Interpreting Two Approaches to Domestic 4G Development: The Debate Between Market Demand and Standard Cultivation
On the morning of May 21 (by Zhang Yuehong), during the NPC and CPPCC sessions in March this year, Minister of Industry and Information Technology Miao Wei revealed that 4G licenses are expected to be issued within the year. Since then, the telecommunications industry has been speculating on the timing of license issuance, with the most optimistic guess being May 17, World Telecommunication Day.
However, the 4G license did not arrive as expected on Telecommunication Day, and soon another version of the issuance date gained attention: 4G licenses would be issued in the fourth quarter of this year.
The keen attention to the issuance of 4G licenses reflects the entire industry's concern over whether 4G construction will accelerate. Some industry experts have noted that, similar to China Mobile's TD-LTE network construction model, regulators and the industry are also divided into two schools of thought on whether to rush into 4G: the gradualist camp and the accelerationist camp. Combining the views of both sides, it can be seen that the gradualist camp emphasizes specific issues and practical realities, while the accelerationist camp focuses on grand narratives and long-term planning.
Gradualist Camp: Aggressiveness Will Worsen the Landscape
A prominent voice in the gradualist camp is Chen Haofei, telecom analyst at CICC. He believes that the domestic 3G user penetration rate is still low, at less than 20%. Chinese users' ARPU is around RMB 60-70, and the current average monthly data usage per 3G user is only about 150MB. China's 3G networks face no capacity shortage at all; the primary issue is increasing base station density and enhancing coverage. For operators that already have 3G networks, 4G hotspot coverage in areas with dense high-end data users is sufficient. China Mobile, considering the need to reverse its unfavorable 3G technology position, may appropriately take an early lead in 4G, but after achieving technological rebalancing through this early move, the entire industry should slow down the pace of 4G deployment.
He warned the industry that 4G is not a revolutionary technology, and there is no significant difference in spectrum efficiency between LTE and HSPA+. If the industry misinterprets 4G and the aggressiveness of individual operators drives the entire industry into a 4G sprint, it will lead to inefficient investment and vicious competition. The industry is currently in a highly unbalanced state, and weaker operators are less able to withstand turbulence. If vicious 4G competition makes the industry even more unbalanced, it may trigger direct government intervention again. Moreover, without new revenue models or cost controls, aggressive 4G investment by operators competing on capacity supply will have a weak impact on revenue growth.
Additionally, from an application perspective, the most popular services in China today are WeChat and Weibo, each requiring about 100MB of data traffic per month, with no high demands on speed. Unless there is a revolution in tariff structures or killer applications emerge, everything else is empty talk.
At present, many users have not yet developed the habit of consuming large amounts of data traffic. If traffic consumption habits lag behind, operators rushing into 4G will inevitably incur losses. An unnamed Yunnan Mobile insider revealed that 3G base stations in some areas have already been built but have not been activated for subscribers, precisely because scale cannot be achieved and activation would result in losses.
China Unicom is a supporter of the gradualist camp. Chang Xiaobing stated clearly at the "2013 China IT Leaders Summit" earlier this year: "We have a 3G network with comprehensive coverage, strong capabilities, and decent speeds—what does 4G matter?"
On the eve of World Telecommunication Day, China Unicom upgraded its 3G network to 42Mbps in eight cities in the Pearl River Delta, making it the fastest commercial 3G network in China. According to media-published data, by the end of 2012, more than 100 phone models globally supported 42Mbps networks, including the popular Apple iPhone 5 and Samsung GALAXY S4.
Accelerationist Camp: LTE Evolution Carries the Task of Promotion
The representative of the accelerationist camp is China Mobile. As the dominant force in the TD-LTE industry chain, China Mobile's 4G development path is no longer purely the evolution strategy of a single telecom operator, but also takes into account the growth and expansion of the entire industry chain.
From its own competitive strategy perspective, China Mobile's positive attitude toward 4G stems from the weakness of the TD-SCDMA industry chain relative to its competitors, and its urgent need to evolve to LTE to achieve technological balance. Data shows that due to the relative weakness of the 3G industry chain, more than 90% of China Mobile's users remain on the 2G network, while the 3G network is left idle.
Furthermore, from the perspective of industry chain advancement, the TD-LTE industry chain lags behind LTE FDD. If a particular industry chain is relatively backward, it may result in low enthusiasm for investment from related equipment manufacturing, testing, and support enterprises, preventing the achievement of economies of scale, resulting in higher network construction and terminal costs, fewer terminal product options, and poorer user experience with terminals.
Although TD-LTE has already launched commercially in Japan and India, its small scale prevents it from exerting influence on the industry chain's progress. Some members of TD-LTE development initiative organizations have clearly stated that only when populous countries like China or India "take the first step" can TD-LTE rapidly develop scale through the market, quickly reduce commercialization costs, and catalyze the upstream and downstream of the industry chain.
From this perspective, China Mobile's LTE considerations are no longer merely a question of single-market maturity; it also bears the important tasks of successfully promoting the TD-LTE industry chain and facilitating the transformation and upgrading of China's communications industry. One industry insider even interpreted the speed of 4G license issuance as an indication of the government's recognition of TD-LTE as an independently innovated technical standard.
Additionally, intense competition has led to declining operator profitability, which in turn has increased their focus on costs. LTE is a mobile communications network specifically designed for data services. Research indicates that the per-bit cost of LTE networks is only one-quarter to one-third of that of 3G networks. As the era of traffic consumption arrives, migrating to LTE as soon as possible can effectively improve operators' profit margins. For the other two operators, if they do not follow China Mobile's aggressive 4G push, the high-end users previously attracted through 3G industry advantages may be lost as China Mobile vigorously promotes 4G.
Undoubtedly, the firm supporters of the accelerationist camp are all the telecommunications equipment vendors. Having endured the global economic downturn and tightened telecom investment over the past two years, as one of the world's largest single markets, China's rapid evolution to 4G will significantly alleviate the dual decline in equipment vendors' revenue and profits.
At present, the main point of contention between the two camps lies in market demand versus standard cultivation. No one denies the importance of a dominant standard to enterprises and even to a country's industry chain. However, policy can only provide a push; ultimate success or failure still depends on market and user choices, and the outcome of that choice is difficult to predict.