out new things
Many unmarried people, with high educational level
High mobile data potential: already 47% use UMS regularlyDescriptionMessaging/email on the go
Information (e.g., stock quotes, weather, news, local guide)
Personal information management
Mobile commerce
Mobile stock trading
Mobile officeMessaging/email
Information (local news, weather, event)
Games/entertainmentKey user needsAlways up-to-date unified messaging (hotmail, voice mail, 2-way SMS, IM)
Customized information
Always up-to-date PIM, notifications, alerts, outlook sync.
Commerce and stock trading capabilities
Secure browser of corporate intranet and internetAlways up-to-date unified messaging (hotmail, voice mail, IM, 2-ways SMS)
Customized information
Network gaming
Downloads (rig tone, basic image, music and video clips) through PC
PIM, PIP, notification, alerts, outlook syncKey featuresModern youth43
- 45. MESSAGING, INFORMATION AND ENTERTAINMENT WILL BE KEY OFFERINGS FOR MOBILE PROFESSIONALS AND MODERN YOUTH IN THE NEAR TERM% of people interestedMobile professionals,
N 370Messaging/emailInformation (stock quotes, news, weather, restaurants)M-shoppingM-stock tradingM-advertisingEntertainment (ring tone & screen download) Source: Survey research; Team analysisModern youth,
N 50017.119.821.022.161.290.019.535.123.725.768.786.344
- 46. KEY MESSAGES4. Regulatory changes loom, particularly with the accession of China to the WTO. While foreigners will be unlikely to set up MVNOs, WTO will allow greater participation of foreigners in basic and value added services, although geographic limitations will exist through 2004 and Chinese players will be required to own at least 50% of telecom service ventures (51% for basic services). Regulatory risks remain, with no means to appeal regulator decisions, unclear interpretation of regulation including WTO commitments, and the government’s track record of intransparent and unpredictable decision making. (See separate regulatory PD for details) * Mobile virtual network operator45
- 47. REGULATORY AND POLITICAL CHANGES AND IMPLICATIONS FOR FOREIGNERS PLAYING IN telecom LOOM20012002200320042005WTOAccessionChange in political leadership
Announcement of succession
Transition of power in senior leadershipImplications
for foreignersLimitations on partnership structures lifted gradually
Operators will be more deal ready once laws are official
Foreign investments will still be initially restricted geographically
Risk for shift in regulatory direction and policy making
Change may make relationship investments obsoleteMaximum fore-seeable opening of VAS in China telecom marketUp to 30% within operatingDecision pointKey events3 cities (BJ, SH, GZ)17 citiesnationwidePromulgation of Telecommunications LawMobilization of telecommunications commissionZhu Rongji to mobilize commission and lead sector reform
Drafting of foreign investment law in telecommunicationsUp to 50% within operationForeign and geographical restrictionsDecember, 2001Must be completed before/at time of WTO accessionNot likely to expand beyond WTO concessionsWu Jichuan promised a draft by January 1st. However, comprehensive law not likely to be drafted in that time according to industry insiders. Law not likely to expand beyond WTO concessions Relevant legislationDrafting of a development blueprint for the telecommunication industry to manage operation of fixed-line, mobile and Internet businessMobile voice and
data servicesValue-AddedServicesUp to 25% within operatingUp to 35% within operating3 cities (BJ, SH, GZ)17 citiesNation-
wideUp to 49% within operatingUp to 49%Maximum fore-seeable opening of basic services in China telecom market
Source: Legal and industry interviews; team analysis46
- 48. MVNOs ARE NOT LIKELY TO BE VIABLE IN THE FORSEEABLE FUTURELegal statusCurrent activityFuture prospectsMVNO operation would require a license
Licenses would be subject to government approval
Regulations governing basic services and value-added services would apply to MVNOs including restrictions on foreign participationCurrently a hot topic discussed by industry followers as a means to help transform service orientation of China’s telecom landscape
MVNOs or services running on equipment infrastructure of licensed operators do exist, including in fixed line; however, these are illegal and the government is currently cracking down on these infractions in an effort reminiscent of crackdown of Chinese-Chinese-Foreign companies (CCFs)
