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Miles to go for 3G to make profits

By Li Fei (China Daily)
Updated: 2009-06-08 08:38

A consumer asks for information about China Mobile's 3G services at a telecom shop in North China's Qinhuangdao, a coastal city in Hebei province. [Asianewsphoto]

Li You, a 29-year-old doctor working in Beijing, only started noticing the advertisements when they began to appear more frequently - as posters on buses, on billboards and as commercials on TV.

"Actually, I am getting a little fed up at the mention of 3G. The '3G' word has been tossed around in the media and public domain for years," she said.

"I just cannot understand why it is attracting so much media attention," Li said. "May be, I am not that tech-savvy after all."

Li may not understand why her resentment is so strong, but chances are it may only grow in the days ahead as the battle for subscribers heats up and the country's top three telecom operators vie for potential 3G users like Li. In fact, the fight has only just begun.

After years of waiting, the country fully ushered in the 3G era last month when China Unicom became the last of the three carriers to launch the service on May 17.

China Mobile, the world's largest mobile phone carrier in terms of the number of users, earlier this year received a license to deploy its 3G network based on TD-SCDMA, a homegrown 3G standard. Its smaller rivals got licenses based on two other widely adopted standards - China Unicom received one for the WCDMA, while China Telecom was issued one based on the CDMA2000 standard.

The rollout of 3G services and the telecom industry restructuring last year under which all three telecom companies are set to become full service operators, are part of the government's efforts to redraw the telecom industry landscape, which is currently dominated by China Mobile.

The 3G licenses issued earlier this year was also part of the government's efforts to stimulate domestic demand, since 3G is expected to attract investment worth hundreds of billions. This will be mainly for network deployment and related projects and will come at a time when investment and consumption are badly needed to prop up the economy.

"The 3G rollout is expected to usher in 1 trillion yuan worth of investment and consumption in three years. This includes 400 billion yuan by telecom carriers to deploy their networks, some 400 billion yuan consumers are likely to spend on handsets, netbooks and other terminals, and 200 billion yuan on video and other 3G services," said Xi Guohua, vice-minister of Industry and Information Technology, at an industry forum last month.

Related readings:  Powered by 3G, netbooks land a growing mart  China telecom market may reshuffle as consumers show low loyalty toward 3G operators  Unicom offers more 3G freebies

Analysts, however, said that while the introduction of 3G services may immediately boost investment and spending, it may not be that effective in changing the industry landscape in the short term.

Although the three carriers have all announced huge investment plans to build their networks, which incidentally is also a big shot in the arm for telecom equipment makers such as Nokia Siemens Networks, the move is likely to drag down their profitability numbers.

China Mobile, for example, has earmarked 375.4 billion yuan, chiefly to expand its 3G infrastructure from 2009 to 2011. This is significantly higher than the 136.3 billion yuan it spent in 2008.

China Telecom, a fixed-line operator before last year's industry restructuring, will spend 47 billion yuan this year to deploy or upgrade its mobile phone network, which it acquired from China Unicom during the restructuring process, its Chairman Wang Xiaochu said earlier.

"The huge capital expenditure will weigh heavily on telecom operators and curtail their returns on investment," said Wang Jinjin, head of Asian telecom research at Swiss bank UBS.

Wang said the economic downturn, which may have led to cuts in customer spending, which along with the huge investment in network expansion intensifying competition as a result of the industry restructuring, together mean China's telecom industry will see a downtrend despite the 3G rollout, a cycle, she said would last at least for another year or two.

"Global experience shows that 3G has not been very helpful in driving carriers' business growth," Wang said.

Analysts also said it would take several years for 3G services to become popular and reach a critical mass of customers. Only then can it start generating profits for the telecom carriers, they said.

Telecom carriers must also lower the cost of 3G services and develop innovative applications on the new platform to help the business really take off, they said.

Developing 'killer application' key to 3G business growth

According to an online survey by sina.com, the largest portal in China, although 59 percent of 363,000 respondents said they would "ultimately become a 3G subscriber" in the future, nearly half said the cost was simply "too high" to make them switch.

In addition to the high cost of services and the need to buy a new handset, 17.5 percent of the respondents said the limited number of 3G applications was the third key reason why they would not rush to be a part of 3G services, the survey found.

"Developing killer applications (such as text messaging in the 2G era) is critical to spur the 3G business as people are still used to and satisfied with the dominant voice and text messaging services available now," said Chen Jinqiao, deputy chief engineer of the China Academy of Telecommunication Research, a think-tank affiliated to the Ministry of Industry and Information Technology (MIIT), the telecom regulator.

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