The number of users of TD-SCDMA, China's home-grown 3G cellular network technology, could reach 28m by 2011 compared to 6.4m in 2008, forecasts US consultancy iSuppli.
EngagingChina remembers the hopelessly optimistic forecasts made for Europe's 3G networks prior to their launch and so advises caution before reading too much into this forecast, not least because China has yet to commercially launch TD-SCDMA — or any 3G service for that matter.
So, iSuppli's prediction of 1.1m TD-SCDMA subscribers by the end of 2007 looks particularly ambitious.
Nevertheless, 3G is coming to China and if it hits 6m subscribers in 2008 or takes a year longer, it is not particularly important. It it is still a sizable and fast-growing market opportunity. For comparison, in Germany and Italy, Europe's two biggest 3G markets, it taken Vodafone three years to reach the 4m 3G subscriber barrier.
Of course, Vodafone doesn't operate in China although it does have an “strategic” 3.3% stake in China Mobile.
Consultancy iSuppli doesn't hold out much hope that China's mobile market is going to be opened to foreign operators any time soon. But it does predict that China will issue three licenses during the first half of 2008 and it is a certainty that China Mobile will be given a license to deploy TD-SCDMA networks.
The consultancy predicts that the introduction of 3G in China will be accompanied by a fundamental restructuring of the sector, with 3G licences offered to all four state-owned telcos. Currently, China Mobile has a near monopoly on the mobile market in China with China Unicom in a distant second position.
To improve customer choice in mobile services, iSuppli says the government is likely to allow China's two existing fixed-line operators, China Telecom and China Netcom to also offer 3G services, making a total of four mobile operators. But it is unlikely more than three physical 3G networks will be built. China, it seems, has learnt a lesson from Europe and will encourage base-station site-sharing arrangements as well as network sharing to reduce capital expenditures.
With three or four big state-owned operators toughing it out in the 3G market, the opportunities for new entrants — even if they were given a licence — are clearly going to be limited.
Nevertheless, the US already has eight 3G operators using the rival CDMA2000 standard, and so leaving aside the politics for a moment, the potential size of the Chinese 3G market means it could easily support a few more operators. At the moment, however, it seems highly unlikely that the Chinese government would countenance opening such a “strategic” industry as cellular to foreign competition. But the west can always live in hope.
Meanwhile, foreign firms are going to find more tangible opportunities in the hardware business. Each of the 6.4m 3G subscribers that iSuppli predicts for 2008 is going to need a new mobile handset. China Mobile's first orders for TD-SCDMA handsets have, unsurprisingly, all gone to local suppliers — see this EngagingChina story — and the government makes no secret of its desire for Chinese handset makers to dominate TD-SCDMA technology.
But it is only be a matter of time before the foreign giants like Motorola and Nokia start to make their presence felt in the emerging TD-SCDMA market, just as they have with China's existing cellular networks.
ISuppli sees big opportunities in the applications that will be enabled by 3G, such as internet access, music downloads and video streaming. These are the “killer applications” that have long been promoted in more mature 3G markets in the west and while they have not lived up to over-hyped early expectations, they have helped mobile operators counter the drop in ARPU as the price of voice calls declines.
iSuppli forecasts China's 3G value-added services market will grow to $19.5bn in revenue by 2011, and grow at a CAGR or more than 17% from $8.8bn in 2006.
More on TD-SCDMA in these EngagingChina stories.