2009 China - Telecoms, Mobile, Broadband and Forecasts

The Chinese telecommunications market is the largest in the world. With the mobile sector still expanding at over 15% going into 2009, and the long-awaited licensing of 3G services completed after finalising the industry restructure, the market is poised for yet another boost amongst what is hoped to be a more level playing field. The importance of the regulatory regime must not be underestimated in a market like China, where political and commercial considerations are closely intertwined.

China’s telecommunications industry experienced much disruption during 2008. In early 2008, massive snow storms, the worst in five decades, caused widespread disruption to telecom services. The snow storms killed at least 60 people and left tens of millions to experience a cold, dark Lunar New Year holiday. In excess of 33 million fixed and mobile services were cut and direct economic losses incurred as a result of the fierce snowstorms. Then, later in the year, a major earthquake struck near the Sichuan provincial capital of Chengdu. The 7.5 magnitude quake resulted in thousands being evacuated from buildings in Beijing, some 1,500km from the epicentre. These natural disasters tested the networks of the major telcos, not to mention their disaster recovery response times.

Despite these testing events, the market continued to experience healthy growth. Not even the global financial crisis could stall the profound growth that has been the phenomenon of the China market in the last decade. The networks withstood the onslaught of the Olympic Games and although uncomfortable under the scrutiny of the international press and the media glare due to China’s strict enforcement of Internet regulations, the country’s networks were robust and successfully beamed coverage of the major sporting event worldwide.

China surpassed Japan in 2004 as the market with the second most broadband lines after the US. In mid-2008 China became the largest broadband market in the world, finally passing the US. Going into 2009, China’s broadband subscriber population passed the 80 million milestone. China has also become the top DSL market in the world. Despite this huge subscriber base, penetration remains comparatively low, meaning there is still much room for growth.

China tied the US as the online population leader in early 2008 as the number of Internet users soared to 221 million. Such explosive growth in Internet use comes despite government efforts to block access to material considered subversive or pornographic. Entering 2009, the online population reached 300 million and growth showed little sign of slowing.

Possibly the most significant change in the Chinese telecommunications market finally occurred in mid-2008 when the market itself was transformed into three major full service operators. The restructuring merged six of the country’s state-owned mobile phone and fixed-line operators into three nationwide carriers offering fixed-line and wireless services, instead of dividing coverage in terms of region or type of service. The newly formed China Mobile, China Telecom and China Unicom are expected to compete fiercely in 2009 to establish themselves as full-service operators.

Finishing a tumultuous year, the most anticipated event in the country’s telecom market finally occurred in December 2008 when China issued the long awaited 3G licences and in so doing is poised to become one of the world’s major 3G mobile markets. The local development of TD-SCDMA is seeing commercial deployment through China Mobile largely due to the fierce commitment on the part of the government to make sure that China becomes ‘a significant player.’

It is clear that 2009 will surely test the newly established operators, vigorously competing for market share amongst cash-conscious consumers after the global financial crisis peak last year.

China – Internet, broadband, IP telephony and telecoms statistics – 2004; 2008

(Source: BuddeComm based on MII, Global Mobile, Point Topic and CNNIC data)

Key highlights:

·         In the restructure of China’s telecoms industry, China Tietong was merged into China Mobile; China Telecom gained the CDMA network of China Unicom and the telecommunications infrastructure of China Satcom; China Netcom was merged into China Unicom which was left with a significant GSM subscriber base.

·         The telecom industry recorded over RMB800 billion in revenue, up 11.5% year-on-year and nearly RMB300 billion in fixed asset investment in 2008, up 28.2% year-on-year.

·         China had close to 1,000 million phone users by end-2008, including mobile phones, fixed-line phones and PHS handsets. Mobile subscribers comprised 65% of the total.

·         In the long anticipated award of 3G licences, China Mobile was issued with a TD-SCDMA licence; China Unicom a WCDMA licence and China Telecom a CDMA2000 licence. Awarding of the licences was brought forward as part of an economic stimulus package in the midst of the global economic crisis.