MVNO activity is reportedly present in Liaoning and Southern provinces; these are also not recognized legally by the government and have been retained by disgruntled investors of the PLA's Great Wall CDMA network and will likely disappear after asset transfer to Unicom is completedChinese government is discussing MVNO concept as a means to avoid capacity overbuild, particularly with new licensees
Existing operators unlikely to consider MVNOs, particularly in key and attractive regions given spectrum shortages and no desire to increase competition
MVNOs would still require a license from the government, will be limited geographically through 2004, and even by then, require 50% or more Chinese ownershipMVNOs are not likely to be introduced in the foreseeable future
Source: Legal interviews; Industry interviews
Source: Legal and industry interviews47
- 49. Foreign operators can obtain up to 30% ownership in Beijing, Shanghai, GuangzhouForeign operators can obtain up to 49% ownership in 17 cities Foreign operators can obtain up to 50% ownership nationwideVALUE ADDED SERVICES WILL BE LIBERATED UNDER WTO QUICKER THAN BASIC TELECOM SERVICES BUT LIMITATIONS WILL REMAIN * WTO entry potentially effective January 2002 with likely November 2001 ratification
Source: Literature search; WTO Working Team Report November 13, 2001Mobile voice and
data servicesUpon entry (2002)*Foreign investors can obtain up to 25% ownership Beijing, Shanghai, GuangzhouAfter 3 years (2005)After 1 year (2003)Telecom VAS
(mobile and wireline) After 2 years (2004)Foreign investors can obtain up to 35% ownership in 17 cities Foreign investors can obtain up to 49% ownership in 17 citiesForeigners will still be prohibited from investing or operating in fiber-optic network
License availability will be strictly limited even after WTO accession and subject to Chinese government approval
Foreign investment is limited to no more than 50% even post WTO After 5 years (2007)Foreign investors can obtain up to 49% ownership nationwideUnchanged (foreign participation not allowed)Foreign investors can obtain up to 25% ownership in Beijing, Shanghai, GuangzhouForeign investors can obtain up to 35% ownership in 17 citiesDomestic services (wireline) Foreign investors can obtain up to 49% ownership nationwideAfter 6 years (2008)Period Basic Telecommunication services48
- 50. VALUE ADDED SERVICES (VAS) ARE DEFINED AS PROVISION OF SERVICES OVER SOMEONE ELSE’S NETWORK Basic Telecommunication servicesTelecommunications VASDefinitionServices includedPaging services
Mobile voice and data services:
Analog/digital/cellular services
Personal communication services
Domestic Services
Voice services
Packet-switched data transmission services
Circuit-switched data transmission services
Facsimile services
Domestic private leased circuit services
International Services
Voice services
Packet-switched data transmission services
Circuit-switched data transmission services
Facsimile services
International closed user group voice and data services (use of private leased circuit service is permitted)Provision of services over other's network Source: WTO Working Team Report November 13, 2001Ownership of networks
Fixed, domestic, long distance and local telephoneElectronic mail
Voice mail
On-line information and database retrieval
Electronic data interchange
Enhanced/Value-added facsimile services (including store and forward, store and retrieve)
Code and protocol conversion
On-line information and/or data processing (including transaction processing)BACK UP49
- 51. APPENDIX- PLAYERS PROFILEChina Mobile and China Unicom are duopoly in China’s mobile telecom service market. China telecom, China Netcom, China Railcom, and Jitong(newly merged by China Netcom) are potential players of this market.50
- 52. PLAYER PROFILE – CHINA MOBILEStrategic DirectionSubscriber BaseFinancial HighlightsMarket CapService OfferingMain PartnershipStrengths & WeaknessesOwnership StructureImpact of China Telecom Breakup*Revenue BreakdownBasic InformationLargest mobile operator in China
Own and operate mobile networks across China since early 1990s
Established: 1999
Head office: Beijing
CEO: Zhang Ligui
# of employee: 38,343 (CMHK)Strategy
Maintain market share & keep high-end customers in mobile business
Enter Internet business – mobile and fixed
Be on leading edge of technology
30% of 2005 revenue from non-voice services
New initiatives
Launched “Monternet” to actively prepare for 3G
CMHK will acquire mobile network in the rest 18 provinces from CMCC early next year(CMHK)
US$ Billion
Revenue
EBITDA
Profit
ROE11.7*8.56.44.72.20.630%14%20001999Stock price: HK$24.10
Market Cap: ~HK$440bn
(Oct. 30, 2001)Usage
feesMonthly
feesConnection feesOtherChina MobileMinistry of Finance100%75%25%100%Unlisted
Provincial
