3G brings a boom to mobile phone industry
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When the Chinese government issued the long awaited third generation (3G) license to three domestic telecom operators a year ago, few imagined the number of the country's 3G users would reach nearly 15 million within one year.
Industry analysts predict, if the momentum continues this year, there would be an "explosive" growth in the world's largest mobile phone population, with 3G users expected to hit 170 million.
"To be frank I didn't expect the number of China's 3G users would grow as much in its debut year as it did because it often takes eight to 10 months for the telecom operator to finish its network deployment," said Yang Hua, secretary-general of TD-SCDMA Alliance.
He said Chinese telecom carriers had been very quick to finish establishing 3G networks in major Chinese cities in the first three quarters of last year and the 3G user numbers started to take off in the fourth quarter.
As part of its efforts to stimulate the economy, the Chinese government issued licenses for 3G mobile networks to three telephone operators, paving the way for an investment of around 280 billion yuan in upgrading and expanding the network over the next two years.
According to government figures, Chinese telecom operators showed unprecedented aggression in deploying 3G networks in 2009. The total investment in network upgrading and expansion was 160.9 billion yuan last year.
It was the biggest and fastest network construction in the global telecommunications industry.
"Compared with our foreign competitors, which are more market-oriented firms, Chinese telecom operators are State-owned enterprises that are more generous in making investments," said Pang Jun, an analyst with research firm GFK.
He predicted 3G users would number 170 million this year in China.
The battle of standards
Compared with 2G and 2.5G services, 3G allows simultaneous use of speech and data services and higher data rates. This gives telecom operators a great chance to cash in on the use of data traffic to counter their declining revenue from traditional voice services.
In China, however, the 3G market is unique in that different telecom operators have adopted different 3G standards to deploy their networks.
The country's largest cell phone operator China Mobile, for example, was mandated to adopt the country's home-grown 3G standard Time Division Synchronous Code Division Multiple Access (TD-SCMDA) technology. Smaller carriers China Unicom and China Telecom have adopted the WCDMA and CDMA2000 technologies respectively.
The government hopes that by adopting the more mature technologies, China Unicom and China Telecom could challenge the domination position of China Mobile, thereby increasing competition in the country's telecom market.
According to company figures, China Mobile's market share in the new user market has fallen from 78.2 percent in January to 47.63 percent, although the company still far outpaces its two rivals in total user numbers.
GFK figures show that China Mobile picked up less than half of the country's 3G market last year.
"Judging by the current figures, the Chinese government's plan to increase competition is working well," said Wang Yuquan, a senior consultant with research firm Frost & Sullivan.
During the past few quarters, Chinese telecom carriers have launched huge marketing campaigns to promote their 3G services. The fees charged by every carrier have also significantly reduced because of intensified competition.
In order to attract users, the carriers have also promised a huge subsidy plan for 3G handsets makers. This sparked a wave of new 3G handsets being launched in the market.
3G services not used
However, Pang, from GFK, said that although sales of 3G handsets would rise substantially this year - and are expected to account for 30 to 40 percent of the total cell phone market in the country - many Chinese may still use the 2G network even though they bought a 3G handset.
"Some people may just buy the fancy 3G handset but not necessarily use 3G services," he said.
That worry was echoed by David Tang, vice-chairman of Nokia's China business. "According to our estimation, there are many Chinese 3G handset users who don't actually use 3G services, partly because of the telecom operator's limited network coverage," he said. "If China's 3G is to be a success, there should be more users actually using the service, rather than buying a fancy handset and closing the 3G function."
Nokia last year launched a beta version of its online application market "Ovi Store" in China, in an effort to boost 3G services in the country. It is providing a free navigation service for its cell phone users in China. Tang said Nokia launched 18 different types of 3G handsets in China last year, compared with more than 30 2G devices. He said it planned to sell more 3G handset and less 2G phones in China this year.
Network convergence
Although many believe the 3G boom in China would intensify competition between Chinese telecom operators, experts said the real challenge for operators in the long run may be from Internet firms or even traditional media groups such as TV stations.
Earlier this month, China's Premier Wen Jiabao said convergence of telecom, broadcasting and Internet networks should be stepped up. Wen said the country was ready for such a convergence given its existing technology, network infrastructure and market potential. According to the government plan, cross-industry operations will be encouraged between the telecommunications, broadcast and Internet fields through limited trials over the next two years, with the aim of promoting full network convergence by 2015.
"If the telecom network can connect with the broadcasting network, it would mean many State-owned media groups, such as CCTV, could become a telecom service provider," said Pang from GFK. Because the broadcasting firms have a huge advantage on user penetration and making content, "that will change everything currently in the market".
Tang from Nokia said industry convergence was a natural trend. "We believe that it is good for cell phone users whether the telecom operators provide television programs or Internet news," he said. Tang said his company would provide more services in coming years.
Frank Meng, president of Qualcomm China, said he was optimistic about the Chinese telecoms industry. "No matter what the future holds, China's 3G boom will unquestionably accelerate the technology's development across the world," he said.
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