Telecoms: 4G and IPTV in, Cisco Out 中国电信行业:4G与IPTV推进 思科受阻

The headlines are buzzing with news bits from each of the country’s 3 major telcos, with high-speed services taking big steps forward even as US telecoms equipment powerhouse Cisco (Nasdaq: CSCO) could be bracing for a Chinese winter. In the former group of headlines, media are reporting that China Mobile (HKEx: 941; NYSE: CHL) has made a significant step into 4G with plans to expand its trial TD-LTE network into China’s interior, while China Telecom (HKEx: 728; NYSE CHA) has just won an important new license to offer TV and other video and data services over its fixed-line broadband network. Meantime, China Unicom (HKEx: 762; NYSE: CHU) is also making headlines with reports that the company is replacing Cisco-supplied equipment from some of its key network due to security concerns.

I’ll come back to the Unicom reports later, but let’s start by looking at the China Mobile news. That has media reporting that China’s largest telco has started to build out its 4G network, based on a homegrown technology called TD-LTE, to the interior city of Chengdu, capital of Sichuan province. (Chinese article) China Mobile has already built up the network in about 10 major cities nationwide, but most of those have been in the more affluent coastal regions.

This move into the interior marks an important and necessary expansion before the company can launch commercial 4G service, which could happen as soon as the second half of next year if new developments continue at the current pace. (previous post) That could be welcome news for China Mobile, which is rapidly losing market share to its 2 smaller rivals in mobile data services due to poor performance of its problematic 3G network.

Moving on, media are also reporting that China Telecom has formally received a license to offer Internet audiovisual services, as well as IPTV transmissions services. (English article) That looks like an important growth step, as such licenses should let the company to start offering TV and other video services over its recently upgraded broadband network, allowing it to compete with cable TV companies and providing an important new revenue source.

China’s cable TV companies are also receiving licenses to offer new video services over their upgraded networks (previous post), and the market could soon emerge as both a competitive and lucrative one for companies tapping consumer demand for a flood of new entertainment choices.

Lastly, let’s look at the China Unicom news, which is perhaps the most intriguing due to its political implications. Before we get to that news, I should also add that Unicom has just reported third-quarter results that show its profit rose 27 percent for the 3 months, a respectable looking figure. (English article) But I’ve given up trying to understand financials of this dysfunctional company, whose results vary widely from quarter to quarter as it struggles with nonstop management problems.

Instead, I’m more intrigued by separate reports saying Unicom has started replacing Cisco equipment from some of its core networks. The unidentified sources behind the reports are saying Unicom made the switch because the equipment poses a security risk. I do find the timing of this news interesting, as it comes just a couple of weeks after Washington said it will prevent Cisco’s Chinese rivals Huawei and ZTE (HKEx: 763; Shenzhen: 000063) from selling their similar equipment into the US market due to security concerns. If this is really a tit-for-tat move, look for other Chinese telcos to take similar action in the future, potentially hurting foreign telecoms equipment makers that rely on China for a major part of their revenue.

Bottom line: The latest signals indicate China is moving forward aggressively on high-speed telecoms services, while China may be set to retaliate for US moves against Huawei and ZTE.

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This article was first published in the online edition of the South China Morning Post at www.scmp.com.

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