networkCMHK (listed)Public shareholder**** Includes Vodafone (2.0%)* Total China Mobile revenue is US$ 14.3 billionStrength
Leader in China’s mobile market
Extensive coverage & comprehensive network
Strong strategic partner like Vodafone
Strong brand
Quicker to market new value-added service
Owns its own R&D arm
Weakness
Under constant threat due to Unicom’s low price policy
ARPU is threatened by the increase in prepaid subscriber Source: Literature search; industry interviews; IDC; Team analysis100%Vodafone has 2% stake in CMHKSubscriber
Million
ARPU
US$/m
199920003867199920003022Mobile voice service
Mobile data serviceNo impact
Original proposal to merge with Jitong rejected based on conflict with corporate governance of publicly held firm51
- 53. PLAYER PROFILE – CHINA UNICOMStrategic DirectionSubscriber BaseFinancial Highlights*Market CapService OfferingMain PartnershipStrengths & WeaknessesOwnership StructureImpact of China Telecom BreakupRevenue BreakdownBasic InformationThe 1st operator in the world outside US to operate large scale CDMA & GSM networks
Own and operate 2nd largest mobile network across China since 1996
Established: 1994
Head office: Beijing
CEO: Yang Xian Zhu
# of employee: ~35,400 (listed company)Strategy
Betting on CDMA to win high value subscribers from China Mobile
30% of 2005 revenue from non-voice services
Increase network coverage and quality in fixed-line
Focus fixed-line business on corporate users
New initiatives
Invest USD 18mm to build up ethernet fiber across 9 provinces and invest USD ~30 bn in next 5 years in its voice and data businessUS$ Billion
Revenue
EBITDA
Profit
ROE2.92.11.30.70.40.16%7.6%20001999Stock price: HK$7.35
Market Cap: ~HK$ 91bn
(Oct. 31, 2001)Cellular
serviceFixed
line &
dataPaging
service**including MII, MOR & MOEP
***1.5% held by Hutchison* All the data are of CU(listed)Strength
Data speed advantage over China mobile with CDMA network
No spectrum shortage on CDMA
First mover in building high-capacity backbone with national reach
Weakness
Network uses hybrid ATM/IP-based technology, which is more expensive to operate compared to a pure IP networkMinistry of Finance77%23%Unlisted
network
& CDMA
nationwideCU (Parent)China Unicom
(listed)Public
Sharehol
-ders***79%13 minority shareholders**21%100% Source: Literature search; industry interviews; Team analysisHutchison has 1.5% stake in China Unicom Ltd. (listed)Subscriber
Million
ARPU
US$/m
19992000519199920001914Fixed-line telecom service
Mobile voice and data service (GSM & CDMA)
Internet-related service
PagerNo impact
Original proposal to merge with China Railcom rejected based on conflict with corporate governance of publicly held firm52
- 54. POTENTIAL PLAYER PROFILE – CHINA TELECOMStrategic DirectionSubscriber BaseFinancial HighlightsMarket CapService OfferingMain PartnershipStrengths & WeaknessesOwnership StructureImpact of China Telecom BreakupRevenue BreakdownBasic InformationIncumbent fixed-line provider in China
Own and operate fixed-line networks covering across China, and its fiber lines is 1.2 million km, covering 75%+ of China cities & counties
Established: 1994
Head office: Beijing
CEO: Zhou Deqing
# of staff: 533,000Strategy
Strengthen fixed-line status, doubling its fiber network over the next 5 years
Supplement fixed-line business with fast-growing mobile business
New initiatives
IPO in 2002 or 2003
Facing breakup to 2 companies
US$ Billion
Revenue
Profit
ROA19.818.60.11N/A0.17%N/A20001999Long
distance
serviceData/
internetLocal
voiceStrength
Comprehensive nationwide network which dominates last-mile access to customers
Extensive customer relationships given its status as the incumbent
Weakness
Likely to be saddle with national service obligation, a big issue given the wide income disparities in China Source: Literature search; industry interviews; Team analysisLocal
Across
ISPChina TelecomMinistry of Finance100%100%100%FixedDatacom100%AT&T invested 25% in Shanghai Symphony Telecom
Other cooperation's with J-phone and British TelecomFixed-line19992000109144Local and long distance voice service
Data/Internet
ISP20002001E4.17.4InternetNOT LISTEDSpilt into two companies
Two regional monopolies be created out of one national incumbent
Northern Unit will merge with CNC and Jitong
Both units will be released from public obligation
Both units likely to receive mobile licenses53
- 55. POTENTIAL PLAYER PROFILE – CHINA NETCOMStrategic DirectionStrategic DirectionFinancial HighlightsMarket CapService OfferingMain PartnershipStrengths & WeaknessesOwnership StructureImpact of China Telecom Breakup*Basic Information Source: Literature search; industry interviews; Team analysis; JP MorganRevenue BreakdownOwns 9,376km 40GB trunk network connecting 17 major cities
