China’s telecoms regulator has just made an interesting move that indicates leading telco China Mobile (HKEx: 941; NYSE: CHL) may get a much shorter head start than previously expected over smaller rivals China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA) in the nation’s migration to 4G wireless service . The move looks potentially significant to me because it also comes as the regulator, the Ministry of Industry and Information Technology (MIIT), is also preparing to issue its first batch of 5 or 6 virtual network operator (VNO) licenses, which will create much needed new competition for the 3 existing state-run telcos.
Perhaps I’m being too imaginative by trying to link the arrival of 4G with the award of VNO licenses, whose recipients will be able to offer their own-branded telecoms services by leasing network capacity from the existing 3 telcos. I’ll explain shortly why I think there may be a link, and why such a development would be a welcome development for just about everyone except for China Mobile.
All that said, let’s take a look at the latest headlines that say the MIIT has just assigned spectrum to China Telecom and Unicom to operate 4G service based on a globally developed technology called FDD-LTE. (English article) Sourcing on the reports is vague, citing only an unnamed industry insider. But the level of detail, including precise figures for the new spectrum assignments, seems to indicate the information is probably accurate.
Three years ago, the MIIT designated spectrum for 4G service based on a homegrown Chinese standard called TD-LTE, which is being used by China Mobile in its 4G network. The early designation of that spectrum was necessary because TD-LTE, as a new standard, required extensive trialling before commercial use. China Mobile has been conducting such trials over the last 3 years, and has now built up a national TD-LTE network that is ready for commercial service. It is already preparing to launch such service as soon as the MIIT awards a formal commercial license for the technology, perhaps later this month.
By comparison, FDD-LTE is a globally developed standard that is already in widespread use throughout the world, and thus requires far less trialing before a commercial roll-out in China. Both Unicom and China Telecom are planning to offer FDD-LTE 4G service, which would give them an edge over China Mobile due to the technology’s greater reliability. But previous reports had indicated the MIIT might give China Mobile a big head start by giving out TD-LTE licenses by the end of this year, and then waiting up to another year before awarding FDD-LTE licenses.
This latest report indicates the awarding of FDD-LTE licenses could come much sooner, perhaps as early as the first quarter of next year, giving China Mobile far less head start than previously expected. All of that brings me to my original point, that perhaps this sudden acceleration in an FDD-LTE service launch is tied to the upcoming awards of VNO licenses, which is also expected this month or next. (previous post)
My logic goes like this: When the 5 or 6 new VNOs get their licenses, they will need every possible advantage they can get to win customers from the 3 existing telcos, which have been operating for years and have strong product lines and sales networks throughout China. Accordingly, the MIIT would be foolish to force these new operators to use TD-LTE, which is less reliable and has less far less smartphone models than FDD-LTE. Thus a quicker timetable for FDD-LTE commercial service would allow the new VNOs to have a strong advantage as soon as they launch, helping them to quickly gain market share from the 3 existing telcos.
Bottom line: The MIIT could issue 4G FDD-LTE commercial licenses as soon as the first quarter of 2014, in a bid to help recipients of new VNO licensees.