Wireless Communications Equipment and Services
A. Market Overview
Wireless communications is really a convergence of computing and
telecommunications technologies. Wireless communications takes
subscribers a step beyond traditional telecommunications, allowing
them to use the same services while on the move. Secure wireless
access creates flexibility for users by allowing them continuous
access to other mobile users, and continuous access to frequently
used applications. The most common wireless devices, all of which
can deliver a number of wireless applications, include cellular
phones, pagers, laptop computers, and PDAs (personal digital
assistants). Wireless services for these devices are constantly
expanding. They typically include voice transmission, Internet
browsing, multimedia messaging services (MMS), online
entertainment, online financial transactions and other M-commerce
(Mobile-commerce) services.
Among the various wireless devices in use today, the mobile or
cellular phone is the most popular for wireless communications, as
it allows subscribers to take advantage of most wireless services
now available. China's wireless market expanded very rapidly in
the early 1990's, and then continued to grow, but at a gradually
flatter rate. By 2001 it had entered a low-growth period, with
less dramatic increases in revenues expected for major operators
and service providers. Even so, double-digit growth in this market
has continued, against a backdrop of 8 percent economic growth for
China despite a worldwide recession. China reached 100 million
mobile phone subscribers in April 2001, and doubled this figure to
200 million in November 2002. By the end of July 2003, the total
number of mobile phone subscribers in China was close to 239.5
million. The rate of penetration of mobile phones was 18.3 percent
of the population. Analysts predict that China will have 350
million mobile telephone subscribers by the end of 2005, 500
million by 2008, and 600 million by 2010.
Table 1
Annual Increases in mobile telephone subscribers in China (July
1992-July 2003)
Year |
Existing |
New |
Total |
Increase (%) |
1992 |
47,500 |
129,500 |
177,000 |
259 |
1993 |
177,000 |
461,000 |
638,000 |
260 |
1994 |
638,000 |
962,000 |
1,600,000 |
146 |
1995 |
1,500,000 |
2,100,000 |
3,600,000 |
132 |
1996 |
3,600,000 |
3,200,000 |
6,800,000 |
90 |
1997 |
6,800,000 |
6,400,000 |
13,200,000 |
93 |
1998 |
13,200,000 |
11,780,000 |
24,980,000 |
85 |
1999 |
24,980,000 |
18,260,000 |
43,240,000 |
72 |
2000 |
43,240,000 |
42,020,000 |
85,260,000 |
49 |
2001 |
85,260,000 |
59,552,000 |
144,812,000 |
41 |
2002 |
144,812,000 |
61,804,000 |
206,616,000 |
30 |
2003 |
206,616,000 |
32,843,000 |
239,459,000 |
16 |
(Source: Ministry of Information Industry)
Recent statistics indicate that the number of mobile phone
subscribers is nearly equal to and will soon surpass the number of
fixed-line subscribers. Both categories are growing, but mobile is
growing faster than fixed-line.
Table 2
Fixed-line subscribers and mobile subscribers (January 2003- July
2003)
Total Mobile
Total Fixed-line
Subscribers
Subscribers
(in millions)
July 2003 239.459
240.754
June 2003 234.472
237.610
May 2003 230.056
232.882
Apr. 2003 225.717
229.039
Mar. 2003 221.491
225.626
Feb. 2003 216.398
221.492
Jan. 2003 212.439
218.004
(Source: Ministry of Information Industry)
Wireless communications is by far the most profitable sub-sector
in China, accounting for more than 46 percent of total
telecommunications revenue, according to a report by Telecom
Research Institute under the Ministry of Information Industries (MII).
Table 3
China telecommunications revenue (June 2003)
Percent of total
Mobile 46.2
Fixed local 33.1
Long distance 14.9
Data communications 5.4
Paging 0.4
Satellite 0.1
(Source: Ministry of Information Industry)
The China wireless market consists of four major players: China
Mobile, China Unicom, China Telecom and China Netcom. China Mobile
and China Unicom provide mobile services. PHS service is provided
by China Telecom and China Netcom. WLAN service is provided by
China Telecom, China Mobile, China Netcom and China Unicom. In
addition, some other companies are preparing to enter the wireless
market, including Railcom and SateCom. There are also a number of
Internet service providers (ISPs) doing business indirectly with
the wireless market.
In the mobile handset market, there were 37 handset manufacturers
in China by the end of 2002. Of these, 29 companies were
manufacturing only GSM, 6 were manufacturing only CDMA GSM, and 14
companies were manufacturing both. The total handset production
exceeded 200 million by the end of 2002. Nokia, Motorola, Siemens
and Ericsson were the four leading foreign companies, and they
dominated the Chinese mobile handset market, with a combined
market share of 80 percent in 2001 and 66 percent in 2002.