Established: 1999
Head office: Beijing
CEO: Edward Tian
# of Employees: 2,674Raised $325 million for 12% stake through private placement in 2001
Identity of JV partners remains unclearStrength
High quality management
High capacity backbone based on IP technology
Strongly positioned on international bandwidth through alliance with C2C and potential international link through its Hong Kong gateway
Weakness
Inadequate last-mile access to customers currentlyStrategy
Focus on providing high quality, low-cost infrastructure & value added services & solutions
Target communication-intensive corporate and high-end residential customers
Compete through differentiation & distinctive value proposition
Build a strong brand
Establish strategic partnership with world-class tech/biz leadersVoIP card & Corporate Data Services
Backbone & bandwidth wholesale
VPN, high speed bandwidth, international integrated data services
Revenue2000
US$million
65Chinese
Academy
of ScienceSARFT15%40%100%SH
Gov’tCNCMinistry of RailwayPrivate investors15%15%15%NOT LISTED
Turned profit in Sept., 2001Lease
BandwidthDataVoiceMerge with China Telecom Northern Unit and Jitong
Obtain valuable fixed-line infrastructure and business
Get access to last mile to boost existing backbone networks and businessNew initiatives
Private equity replacement in Feb 2001
Corporate data service launched
Strong take-up in Netcom’s IDC
Signed agreement with Sing Tel thus become less reliant on CT in international bandwidth54
- 56. POTENTIAL PLAYER PROFILE – CHINA RAILCOMStrategic DirectionSubscriber BaseFinancial HighlightsMarket CapService OfferingMain PartnershipStrengths & WeaknessesOwnership StructureImpact of China Telecom BreakupRevenue BreakdownBasic InformationOwn 2nd largest fixed-line network(120,000+ km) in China covering 500+ cities
Internet covers 36 cities; paging network 1300+ cities; IP 16 cities
Fiber network is 42,000km in length and 10,000km of its backbone has been updated with DWDM
Established: Dec., 2000
Head office: Beijing
CEO: Cui Qing
# of employee: 65,000Strategy
Strengthen the service to railway transportation
Explore public market
Enhance service quality
Focus on HR and Technology
New initiatives
Invest $ 240mn in broadband network construction
Invest $384mn in fixed-line network construction
Enter satellite communication businessStrength
Existing nationwide network
10-20% price advantage
Weakness
Network are all constructed along railway, restricting development of service to public
Network need to be upgrade to meet the massive communication demand of public
Financing channel need to be explored
Lack of talent Source: Literature search; industry interviews; Team analysisAcquired 20% share of Shin Staellite PCL (Thailand) with cash and stock exchange
49%100%CRCMinistry of Railway15 china railway branches51%NOT LISTEDFixed line voice service
Paging
IP, DLD
Backbone leasing
Revenue
Asset
Registered
Capital 2000
US$billion
0.12
1.6
1.3
Fixed-line
Pager
2000
million
1.0
1.4N.A.No impact
Original proposal to merge with Jitong rejected based on conflict with corporate governance of publicly held firm
Candidate for mobile license (likely TD-SCDMA)55
- 57. POTENTIAL PLAYER PROFILE –JITONGStrategic DirectionSubscriber BaseFinancial HighlightsMarket CapService OfferingMain PartnershipStrengths & WeaknessesOwnership StructureImpact of China Telecom BreakupRevenue BreakdownBasic InformationStrategy
Leading comprehensive telecommunication company
Meet customers’ demands with tailored services
New initiatives
IPO 2nd time postponed
Signed agreement with Nortel and Digital China to build self-owned backbone
Strength
A market leader in VoIP
Nationwide network and various technologies, e.g. satellite & SDH
Own customer loyalty
Strong in sales given its smaller scale of operation
Weakness
Financially weak for further expansion and infrastructure investment
Management style is strongly entrenched with SOE mentality
Quality personnel leaving to join other telecom co.
Heavily dependant on VoIP revenues Source: Literature search; industry interviews; Team analysisiPass
Nortel, Digital ChinaNOT LISTEDShanghai
Hua HongIRICO45%0.14%SDIC
ElectronicsJiTong<5%Other
SOEsMII40%10%Internet connectivity-dial up permanent ( via fiber, microwave, & satellite)
VoIP
VAS & VPN
IDC199920000.31.1Subscriber
mn
Revenue2000
US$million
60IP infrastructure and value-added service provider
Leading ISP & VoIP player in China with telecom service market share of 10%
Established in 1994
ISP licensed in 1995
IP phone licensed in 2000
Licensed in 1998 to operate ChinaGBN, China’s national public computer network
