TELCOMS: China Telecom Eyes 5G Network Sharing

Bottom line: China Telecom, Unicom and China Broadcasting Network could share the costs of a 5G network to lower costs, while China Mobile is likely to construct a network on its own.

China telcos consider 5G network sharing

As earnings season reaches a crescendo, wireless carrier China Telecom (HKEx: 728; NYSE: CHA) is raising an old theme by saying it might consider sharing resources with someone else in building a next-generation 5G network. This particular topic first surfaced more than a year ago when China Telecom and rival Unicom (HKEx: 763; NYSE: CHU) studied the possibility of sharing 4G resources, even though they ultimately each built their own networks. (previous post)

The interesting twist this time is that Beijing is rolling out a program to inject private capital into the telecoms sector, meaning perhaps China Telecom and the other telcos could be allowed to pick private-sector partners for their 5G networks. Another interesting wrinkle comes in the form of a fourth state-run telco that was assembled from the nation’s many cable TV companies last year and would probably like to have its own telecoms network.

The bigger backdrop behind this is that China’s telecoms services sector is becoming increasingly competitive, as the regulator allows more players into the market in a bid to make it more dynamic. The private sector is getting involved through a virtual network operator (VNO) program that allows companies to lease network capacity from the big three carriers and resell it under their own brands. Meantime, a fourth major carrier, China Broadband Network Co, made its official launch last year through the ongoing consolidation of the nation’s many regional cable TV operators. (previous post)

All of that, combined with the huge costs of building the current generation of 4G networks, is putting huge pressure on all 3 of China’s big state-run telcos, which are feeling the pain on their bottom line. Unicom has felt it the worst, reporting its profit tumbled 94 percent last year, while China Telecom’s profit fell by a milder 10 percent. The biggest carrier, China Mobile (HKEx: 941; NYSE: CHL), will report its 2016 results later today.

Against that backdrop, let’s look at the latest headlines, which really don’t say much besides the fact that China Telecom doesn’t rule out sharing resources when building its 5G network. (Chinese article) The company made the comments at its latest results press conference, where its 10 percent profit decline was the major focus. In addition to the decline, China Telecom said its revenue rose 6.4 percent last year.

Finding Partners

Rather than go into more detail from the results, let’s focus on the possibility of 5G network sharing, whether or not it will happen, and if it does then who would the likely partners be. Network ownership is an extremely sensitive topic in China due to the national security issue, and for that reason has been strictly limited to the big three state-run telcos, which are all under firm control by Beijing.

But that said, Beijing has shown a nascent receptiveness to partial ownership of such assets by private companies. The country was previously quite nervous about buying high-tech equipment from big foreign firms like IBM (NYSE: IBM) and Cisco (Nasdaq: CSCO), but later signaled its willingness to tolerate such purchases if they come from partnerships between those companies and local Chinese partners.

In a similar vein, Beijing is also experimenting with a pilot program designed to bring private money into big monopolized state-run sectors like telecoms. In this case Unicom has been selected as the first telco to participate in the program, and has previously said it has submitted a plan to the regulator for approval. That plan is ultimately likely to see one of China’s big 3 Internet companies selected to form some sort of equity tie-up, though it’s doubtful that would include any network ownership at this stage.

China’s telecoms sector has signaled it expects commercial 5G networks to get rolled out around 2020, which is still three years away. That means companies would probably start building those networks in 2019, which is just two years off. At the glacial pace that Beijing’s pilot programs move, it does seem unlikely that the public-private program will be advanced enough by 2019 to accept private sector money into 5G network building.

Instead, the more likely scenario would probably see two or more of the state-run telcos share the costs of building a network. Previous buzz was that Unicom and China Telecom would do such sharing in 4G. But we should also note that China Broadcasting Network could also be a strong candidate for such sharing, since it will have to build a network from scratch. If I were taking bets, I would say the trio of Unicom, China Telecom and China Broadcasting Network could collectively build a 5G network, while industry behemoth China Mobile will build its own network.

(Visited 35 times, 1 visits today)

Leave a Reply

Your email address will not be published.