Samsung, other Korean, and Japanese manufacturers held an 11.15
percent market share in 2002. Meanwhile Chinese domestic
manufacturers have gradually seized market share. (Source:
Ministry of Information Industry)
Table 4
Total production of handsets by the leading manufacturers in China
(2001-2002)(%)
2000
2001 2002
Nokia 30.19
32.77 27.85
Motorola 33.78
25.89 23.84
Siemens 7.30
11.68 9.96
Ericsson 9.75
8.75 4.72
Other foreign 12.60
8.56 11.08
Domestic 6.38
12.35 22.55
(Source: Ministry of Information Industry)
In the mobile network equipment market, Ericsson, Nokia and
Motorola cover 83 percent of the market and Siemens, Alcatel and
Nortel come next. These top six companies cover almost 97 percent
of the market, leaving only 3 percent to the others. In April
2002, China Unicom's procurement for CDMA network equipment went
to U.S. and European companies, including principally Lucent (27.4
percent), Motorola (25.7 percent), Nortel (16.8 percent), and
Ericsson (15 percent), and two Asian companies, China's ZTE (8.6
percent) and Korea's Samsung Electronics (7.5 percent). This
dominance of foreign over Chinese mobile equipment suppliers is
expected to continue for awhile.
B. Industry Breakdown
Wireless technology is rapidly evolving. There are a number of
sectors in this industry, include wireless paging, GSM (GPRS) and
CDMA mobile telephony, SMS (MMS) messaging, and WLAN. Wireless
paging, until just a couple of years ago, was a primary wireless
service, but with very limited applications for end users. GSM (GPRS)
and CDMA are much more mature wireless services with full mobile
cellular applications for end users.
1. Wireless
Paging Services
Wireless paging services were first introduced in China in 1984.
By the end of 2002 the total number of paging service subscribers
was 18.721 million, with over 1,700 companies providing wireless
paging services. Considering the geographical characteristics of
China and its large population, paging services should maintain
their market position, especially since demand for paging services
has been increasing steadily in the mid-western provinces and in
some rural areas where telephone penetration rates and income
levels are very low. According to statistics, there were 49
million paging subscribers by the end of November 2000, making the
Chinese paging market the largest in the world. However the number
of subscribers in the wireless paging market has continuously
declined and currently is less than half the number at its peak.
China Unicom, a leader in the China paging market, provides such
services as personal demand services and enterprise call centers.
These services allow subscribers not only to access stock trading
and other personalized business information, but also to exchange
messages between the Internet and the wireless paging system.
2. GSM
GSM (Global System for Mobile), as a 2G mobile technology,
delivers high quality and secure mobile voice and data services
with full roaming capabilities across the world. Statistics
provided by the GSM Association indicate that there were 863.6
million GSM subscribers worldwide by the end of May 2003. China
Mobile and China Unicom operate two GSM networks, respectively.
Total GSM subscribers in China were 186.07 million by the end of
May 2003. China Mobile's GSM network is the biggest network in the
world. According to a report on tests of the GSM network's
communications performance in July 2002, announced by China
Mobile, the disruption rate for mobile phones under urban
conditions of static averages only 0.33 percent, while the
disruption rate in Europe under equal conditions is 1.2 percent.
Meanwhile, tests of mobile phone in moving cars showed a
disruption rate in the China network of just 0.97 percent, while
in Europe, it was 1.6 percent.
GPRS (General Packet Radio Service), as a type of 2.5 G mobile
technology, which can be easily upgraded to 3G, is a new non-voice
value added service based on the GSM network. The most important
advantage of GPRS is that it achieves a speed of up to 171.2
kilobits per second (kbps), and allows subscribers to establish
instant connections whereby information can be sent or received
immediately as the need arises and is always connected. China
Mobile launched its GPRS service in 25 cities in May 2002. It has
only 40,000 users so far. But China Mobile is expecting to deliver
its GPRS service to all 31 capitals of the provinces and to the
bigger cities soon.
Table 5
GPRS average charging scheme
|
Option1 |
Option2 |
Option3 |
Option4 |
Basic service charge (RMB/month) |
No charge |
20 |
100 |
200 |
Connection charge (RMB/KB) |
0.03 |
0.01 |
0.01 |
No charge |
(Source: China Mobile Group)
3. CDMA
CDMA (Code Division Multiple Access), a cellular technology
originally known as IS-95, competes with GSM technology for
dominance in the cellular world. There are now different
variations, but the original CDMA is now known as CDMAOne. The
first phase of CDMA2000 - variously called 1XRTT, 3G1X, or just
plain 1X - is designed to double current voice capacity and
support always-on data transmission speeds 10 times faster than
typically available today on both the forward and reverse links.
CDMA is characterized by high capacity and small cell radius,
employing spread-spectrum technology and a special coding scheme.
In 2002, 27 operators launched CDMA2000 networks, increasing the
number of commercial systems to 37 on five continents. According
to a report by the CDMA Development Group (CDG), there were nearly
174 million CDMA subscribers and 24 million CDMA2000 users
worldwide by September 2003.