Coverage: 200 cities
# of employee: ~2000
Merging into China Netcom in April 2002ISPVoIP &
others43%57%To be merged with China Netcom and the Northern Unit of China Telecom56
- 58. APPENDIX- 3G TECHNOLOGY STANDARDS CHOICESMobile technology in China is advanced and cutting edge. Operators are launching packet switch networks in GPRS and CDMA 1XRTT, and plan to launch 3G by 2003. The country will likely three technologies—W-CDMA, TD-SCDMA and CDMA2000—in some form or another. China has actively been developing TD-SCDMA, which has significant benefits over other alternatives, as an ITU approved 3G standard. 57
- 59. CURRENT PUBLIC MOBILE SERVICE SPECTRUM RESOURCE ALLOCATION IN CHINA COVERS BOTH GSM AND CDMA825835870880885890909915930935954960ETSI GSM spectrumUp DownUpDownUnicom CDMA 10 mhzCMCC Analog reallocation 5 mhzCMCC GSM 19 mhzUnicom GSM 6 mhz1710172017451755178518051815184018501880ETSI GSM spectrumUp UpCMCC GSM 19 mhzDownDownUnicom GSM 10mhz
Source: Operator interviews58
- 60. CHINESE OPERATORS MOVING AGGRESSIVELY TO ROLL OUT PACKET NETWORKSKey eventsTransfer of non CMHK operators to CMHKLaunch of GPRS3G trialsLaunch of 3GLaunch of GPRSCDMA launchImplication by periodProjected dateProjected timing range
Source: Interviews; literature searchNow2002200320042005Existing operators preparing for wireless dataCrucial time period for 3G decision and positioning with new operators3G networks and new mobile operators emergingGrowth and maturation of 3G applicationsOctober
commercial
trialsOctober trials
(64 Kbps)I x RTT (140 kbps)3 - 4 additional provincial operatorsLaunchLaunchChina MobileChina UnicomExisting networksGSMGSM/CDMA59
- 61. BOTH CHINA MOBILE AND UNICOM* FOCUSED THEIR GPRS PILOTS IN COASTAL AREASBeijing Mobile/ Motorola, 1.4m subsTianjin Mobile/ Motorola, 500,000 subsLiaoning Mobile/ Huawei, 1.3m subsShanghai Mobile/ Siemens, 2m subsZhejiang Mobile/ Alcatel, 2.5m subsFujian Mobile/ Nokia, 2m subsGuangdong Mobile/ Ericsson, 5.7m subsRationale Voice will remain key revenue source for mobile operators in the short run
Demands for data service will primarily originate from developed coastal area & major inland cities
Mobile data service is far from developed, which limits it to coastal areas
It is estimated by China Mobile that GPRS market size will reach 1 million by end of 2001China Mobile**Unicom**WuXi Unicom / Ericsson, Subscribers N/AShanghai Unicom / Nokia, 360,000 subsShenzhen Unicom / Motorola, 270,000 subsGuangdong Unicom / Nokia, 1m subs * Unicom GPRS trials on hold as attention has shifted to CDMA
** Subscriber numbers from early 2000
Source: Literature search, industry interviews 60
- 62. CHINA UNICOM HAS LAUNCHED NATIONWIDE CDMA NETWORK AS BASIS OF CDMA2000 NETWORKCapacity of subs, Million20012002E2005E152050CDMA2000
1XRTTIS-95Source: Literature search, industry interviews Technology CAGR
35%61
- 63. EVOLUTION OF MOBILE RADIO STANDARDS IN CHINA LEADS TO THREE 3G ALTERNATIVES * Available by end of 2002
** Assuming dual mode GSM/W-CDMA solution
Source: Various vendors; McKinsey analysis2G2.5GIS-95AGSMCDMA2000
1x RTTCDMA
(China Unicom)GSM
(China Mobile, Unicom)IS-95BGPRS China timingPresent2002W-CDMA**
(UTRA FDD)CDMA20003x RTT TD-SCDMA3G2003TSM*2003-200462
- 64. OUTLOOK FOR 3G STANDARDS IN CHINAAll 3 standards likely to exist in some capacity in ChinaW-CDMATD-SCDMACDMA2000China outlookAggressively marketed by MNC vendors
Remains the most widely known standard and will probably exist in ChinaFavored by government as the first 3G standard to be deployed in China
Seen as Chinese technology, which is very important to development of Chinese IT industryUnicom planning to upgrade CDMA network to 1XRTT in early 2002Support in ChinaEricsson
Nokia
Operators
HuaweiGovernment
Operators (reluctant)
Datang
Siemens
Nortel
Huawei (moderate support)Qualcomm
Lucent
Samsung
ZTE
China UnicomGovernment and operator support for TD-SCDMA
Delayed availability of FDD spectrum
Availability of W-CDMA outside of Japan (including dual mode handsets)Technology development
Terminal development (chipset)
Lower market awareness and confidence by operatorsNot clear 3G license for CDMA 2000 would be granted, or if existing CDMA license allows upgrades to 1XRTT and 3XRTTMain obstacles
in China
Source: McKinsey analysis; Industry interviews63
- 65. 3G SPECTRUM HAS ALREADY BEEN ALLOCATED FOR W-CDMA AND TD-SCDMA, ALTHOUGH FDD SPECTRUM (W-CDMA) IS CURRENTLY USED FOR WLL IN SOME CITIES20 mhz30 mhz60 mhz15 mhz60 mhzVoidTDDFDD (uplink)SatelliteTDDVoidFDD (downlink)Void188519001920198020102025211021702200Air interfaceModeSpectrum rangeTotal spectrumBandwidthAvailabilityTD-SCDMATDD1900 - 19202010 - 202535 mhz1.6 mhzAvailable nowW-CDMAFDD1920 - 1980 (UL)2110 - 2170 (DL)60 mhz5.0 mhzCurrently being used in certain cities for WLL, and expected to be cleaned up by 2003-2004 Source: The International Engineering Consortium (IEC); Interviews; MII64
