China telecoms watchers are scratching their heads in complete puzzlement today, following the latest media reports that Beijing may require the nation’s 3 big telcos to all build 4G networks based on a homegrown Chinese technology called TD-LTE. This latest signal coming from unnamed sources at China’s telecoms regulator surprised even me, as there was no indication before that the Ministry of Industry and Information Technology (MIIT) might make this requirement. But then again, the MIIT has become famous for its mixed signals over the years, in what I suspect are deliberate leaks by the agency designed to get more public feedback on internal policy debates.This latest signal from the MIIT, if true, would also come at an interesting time due to recent trade tensions between China and Europe over the telecoms equipment used to build 4G networks. (previous post) Thus some observers might say this latest 4G rumor could be a pressuring tactic by Beijing in that dispute, since requiring all the Chinese telcos to build 4G networks based on TD-LTE would give a clear advantage to Chinese telecoms equipment suppliers over their European rivals.
Before we go any further with that side of the story, let’s look at the latest headlines that cite an unnamed source close to the MIIT saying that China Mobile (HKEx: 941; NYSE: CHL), China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA) may all get 4G licenses to build TD-LTE networks later this year. (English article; Chinese article) Industry watchers had previously expected China Mobile to build a TD-LTE network, while Unicom and China Telecom would be allowed to build networks based on a globally developed and more mature technology called FDD-LTE. Not surprisingly, the MIIT declined to officially comment on the matter.
One of the reasons I say this latest development may be a deliberate leak by the MIIT is due to the strange way the reports are worded. They say all 3 telcos would automatically receive 4G licenses to build TD-LTE networks later this year, but they could also apply individually to build networks based on other standards.
That addition would be relatively consistent with previous signals, which indicated that China Mobile might get its license first to give it a slight advantage over the other 2 telcos since its technology was still relatively immature. Thus one could interpret this latest report to mean that all 3 telcos will get TD-LTE licenses at the same time later this year to avoid any appearance of favoritism towards China Mobile. Unicom and China Telecom could then simply ignore their TD-LTE licenses, and make separate applications for FDD-LTE licenses that could take months or even another year to get approved by the MIIT.
Then, of course, there’s always the possibility that China may require all 3 telcos to build TD-LTE networks as a retaliatory move towards the EU in their current trade dispute. That clash had the EU formally launch an investigation last week into unfair state support by Beijing for China’s 2 big telecoms equipment exporters, Huawei and ZTE (HKEx: 763; Shenzhen: 000063).
China has already said it could retaliate if the EU locks Huawei and ZTE out of the lucrative European market. Forcing all 3 Chinese telcos to build TD-LTE networks would become a vehicle for such retaliation, since Huawei and ZTE offer a wider and more mature range of TD-LTE products than their European rivals like Ericsson (Stockholm: ERICb) and Alcatel-Lucent (Paris: ALUA). At the end of the day, I do suspect this news leak is the MIIT’s way of testing the waters to get more feedback on this potential policy shift. The scenario I outlined above could be the result, with TD-LTE licenses issued first to all 3 telcos later this year, followed by licenses for FDD-LTE sometime in 2014.
Bottom line: The latest signals from the MIIT indicate China’s 3 telcos may all get TD-LTE 4G licenses this year, but licenses for FDD-LTE won’t come until 2014.