ppt chinas telecommunications industry 1306

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ECONOMIC CONTEXT OF ECONOMIC CONTEXT OF

3G LICENSING IN CHINA3G LICENSING IN CHINA

Xu Yan ([email protected])

Hong Kong University of Science and Technology



Growth of Mobile Users in ChinaGrowth of Mobile Users in China

Growth of cellular subscribers in China

(Source: The Ministry of Information Industry)

-

50,000

100,000

150,000

200,000

DigitalAnalog

Digital 0 0 0 0 1 157 1648 6387 17255 38290 82020 144800

Analog 18.300 48.000 177.00 638.00 1567.0 3472.0 5205.0 6846.0 6608.0 4950.0 3240 0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001



Subscribers are not Necessarily Users Subscribers are not Necessarily Users

431

366

299

221

145

241

199

8772

0

5 0

1 0 0

1 5 0

2 0 0

2 5 0

3 0 0

3 5 0

4 0 0

4 5 0

5 0 0

1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1

A R P U ( Y u a n )

Blended ARPU Contract User Prepaid User



Explosive Growth of S M S Explosive Growth of S M S

126.7313.4

1,299.70

4,775.70

0

1000

2000

3000

4000

5000

Million Mess ages

1H 2000 2H 2000 1H 2001 2H 2001

SMS usage volume of China Mobile (HK) i n 2001

Source: 2001 China Mobile (HK) Annual Report



Model of B2B Mobile Commerce: The Model of B2B Mobile Commerce: The

Case of Cyber Case of Cyber--onon--Air Air

Bank

Security««.



China is Calling for 3G China is Calling for 3G

Feasibility: SMS shows the demand tomobile data communication is

encouraging Urgency: The slow speed is currently a

bottleneck for the application of mobiledata communications



S pectr um Auction is not an O ption S pectr um Auction is not an O ption

Global Trend of 3G Auction Price (Euro, million)

111117

2,400

7,000

8,400

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

4/2000 UK 8/2000 Germany 10/2000 Italy 11/2000 Austria 4/2001 Australia



S pectr um Occu pation Fee: S pectr um Occu pation Fee:

U S$6.06 Per Subscriber Per Year U S$6.06 Per Subscriber Per Year

Department of Radio Administration,

Ministry of Information Industry



New Initiative on S pectr um Fee New Initiative on S pectr um Fee

O perators are asked to pay the spectrum feedirectly and spectrum occupation fee will besuspended from 1 July 2002

Price is defined by regulator in the way of benchmarking

7.5 million Yuan (US$0.91 million) per MHz in thefirst year, 11.25 million Yuan (US$1.36 million)

per MHz in the second year, and 15 million Yuan(US$1.82 million) per MHz in each of the third,fourth and fifth years.



K ey Question in 3G Licensing: K ey Question in 3G Licensing:

Which S tandard to Use?Which S tandard to Use?

CDMA2000

WCDMA

TD-SCDMA



TDTD-- S CDMA: Can a Dream become S CDMA: Can a Dream become

Tr ue?Tr ue?

What is TD-SCDMA Proposed by Datang

One of the three 3G standards of ITU First ITU standard proposed by China

Asymmetric transmission

Software-defined radio

Efficient spectrum usage Smart antenna

Smooth migration from 2G to 3G

Close cooperation with Siemens



FDI in Telecom Manu fact uring FDI in Telecom Manu fact uring

No digital system before 1982

Equipment import boom after Fujian installed the

first SPC switch of Fujitsu Policy of using market in exchange for

technology: import, digestion, absorption andcreation

joint ventures were highly encouraged withagreement on technology transference: ShanghaiBell was established in 1984



S hanghai Bell: A Successf ul Case S hanghai Bell: A Successf ul Case

In 1998, more than 74% of Shanghai Bell¶s

hardware and 90% of its software products were

developed and made in China. quotas for domestic market.

By 1999, its products have been exported to

Korea, Vietnam, Philippine, Germany, Spain,

Australia, Belgium and other countries with a total

revenue of 282 billion Yuan, or US$34.18 billion.