- 66. W-CDMA IS SCHEDULED FOR LAUNCH PER CHINA MOBILE BY 2003, ALTHOUGH SOME QUESTIONS REMAIN ABOUT VIABILITY OF TECHNOLOGY AND AVAILABILITY OF DUAL MODE HANDSETSLaunch in 2003-2004 * Not available until 2H 2002 at the earliest when the W-CDMA/GPRS dual-mode phone become available, and may be delayed until TD-SCDMA launched
Source: Industry interviews; Government interviews; McKinsey analysis20022003200420052001TechnologyPossible launch scheduleAllocated to FDD but not ready to award to operatorsFDD SpectrumFDD spectrum and license will be awarded to operatorsCommercially available*65
- 67. TD-SCDMA IS LAGGING BEHIND IN TERMS OF COMMERCIALIZATION AMONG 3G CANDIDATESMobile network equipmentMarket awarenessCDMA 2000 1 X RTT technology commercial with 400,000 users in Korea
China Unicom will construct CDMA 2000 1X test networks in 10-15 major Chinese cities
CDMA 2000 3XRTT is in preliminary R&D phaseCDMA 2000Growing support especially by US operators
400,000 1XRTT users in Korea today
Japanese operators will also adopt
Primarily supported by US and Korean vendorsEquipment commercialization nearly finished in Japan
44 contracts for W-CDMA sourcing finalized
Test networks are not performing wellW-CDMAPreviously, the most widely accepted technology
For a time, has been preferred option for 3G technology by most operators
Large vendor base support led by Ericsson, NokiaMobile terminalLucent has CDMA 2000 (1XRTT handset prototype, later this year mass production starts
Qualcomm developing dual mode chipset for CDMA 2000 and W-CDMAChipset design completed
No prototype available
Unclear when W-CDMA terminals will be available outside of Japan
Some question whether dual mode GSM W-CDMA handsets will be available before 2004Time to marketCDMA 2000 1 X RTT to be launched in early 2002
No time schedule for CDMA 2000 3XRTT introduction
Unclear whether CDMA license includes 1XRTT or 3XRTTOverall postponing of W-CDMA time to market.
Possibly not launched on large scale nationwide for 2 - 3 years, due to complexities of dual mode solutionNetwork equipment prototype will be available by end of 2001
Call between terminal prototype completed on April 27
Video transmitted between base stations and terminals on July 4 TD-SCDMASigns of mobilization for chipset development have appeared (Qualcomm,TI, Phillips)
Chipset design is expected by proponents to be completed in 2002
Prototype and commercial handsets will potentially be available by late 2002Proponents expect to launch in China by end of 2002
Proponents expect TD-SCDMA to potentially enter international markets after China launchViewed as inferior Chinese technology despite technical advantages and significant Siemens contribution
Lower awareness and acceptance by industry though accepted by ITU and 3GPP
Currently Siemens and Datang are the key supporting vendors
Source: Industry interviews; Analyst reports 66
- 68. TD-SCDMA’S PROSPECTS LARGELY DEPENDS ON THE TIMING AND VIABILITY OF TECHNOLOGYTD-SCDMA TechnologyPossible launch schedule2002200320042005TDD spectrum is ready to be distributed to operators as soon as technology is ready2001Scenario 1Trial*Commercially availableScenario 2TrialCommercially availableScenario 3TrialFailsScenario 1Launch in 2003Scenario 1Scenario 2Launch in 2004Scenario 2Scenario 3TD-SCDMA never launchesScenario 3TDD SpectrumThe timing of the commercial availability of TD-SCDMA technology can be summarized in 3 scenarios. In scenario 1, TD-SCDMA is available by the end of 2002. In scenario 2, development is delayed due to terminal inavailability, and launch occurs in 2003. In scenario 3, TD-SCDMA fails to launch * Trials will include infrastructure buildout in 2002
Source: Industry interviews; McKinsey analysis67
- 69. TD-SCDMA ALSO HAS ADVANTAGES IN MIGRATING FROM GSMNew hardware investments9.6 KbpsBoth paths begin from GSM network2 G115 KbpsPath convergence continues through 2.5 G2.5 GMigrationData trans-mission rate Comment 384 Kbps (mobile)
2 Mbps (stationary)Continued leverage of GSM network for TD-SCDMA
Mixed application capability
Involves widespread new investment384 KbpsTSM: 3G like performance with minimal added investment to GSM network2001Late
2001/
200220032003-
2004GSM
BTSMSCTD-SCDMA pathW-CDMA pathBSCGSMUMSCTD-SCDMA
Node BTD-SCDMA
Node BFDD
Node BFDD
Node BUMSCW-CDMA3G TD-SCDMARNC BSC enhancedMSCGSM
