New Landscape in China’s Telecom Market (1) Winner Takes All
There might be 2 big and 1 small, or 1 big and 2 small operators.
[+] 3G might have 3 versions.
On May 24, 2008, Ministry of Industry and Information Technology and National Development and Reform Commission of the People’s Republic of China jointly published Notice on Deepening Telecom Structural Reform. The hottest topic it brought was the restructuring of the nation’s telecom industry. The notice announced the attitude of the Chinese government toward 3G. For the operators, any action is better than no action at all.
In China, 3G is no longer a matter of "to have or not to have". Rather, it’s about making sure to build it first and seeing how to do it next. The latest round of restructuring highlights the support of the government to the Chinese version of 3G: TD-SCDMA. Prior to that, there were many critics towards 3G and even those arguing for a direct leap to 4G. Now, none of these matters. The operators are posed for a massive merger. Following that would be the issuance of 3G licenses and a new round of infrastructure development. Then, 3G comes.
As a pioneer with 4 years of experience in 3G operation, I have written a lot about the new landscape in the 3G market. As a matter of fact, with the delay of 3G license issuance, Chinese telecom operators have the chance to learn the 3G operation experience from their international peers. As a result, the expectation for 3G, which was once irrationally eager, is getting gradually rational.
The restructuring will turn the operators into 3 powers: 1) China Mobile + China Tietong, let’s call it "New China Mobile" for the time being; 2) China Unicom’s GSM Network + China Netcom, "New China Unicom"; and 3) China Telecom + China Unicom’s CDMA Network + China Satcom, "New China Telecom". Specifically New China Mobile is expected to adopt TD-SCDMA as its 3G version, while New China Unicom will adopt WCDMA and New China Telecom CDMA2000.
[+] Subscribers face bigger barriers for changing network in the 3G time
The restructuring plan seems to have taken care of the interest of each party and each 3G standard fairly. Ideally, a tri-player market structure would facilitate competition and benefit consumers eventually. The fact is, however, to facilitate real market competition, the 3 new operators should use the same version for 3G, for example, TD-SCDMA or WCDMA.
Consumers have to buy a 3G cell phone to be able to use 3G services. Think about this: a consumer who has a New China Unicom’s 3G cell phone wishes to switch to the 3G network of New China Mobile. What he needs do is just change his USIM card, instead of buying a new cell phone. If such an easy thing occurs frequently, the operators will have to figure out better ways to cater for their customers, and preventing them from changing network.
Now a subscriber of New China Mobile has a 3G, TD-SCDMA cell phone, and wishes to switch to New China Unicom. The problem is New China Unicom’s 3G version is WCDMA. So he has to buy a new cell phone, which is by no means easy. With more functions than 2G devices, 3G phones will not be cheap. The consumer begins to hesitate.
As it is now definite that the 3 new operators will get 3 different 3G licenses, this is sure to happen. To a large extent, it has decided the landscape in the future market: the one who builds its customer base first is expected to retain the customers for a considerably long period of time. No one who has spent so much on a 3G cell phone would so casually switch a network in the immediate future.
[+] Customer base building: winner takes it all
One of the most attractive aspects about 3G is the video phone. Being able to see the person at the other end of the call is a feature that people both love and hate (and that accounts for why it has not been popular anywhere in the world). With the existence of different versions, a person with a WCDMA phone will not be able to call someone with a CDMA 2000 phone. The attractive aspect of 3G, it seems, is not so attractive.
For operators, this is both a challenge and an opportunity. If the new operators could persuade lovers (or mothers and sons) to buy their 3G phones (for video phone communication) at the same time, subscribers would increase by couple. For both parties of a call, no barrier exists for using 3G phones of the same spec to make video phone calls.
The above observation has drastically increased the possibility of "winner takes all" in China’s 3G market. The one who builds up its customer base first would establish a leading edge. It was the same situation that once occurred as the result of the competition between China Mobile and China Unicom’s CDMA Network. The difference is the new landscape brings everybody back to the start line again. At least it gives us new expectations.
If the 3 new operators end up being equal rivals, it would be the consumers who eventually benefit most. Although under the protection of different versions of 3G, changing network is difficult. There would be a landscape of competition between equally powerful players. However, if the tri-party balance is disturbed, there might be 2 big and 1 small, or 1 big and two small operators.
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