Government¶s Su pport To DomesticGovernment¶s Su pport To Domestic

VendorsVendors

assignment of research grant for R&D

low interest loans

discounted tax rates

generous provision of land in high-tech industrial

parks

O perators are encouraged to purchase products of domestic vendors: Supply-demand coordination

conference



J u Da Zhong H ua: J ulong, Datang, J u Da Zhong H ua: J ulong, Datang,

Zhong x ing (ZT E) and H uawei . Zhong x ing (ZT E) and H uawei .

In 1992, the first SPC of 10,000 lines was made inChina with China-owned intellectual property

rights In 1998, 98% of the newly increased switching

equipment for fixed local networks and 50% of newly increased optical transmission system.

In 1999, the market share of local vendors inswitching equipment rose to over 99%.

In 1999, the total revenues from exportingtelecommunication equipment and systems

reached US$ 46.6 billion



Government InterventionGovernment Intervention

³Government Guideline for Foreign Investment inTelecommunications´

Three categories of FDI (1995): Encouraged: Digital Cellular, SDH, ATM switching

system, satellite communications system, digitalmicrowave system

Restricted: analogue wireless system, PABX, non-ATM

central office switches, TV and Radio Broadcastingsystems, Fax machines, low speed digital microwavesystem

Forbidden: Telecom operation



Global Re presenting Offices and Global Re presenting Offices and

joint Laboratories of H u

awei joint Laboratories of H u

awei



H uman and Ca pital Resource on H uman and Ca pital Resource on

R&D R&D

45% humanresource (9000out of 19000 ) on

R&D 85% hold

bachelors degreeor above

No less than 10%of annualrevenues go toR&D

R&D Personnel

Marketing, Sales and

Customer Service

Production

Administration



Revenue (Y uan, billion ) Revenue (Y uan, billion )

1.42.6 4.1

8.92

12

22

25.5

0

5

10

15

20

25

30

1995 1996 1997 1998 1999 2000 2001



Chinese Telecom Manu fact uring Chinese Telecom Manu fact uring

Ind u stry: market or com petitor? Ind u stry: market or com petitor?

In 1999, the total

revenues from exporting

telecommunication

equipment and systems

reached US$ 46.6 billion



Ambitions in Mobile Ambitions in Mobile

In January 1999, ³Several Issues on Speeding up theDevelopment of Chinese Mobile CommunicationsIndustry´ by the State Council .

From 1999 to 2003, 5% of fixed-line telephoneconnection fee as a special grant for the R&D of mobile

technologies.

In 1999, the MII invested 1.4 billion Yuan (US$169.70million) from mobile connection fee to support R&D of mobile technology.

In addition, the State Planning Commission and theMinistry of Finance raised 570 million Yuan, or US$ 69million, to support 31 projects in 7 categories relating tomobile communication technology.



0%

2%

10%

0%

3%

10%

15%

30%

0%

4%

12%

0%

5%

10%

15%

20%

25%

30%

35%

1998 1999 2000 2001 2002

Base Station

Handset

Switching System

Growth of market share of Chinese domesticGrowth of market share of Chinese domestic

vendors in mobile equipment supplyvendors in mobile equipment supplySource: Ministry of Information Industry of ChinaSource: Ministry of Information Industry of China



S trategies of Local Handset S trategies of Local Handset

Manu fact urers Manu fact urers

Good after-sale service quality

Low price

Target the urban area from country-side

High class: diamond handset of TCL999D



CDMA: A S hort CDMA: A S hort--cut?cut?

Unicom Horizon: a CDMA network of China Unicom

ZTE: 7.5% market share.

Future CDMA2000: avoid the opportunitycost

Local CDMA handsets: 18 licenses to localvenders (but all have foreign partners)except MOTOR OLA



3G Licensing in China:3G Licensing in China:Who will be the winner?Who will be the winner?



Xu Yan (2001) 3G Licensing Policy in China and Hong Kong

SAR: Research Report for ITU, htt p://www .it u.int/3g

Xu Yan, Douglas Pitt (2002) Chinese Telecommunications

Policy, Artech House Books: Boston, London

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