BTSBSCenhancedTD-SCDMAGSM
BTSGPRSBSCPCUMSCSGSNGGSNTD-SCDMA
Node BSGSNGGSN3 GGSM
BTSMSCBSCGSMGSM
BTSGPRSBSCPCUMSCSGSNGGSNRNC
Source: Industry interviews68
- 70. OPERATORS WILL NOT NECESSARILY DECIDE 3G STANDARD, AS MANY STAKEHOLDERS WILL HAVE INFLUENCE, AND THE GOVERNMENT HEADS THE LIST StakeholderRelevant entitiesGeneral positionDegree of influenceGovernmentState Council
State Planning and Development Commission
Ministry of Science and Technology
Ministry of Information IndustriesLow awareness. Will consider geopolitical pressure and negotiations. Expected to support TD-SCDMA based on national interest industry development
Low awareness. Expected to support TD-SCDMA based on national interest
Strong supporter of TD-SCDMA based on Chinese origin
Generally a strong supporter of TD-SCDMA but, some dissent within the ministryOverriding decision making power over all other entities
Next to State Council, greatest power
Strong advocate but not central
Primary decision makerOperators
Existing
NewChina Mobile
China UnicomPrefers W-CDMA, due to lack of confidence will support TD-SCDMA if in national interest
Will try to develop CDMA 2000. Unclear how to develop GSM network
Stronger confidence in W-CDMA, but less strong view on importance of standard
Unclear about technologies. Will support national interests
Eager to adopt and roll out TD-SCDMA as play for government support State owned flagship operator; will accept government decisions in interest of country
May have general "bargaining chip" with CDMA decision
Will take whatever spectrum is granted by MII
Will do whatever MII plans
Little direct influence given ownership by Ministry of RailwaysChina Netcom
China Telecom
China RailcomLocal equipment vendorsDatang
Huawei
ZTECo-developer of TD-SCDMA
Supports TD-SCDMA but investing heavily in W-CDMA
Strong support for CDMA given Qualcomm supportFavored son of MII given historic affiliation but questions about capability of CATT
Privatized but most competent local vendor
Viewed as successful SOEForeign equipment vendorsEricsson
Motorola
Nokia
Siemens
NortelAggressively pushing W-CDMA
Hedging and waiting to see due to failed bet on 2G
Position probability in between Ericsson and Motorola
Supporter of TD-SCDMA, but hedging with W-CDMA
Provider all technologies, but cooperating on TD-SCDMA RNC to gain favorInfluence through government lobbying and diplomatic mission
Indirect influence through operatorsLocal handset playersEricsson
Bird
Kejian
Many othersEager to gain technologies
Many recognize TD-SCDMA as easier path for gaining domestic market shareLow individual influence
Government will consider impact of 3G on themOther stakeholdersQualcomm
Texas InstrumentsVarious positions
Competing for chipset valueStrong lobbying force (Qualcomm)
Source: Industry interviews69
- 71. 3G REGULATORY RESPONSIBILITIES3G regulatory tasksResponsible organizationProgressFrequency allocationRadio Frequency Administration Dept., MII3G spectrum specification completed
FDD spectrums need to be cleaned-up3G standard decisionState Council
Science & Technology Dept., MII
Science & Technology Dept., SPDC
Various research institutes(CATT, RITT)Currently 3G radio standards setting are still under discussion
Waiting and hoping that TD-SCDMA is viable3G timingScience & Technology Dept., MIITD-SCDMA can begin anytime
Other standards in 2002 or 2003Telecom Admin Dept., MII
State Council
SPDCMost likely would award to existing operators and 1 - 2 new operators 3G supplier qualification (licensing)Planning Department., MII
Telecom Administration Department., MIIAll existing MNC suppliers are likely to receive licenses, if products meet specification
Local suppliers will be preferred
New entrants reviewed on technology and subject to import restriction if not manufactured locally; approval for entry of new vendors likely to be limited3G operator licensing and allocation of spectrumDecision maker
Source: Ministry of Information Industries; CITIC CIEC70
- 72. SPDC & MII's CURRENT POSITION ON 3G STANDARDSProblem areasCurrent positionView this as a success of Chinese technology
View this as opportunities for local industry to succeedLocal manufacturer's support outside of Datang
MNC terminal manufacturer's supportTD-SCDMAThe government clearly supports TD-SCDMAAnticipated announcement of support for TD-SCDMA contingent on success of trials
TDD spectrum allocated for TD-SCDMA
TD-SCDMA trials to be permitted whenever product is available
FDD licensing may be delayed for one year
MNCs being pressured to support TD-SCDMAW-CDMAMonitor and study
Considering holding off licenses for one year after TD-SCDMAPressure from EU for fair trade
