Bottom line: A bevy of signals from Beijing indicate China will roll out 5G networks around 2020, in step with major Western markets, providing a boon for telcos, equipment sellers and Internet companies.
After years of watching China following years behind the West in rolling out its next-generation wireless networks, there are growing signs that the country intends to be a leader rather than a laggard with upcoming 5G service. The latest signal in that drive is coming from the country’s state planner, which has just announced that five or more cities will start to build rudimentary 5G networks starting next year.
All this may sound quite boring for many of my readers who are more interested in high-tech companies than stodgy telecoms carriers. But it really has huge implications for not only China’s big 3 telcos, but also the nation’s booming Internet industry that will become the direct beneficiaries of 5G networks that offer data speeds that are well ahead of what you can get from current 4G technology.
The shift we’re now seeing has been bubbling about for much of the last half year, as both telcos and China’s telecoms regulators increasingly discuss 5G technology. Similar discussions occurred in the past, even though China ultimately chose to wait until the new technologies were more mature before launching its own new networks. That typically meant that China was anywhere from 2-4 years behind the rest of the world in 3G and 4G, allowing it to benefit from more mature technology but cutting it out of any role in development of those technologies.
Having spawned telecoms equipment giants Huawei and ZTE (HKEx: 763; Shenzhen: 000063), not to mention Internet giants like Tencent (HKEx: 700) and Alibaba (NYSE: BABA), national leaders are just now finally realizing that perhaps it’s to their benefit to be more active in creating the next generation technologies than just playing follower. The latest report from the National Development and Reform Commission (NDRC), China’s state planner, reinforces the steady string of recent signals.
According to that report, the NDRC wants to see rudimentary 5G test networks set up in at least 5 major cities next year, with each of those networks including at least 50 base stations. (Chinese article) No particular cities are specified, but the NDRC says it wants to see networks in the Yangzte River Delta centered on Shanghai, the Pearl River Delta centered on Guangzhou and in the Beijing-Tianjin-Hebei area of northern China. Those networks would form the core for future much-larger commercial networks.
This latest announcement continues the string of signals I mentioned earlier, which are coming from the Ministry of Industry and Information Technology (MIIT), as well as the big three telcos, China Mobile (HKEx: 941; NYSE; CHL), China Unicom (HKEx: 762; NYSE; CHU) and China Telecom (HKEx: 728; NYSE: CHA). We saw two other signals last week, including word that third-stage trials were beginning for 5G by the MIIT, and a report from China’s state broadcaster saying the three telcos would start building networks next year, which seems to be another version of latest NDRC announcement. (English article)
If China really sticks to its guns, it is expected to launch 5G commercial service around 2019 or 2020, which would be roughly in step with the rollout of commercial networks in the West. That would translate to a spending bonanza that should benefit Huawei and ZTE, which seem to get at least 50 percent or more of the contracts from the big Chinese telcos these days.
The rollout of networks in step with the rest of the world should also work to all of the internet companies’ benefit, as it will allow them to experiment more with high-data functions. More innovation by the Internet companies should also help the big telcos, which should see surging demand for their services as a new generation of data-hungry functions hits the market. Among those I would expect to see China Mobile continue its dominance, with the smaller China Telecom and Unicom continuing as relative laggards.