·         Despite increased government controls on politically sensitive web content, the number of websites continues grow strongly, with nearly 3 million websites in China going into 2009, with an annual growth rate over 90%.

·         The total number of broadband subscribers continues to grow from nearly 85 million going into 2009. China is on course to become the world’s leading nation in terms of fibre subscribers in 2009, set to attract up to 18 million new subscribers in 2009 alone, and outpacing current leaders Japan and South Korea. There were around 6 million FttH/FttB subscribers by end 2008, with China Telecom capturing 80% of the market and China Unicom the remainder.

·         The top three countries in terms of total cable TV subscribers in 2008 were China, the United States and India, with China leading the pack with 160 million subscribers.

·         China Mobile plans to invest nearly RMB60 billion (US$8.6 billion) on the development of its 3G network in 2009 and China Netcom aims to invest RMB100 million (US$14.6billion) on network expansion and capture a third of the market, in a bid to narrow the gap with China Mobile. China Telecom is to spend RMB80 billion (US$11.7 billion) in the next several years to expand the network of its new mobile phone business.

Data in this report is the latest available at the time of preparation and may not be for the current year.

The following notes provide some background to our scenario forecasting methodology:

·         This report includes what we term scenario forecasts. By describing long-range scenarios we identify a band within which we expect market growth to occur. The associated text describes what we see as the most likely growth trend within this band.

·         The projections shown in the tables in this report are based on our own historical information, as well as on telecommunication sector statistics from official and non-official, national and international sources. We assume a possible deviation of 15-20% around this data.

·         All statistics for GDP, revenue, etc are shown in US$, in order to maintain consistency within and between markets. At the same time we acknowledge that this can introduce some irregularities.

For those needing high level strategic analysis and objective analysis on China, this report is essential reading and gives further information on:

·         The introduction of 15 measures by the Chinese government to support TD-SCDMA technology. The policies fall into six categories: financial aid, project support, network construction, product research, commercialisation, and industry development.

·         The formal launch of China’s new information and communications department in May 2008. The new agency, the Ministry of Industry and Information Technology (MIIT), replaces the ten-year-old Ministry of Information and Industry (MII).

·         Orders by the MIIT in February 2009 for China Telecom and China Unicom to close their Xiaolingtong (Little Smart) wireless service by end-2011.

·         Chinese government consideration of changing further regulations to limit China Mobile’s dominance in the market. In September 2008, the MIIT was trialling number portability in Tianjin and Shenzhen. This was followed by orders for the newly formed operators to share infrastructure resources.

·         China’s commitment to keep the economy growing at an estimated 6% in 2009, in the midst of the global financial crisis. The State Council announced a massive infrastructure spending program as part of an active fiscal stimulus plan aimed at boosting the country’s slowing economy.

·         Chinese online-video site Youku.com receiving a long-awaited license from China’s State Administration of Radio, Film and Television (SARFT) in July 2008, in a sign that China’s government may not take as tough a line on privately owned online-video companies as some had feared.

·         China’s relaxed access for foreign investors in September 2008, to its booming telecommunications industry by cutting minimum required investments, but retained a ban on foreign majority ownership of ventures.

·         Aims by the government to broadcast all TV programs in digital format by 2010 and complete cable TV digitisation by 2015.

·         The successful launch of the ChinaSat-9 broadcast satellite in 2008 which is expected to lead to a relaxation of government restrictions on satellite receiving devices.

·         China’s plans to build its own Silicon Valley as it transforms Guangdong and neighbouring Hong Kong and Macau into a ‘significant innovation centre’ by 2020.

·         Continued explosive growth in Chinese Internet use, which is driving a sharp rise in profits at online companies as online gamers, online music use, online video use, internet shopping and social networking continues to rise together with online advertising spend.

·         Google’s launch in late 2008 of a music search service in China that allows users to access music legally online in a forum backed by some record labels and supported by advertising revenue.

·         The Chinese government blocking access to Google’s YouTube in early 2009, despite asserting that it does not ‘fear the internet.’ The government continues to warn companies such as Google, Chinese search engine Baidu and even Skype that they needed to do more to censor “inappropriate content”.