Lobbying by MNCsCDMA 2000Not as actively monitored and studied as W-CDMAWhether 2G CDMA will be widely deployed
Pressure from US for fair tradeNot confident yet about the technology pending trials
Need commitment of other local equipment suppliers besides Datang
Need commitment of terminal suppliersHowever, the government is not ready to make a final decision
Source: Ministry of Information Industries; Industry interviews71
- 73. GOVERNMENT RATIONALE FOR TD-SCDMA POSITION BASED ON DESIRE TO INCREASE COMPETITIVENESS OF CHINESE TECHNOLOGY AND CAPABILITY OF LOCAL VENDORS
Source: MII Interviews; RITT interviews; CITIC CIECFactors for consideration
Support of local industries
IPRs for China
Protecting existing network infra-structure investment
Political considerations, i.e., trade relations
Desire to lead the technology development
Desire to conform with global standardSupporting TD-SCDMA because
Avoiding foreign IPRs
Promoting Chinese technology and standard
Time to market advantage for local suppliers
Potential for export
Not promoting TD-SCDMA exclusively because
Threat of unfair trade practice accusations
Pressure from EU and US
Uncertainty in standard, product development and terminal availabilityGovernment wants to avoid a market dominated by foreign players as experienced in 2G72
- 74. CHINA MOBILE MAY ADOPT BOTH TD-SCDMA AND W-CDMA WHILE CHINA UNICOM WILL LIKELY EMPHASIZE DEVELOPMENT OF ITS CDMA NETWORKCurrent operatorsApproach Probability Rationale Quotes China MobileChina UnicomMedium
HighChina Mobile will be experiencing GSM capacity shortfalls in many major cities, which may influence 3G decision
Given its advantages in assymetric transfer, TD-SCDMA being considered for data servicing role
China Mobile is likely to adopt TD-SCDMA under government instructions to support national interests
China Mobile prefers and will likely to adopt W-CDMA jointly with TD-SCDMA to complement each other“China Mobile will adopt W-CDMA and use TD-SCDMA as complementary technology"
– Li Mofang, China Mobile “CDMA 1XRTT will be released commercially by early 2002"
– China UnicomMedium
Medium
HighChina Unicom will focus on expanding CDMA network to build national coverage in the coming 1-2 years
China Unicom will attempt to win high-value clients from China Mobile by leveraging CDMA strengths in quality and capacity
China Unicom will not build GPRS, focusing instead on rollout of CDMA in October, and CDMA 2000 1xRTT in early 2002
China Unicom has little pressure to upgrade the GSM network given new spectrum availability on the CDMA network. Migrating to TD-SCDMA or W-CDMA remains an option but not a priority nor a necessity
Internal competition will happen between CDMA and GSM; China Unicom may position the CDMA network as a high-end network, and the GSM one as low-end3G
TD-SCDMAW-CDMATSMGSMGPRSGSMGPRSTDD@GSM3G
TD-SCDMAW-CDMACDMACDMA2000
1XRTTCDMA2000
3XRTTLikely approach
Source: Interviews73
- 75. TECHNOLOGY PATHS OF NEW OPERATORS WILL LIKELY AVOID SIGNIFICANT INVESTMENTS IN 2G INFRASTRUCTUREPotential new operatorsApproach Probability Rationale Quotes China TelecomChina NetcomLow
High
Medium
Low Regulatory bodies are not inclined to award a 2G license to China Telecom
Plans to wait until 3G enters market and adopt 3G directly
Lack of experience in mobile will make China Telecom more attentive to government mandates and open to TD-SCDMA
CDMA remains a remote possibility depending on inavailability of TD-SCDMA or W-CDMA and migration of CDMA based WLL network“As almost all of our mobile experts are allocated to China Mobile, we have to rely on government mandates. We will adopt whatever technology based on whichever bandwidth the government allocates"
– China Telecom“We wiill do what we can to prevent CM and CU from taking a first mover advantage in mobile data. We must enter into mobile data service quickly”
– China NetcomLow
Medium
MediumVendors for 2 standards are being assessed: Motorola and Nokia (W-CDMA) and Siemens (TD-SCDMA)
Agreement on partnership with Nokia to allow Nokia provide basic skill training
Motorola are introducing W-CDMA to CNC instead of CDMA2000
Siemens is invited to present on TD-SCDMA
Prefer to choose standard that will get them fastest to marketLikely approach
* Railroad spectrum
Source: Industry interviewsChina RailcomTD-
SCDMAGSM-R*GSM/
GPRS3G TD-
SCDMAW-
CDMATSMCDMA2000
1XRTTCDMA2000
3XRTT3G TD-
SCDMAW-CDMATSMGSM/
GPRSLease 2G from China Mobile or China Unicom“We would like to enter mobile services with TD-SCDMA "
– China RailcomChina Railcom believes adopting TD-SCDMA would increase likelihood of gaining broad mobile service licenseHigh 74