Outlook on 2012 Wireless Broadband Development Trends

In 2012, the three major telecom operators will compete in multiple areas including 3G, WiFi, and post-3G. Meanwhile, the construction of "cloud computing" and "smart city" initiatives relying on the underlying network infrastructure will drive cooperation between operators and governments.

It is foreseeable that 2012 will not be an easier year for China's telecom operators than 2011. In a sense, whether telecom operators can achieve gains in 2012 and thereby establish and consolidate their position in the communications industry chain will directly determine their future revenue and development.

3G User Growth with Declining ARPU

In 2012, the 3G user base of various telecom operators will grow rapidly, but the ARPU of 3G users will continue to decline.

Benefiting from the network construction achievements over the three years since the issuance of 3G licenses in China, the pull of mobile Internet applications, and more importantly, the popularity of budget 3G phones driven by declining 3G handset chip prices, operators are expected to see strong growth in 3G users in 2012.

The 3G penetration rate among operators' mobile users will continue to rise, and is expected to quickly surpass 15% in the first half of the year — the internationally recognized inflection point for 3G development. This will bring even stronger growth to 3G business applications, but will also place enormous pressure on operators' existing 3G networks.

The rapid growth of 3G users will create tremendous opportunities for 3G chip manufacturers and handset terminal vendors, while "mobile Internet" applications built upon "terminals, networks, and users" will experience explosive development.

Shift from Coverage-Oriented to Optimization-Oriented

In 2012, telecom operators' wireless network construction will fully shift from "coverage-oriented" to "optimization-oriented," and 4G networks and 3G enhancement technologies will be tested and deployed in operators' networks.

After three years of network construction from 2009 to 2011, the 3G networks of domestic telecom operators have basically achieved their established regional coverage targets. With the massive growth of 3G users in 2012 and the rapidly increasing demand for mobile data bandwidth driven by mobile Internet applications, 3G network optimization in hotspot and key areas is expected to become the focus and starting point of operators' wireless network construction.

In addition to optimizing 3G networks in hotspot and key areas, using WiFi technology to offload mobile data will become a practical choice for operators.

Based on operators' WiFi construction practices and user perception in 2011, it is expected that in 2012, operators' WiFi construction tenders will focus on adopting 802.11n technology, which provides greater bandwidth. Centralized procurement bidding for WiFi equipment will shift from the current price-dominated approach to a price-and-function-dominated one, and more capable and technologically advanced WiFi vendors will join operators' WLAN network construction.

On the other hand, fully exploiting the potential of existing 3G technology, testing and introducing key LTE technologies will become an inevitable choice for China's telecom operators.

For China Unicom, its continuously growing 3G user base has already prompted multiple upgrades to its 3G network. In 2012, Unicom's 3G network is expected to achieve comprehensive HSPA+ upgrades in key and hotspot areas, and adopt MIMO and OFDM technologies in hotspot areas to reach maximum downlink speeds of 84Mbps.

For China Mobile, its currently deployed and operated TD-SCDMA network still lags behind China Unicom and China Telecom in terms of coverage level and wireless data carrying capacity.

As the next-generation wireless network LTE technology (TD-LTE and LTE FDD) matures, and with the further surge of enthusiasm among global telecom operators for commercial and experimental LTE network deployment, China Mobile is expected to invest significant effort in promoting experimental TD-LTE network deployment in 2012, while continuing to optimize its existing TD network. Building on the existing experimental deployment of approximately 2,000 TD-LTE base stations across 6+1 cities in 2011, it will further increase the deployment density and scale of TD-LTE base stations, and will launch TD-LTE data cards as well as TD-LTE handheld terminals in partnership with equipment vendors.

For China Telecom, although enhancing user application perception is the fundamental starting point of its wireless network construction, under the dual pressure of China Unicom's wireless network speed marketing and China Mobile's TD-LTE trial network construction, China Telecom may expand its EVDO Rev.B deployment trial areas. Constrained by the limited availability of terminals supporting EVDO Rev.B in the current market, a full-network upgrade of EVDO Rev.B for China Telecom will be challenging. As an alternative approach to offloading wireless data, WiFi construction in hotspot areas will be a major focus for China Telecom.

High Enthusiasm for Broadband

Operators' enthusiasm for broadband construction is running high, and the construction of "cloud computing," "smart city," and "wireless city" initiatives relying on operators' underlying networks will become important platforms for cooperation between operators and governments.

With the maturation of xPON technology and the continuous decline in costs and prices, 2012 will become the inaugural year for large-scale xPON deployment and FTTH volume application by telecom operators. The "broadband monopoly" investigation that began in late 2011 and the de facto failure of "triple play" have further strengthened operators' determination to reinforce basic network construction and secure dominance in future broadband value-added services.

Constrained by the restrictions of Ministry of Industry and Information Technology Document No. 686, China Mobile did not conduct large-scale FTTx construction in the earlier period. However, as the ban imposed by Document No. 686 on China Mobile's broadband construction expires at the end of 2011, China Mobile may, with the tacit approval of regulatory authorities, directly proceed with FTTx residential access network construction in 2012. In terms of PON technology selection, unlike China Telecom and China Unicom, which primarily adopt EPON, China Mobile will mainly adopt GPON technology to implement FTTx.

On the other hand, as local governments increasingly recognize the importance of communications infrastructure construction, and given the significant role of new technology industries in driving local economic growth, it is expected that in 2012 local governments will cooperate with operators to launch large-scale "cloud computing" base construction, as well as "wireless city" and "smart city" initiatives built upon operators' underlying networks. This will bring new opportunities to telecom operators.

However, it should not be overlooked that as Internet operators continuously launch free mobile Internet-based services such as "WeChat" and "Freetalk," their ability to erode telecom operators' basic services such as "voice and SMS" is continuously strengthening. The decline in the proportion of telecom operators' revenue from basic services in 2012 will become an inevitable trend. Whether telecom operators can launch attractive mobile Internet services, truly excel at "traffic management," and establish their position in the mobile Internet industry chain will be the key to determining their future fate.