China Mobile (HKEx: 941; NYSE: CHL), keen to launch its 4G service sooner rather than later, is embarking on a major wi-fi initiative in the southern boomtown of Shenzhen, in what looks like an attempt to circumvent the telecoms regulator. According to a domestic media report, China’s dominant wireless carrier has signed an agreement with Shenzhen that will see it spend 6 billion yuan, or nearly $1 billion, over the next 3 years to create a wi-fi network blanketing the city using its 2G, 3G and 4G networks. To me this looks like a clever way for China Mobile to quietly commercialize its 4G service, based on a homegrown technology called TD-LTE, which is currently in the second stage of trials in 6 Chinese cities, including Shenzhen. China’s telecoms regulator only awarded 3G licenses 2 years ago, and it is unlikely to award 4G licenses for at least another couple of years as it gives the nation’s 3 telcos time to recoup their 3G investments, which have totaled around $50 billion to date. As part of the 3G licensing process, China Mobile was required to build a network based on a homegrown technology, called TD-SCDMA, which has suffered from numerous problems and tepid support from handset and networking equipment makers. Accordingly, it has moved aggressively ahead with trials based on the more promising TD-LTE 4G technology, even as it rapidly loses share in the 3G space to rivals China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA). This “wireless city” initiative in Shenzhen could be followed by similar initiatives in the other 5 TD-LTE trial cities, including Shanghai and Guangzhou, effectively allowing China Mobile to sign up millions of 4G data users even as its service remains in the trial stages. The 2 main risks to this strategy are: 1) that TD-LTE has lots of problems, which looks likely, causing consumers to shun the service; and 2) that the regulator realizes what China Mobile is trying to do and orders it to halt its wireless city plans. Either way, I have to applaud China Mobile for its creative approach, even though I suspect this initiative will ultimately run into lots of problems.

Bottom line: China Mobile’s “wireless city” wi-fi initiative in Shenzhen looks like a creative effort to bypass regulators in commercializing its 4G network, but is likely to fall flat.

Related postings 相关文章:

◙ China Telecoms Faces Power Struggle, Half-Baked 4G 中国电信行业遭遇政府监管权利斗争

◙ TD-LTE Hits First Delay, More to Come? TD-LTE技术首次延期 未来还会更多？

◙ China Mobile Shuffle: Sea Change Coming? 中移动高层变动或引发重大变化？

Storm clouds are brewing on two separate fronts for China’s telecoms sector, with a power struggle shaping up between 2 major government agencies over an anti-monopoly investigation, while leading wireless carrier China Mobile (HKEx: 941; NYSE: CHL) rushes hastily ahead with new trials for its homegrown 4G technology. First the looming power struggle, which will pit China’s powerful state planner, the National Development and Reform Commission (NDRC), against the telecoms regulator, the MIIT, over an investigation into monopolistic practices in China’s broadband market by the nation’s second and third largest carriers, China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA). Chinese media are reporting the telecoms regulator, the Ministry of Industry and Information Technology (MIIT) is preparing its own investigation into monopolistic practices in the broadband space by China Telecom and Unicom, following the NDRC’s high profile announcement last week that it was conducting its own probe. (Chinese article) This kind of turf war is quite common in China, although one seldom sees it at such a high level as this involving such major state-run companies. Look for major friction as the NDRC aggressively pursues its anti-monopoly case, while the  MIIT, many of whose former officials now work at China Telecom and Unicom, is likely to defend current industry practices. Meantime on a second unrelated front, China Mobile executives have come out and said in very high profile manner that they are launching second-phase large scale trials for their homegrown 4G standard, TD-LTE, with an aim to wrapping those trials up by next June. (English article) It made the announcement even as the initial phase of trials ran into major problems when two of the vendors fell way behind schedule, meaning the trials couldn’t be properly completed. (previous post) China Mobile is clearly rushing ahead with these trials as it wants to commercialize its 4G standard as soon as possible, allowing it to quietly retire its problem-plagued 3G network based on another homegrown technology called TD-SCDMA. But this kind of rushing ahead while earlier work remains incomplete hardly seems like the right way to proceed, and I see major problems popping up in the future for TD-LTE that could delay the technology for months or even years if China Mobile isn’t careful.

Bottom line: Storm clouds are looming for China’s telecoms sector in the form of a government power struggle over industry regulation, and a rush to develop a homegrown 4G standard.

Related postings 相关文章:

◙ Telecoms Investigation Signals Profit Erosion 电信联通遭反垄断调查或侵蚀利润

◙ China Mobile’s TD 3G Fading Fast 中国移动3G网络前景黯淡

◙ China Mobile: Poor 3G Approach Yields Weak Results 中移动3G策略不当 拖累公司三季度业绩

Forget about profits, and just show us some good top-line growth. That seems to be the message from investors for China IT outsourcing firms, following the latest results announcements from VanceInfo (NYSE: VIT) and HiSoft (NYSE: HSFT) that show solid revenue growth even as profits sank in their latest reporting quarters. VanceInfo shares shot up nearly 17 percent after its third-quarter results announcement (company announcement), while HiSoft shares also rose a more modest but still healthy 5 percent. (company announcement) In VanceInfo’s case, investors appear to be excited about accelerating revenue growth, which the company said will rise sharply to 41 percent in the fourth quarter from 26 percent growth in the third. By comparison, HiSoft said its revenue growth will be about the same in the fourth quarter as it was in the first 9 months of the year at about 45 percent. The strong revenue growth for  both companies contrasts sharply with their other US-listed peer, Camelot Information Systems (NYSE: CIS), whose results took a hit last quarter due to its reliance on business from Chinese banks, which are reining in spending under orders from Beijing. (previous post) By comparison, VanceInfo gets the bulk of its business from the telecoms sector, which is spending heavily to build new 3G networks, while HiSoft gets about three-quarters of its business from the US, Europe and Japan, which are obviously not subject to Beijing’s whimsy. Despite the rosy revenue pictures, both VanceInfo and HiSoft saw their third quarter profits drop, with the former’s net profit down by half while the latter’s fell 12 percent. Clearly this drop isn’t of concern to investors, who probably are willing to tolerate higher costs if it means the company is investing for bigger profits further down the road. I personally do like the IT outsourcing space for its big growth potential, though, like any other industry it will also be subject to cyclical tech spending. All that said, the outlook does seem to look good, especially for VanceInfo, for the next 6-12 months.

Bottom line: China’s IT outsourcing sector looks like a strong bet for the next 6-12 months, especially for companies with exposure to tech and Western markets.

Related postings 相关文章:

◙ HiSoft Looking Softer in 2011 After Strong Q1 海辉软件亮丽一季度後 今年余下时间不看好

◙  VanceInfo Underwhelms With Latest Results, Guidance 文思创新业绩平淡

◙ Bank Woes Breed Trouble in Camelot