China Unicom started to upgrade its network from CDMA, or 2G
(second-generation mobile telecommunications) to 2.5G, or CDMA 1X
starting in the second quarter of 2002. CDMA 1X allows China
Unicom to provide the subscribers with more value-added services
such as video and photo e-mails, and high-speed wireless Internet
access. China Unicom unveiled five brand new services based on the
CDMA 1X network, including a multi-media e-mail service, broadband
service, interactive communications based on WAP (wireless
application protocol), BREW (Binary Runtime Environment for
Wireless), Java technologies and GPSOne (Global Positioning
System) services. The services of CDMA1x enable users to download
a variety of software programs, including games and office tools,
onto their mobile phone. By utilizing the satellite-based GPS, or
Global Positioning System, CDMA 1X can offer mobile phone
subscribers information about entertainment and other facilities
near their location. The location-based service (LBS) has
initially only been made available in Beijing, Shanghai and
Guangzhou, but the download service is available nationwide. China
Unicom has more than 11 million CDMA subscribers. Its ambitious
goal of 20 million subscribers by the end of 2003 is a critical
point for China Unicom if it is to survive on the CDMA venture.
Table 6
CDMA Wireless Internet Charging Scheme
|
Option 1 |
Option 2 |
Option 3 |
Basic monthly service charge (RMB/month) |
50 |
200 |
300 |
Connection charge (RMB/KB) |
0.005 |
0.005 |
0.005 |
Free of charge |
100MB |
500MB |
2GB |
(Source: China Unicom)
4. PHS
PHS (Personal Access Phone System), known as "Siaolingtong", is an
MLL-based (Mobile Local Loop) personal wireless access system that
uses the global PHS standard to offer a limited mobility solution
to end-users. PHS offers consumers the convenience of a mobile
phone, with the cost advantages of a fixed-line phone. PHS enables
service providers to offer limited mobility phone services to
communities of up to several hundred thousand subscribers.
PHS has been available in China for five years. Its lower service
fee is drawing a huge percentage of potential GSM and CDMA
subscribers away from mobile services to PHS. Its subscribers
numbered 12 million at the end of 2002. China Telecom and China
Netcom use PAS/PHS from a handful of equipment vendors such as
UTStarcom, ZTE and Lucent Technologies.
Table 7
PHS subscribers
Year |
2000 |
2001 |
2002 |
2003 |
Number (millions) |
1.3 |
6 |
12 |
32 |
Percent increase |
N/A |
361.5 |
100 |
166.7 |
(Source: CCIDNET)
By December 2002, PHS had covered more than 400 cities in China,
including 70 percent of all provincial capitals. It is generally
recognized that PHS has become another major player in China's
wireless industry, as an extension of the fixed line system.
However, because its status is ambiguous both technologically and
from a policy standpoint, the market for PHS is concentrated in
the mid- to low-tier cities in China. But it is also being
marketed in major urban centers like Beijing, Shanghai, Guangzhou
and Tianjin. The availability of PHS services is changing the
boundaries of China's wireless market, as some analysts have
pointed out. The following are some of the effects it has had on
the market:
1.
It has broken to some extent China Unicom's and China
Mobile's strong grip on the mobile communications market.
2.
As a low cost communications service with a one-way
charging scheme, it has met the needs of many users, especially
low-tier users.
3.
It utilizes the unused capacity of the fixed line
operators, thus allowing the best use of that resource, and
creating a new source of revenue for fixed line operators who have
faced falling average revenue per user (ARPU).
4.
The cost of PHS equipment has fallen by 30 to 40 percent
through economies of scale achieved from its current growth. It
takes only half as much time to launch a PHS network as a cellular
network.
5.
PHS could also spur the release of new mobile licenses for
other future wireless operators, such as China Telecom and China
Netcom.
But it is clear that PHS has had its disadvantages:
1.
PHS functions best when base stations are installed every
200 to
500 meters, to eliminate blind spots. However, the PHS
system
runs on a narrower bandwidth, which leads to frequent loss
of
signal due to signal instability.
2.
PHS runs on 1900-1920Mhz, which can be expected to conflict
with the forthcoming next generation 3G.
3.
PHS is an out-of-date technology. Resources could be wasted
should there be a need to upgrade.
4.
Once China Mobile and China Unicom implement a one
way-charging scheme, PHS's unique cost advantage will be
undermined.
5.
PHS cannot be adapted to add additional services, such as
non-voice value added services.
6.
Because PHS is exempt from regulations on one way charging
and on technologies adopted, it could come under fire for unfair
competition with China Unicom and China Mobile.
7.
PHS cannot gain much more advantage in major metropolitan
areas, especially since the cost to upgrade its network is too
great to be worthwhile.
Table 8
PHS's Average Charging Scheme
|
Option1 |
Option 2 |
Basic service charge monthly (RMB/ month) |
25 |
35 |
Connection charge (RMB/minute) |
0.20 |
0.15 |
To sum up, while PHS is in decline in Japan, it has found a niche
market in China through a unique combination of fixed line and
wireless services. It may draw even more users in the future if
Chinese operators are able to develop this market through clever
utilization of existing and new technologies. Otherwise, it may
turn out to have been a useful wireless solution for one segment
of the China market for a limited period of time.
Table 9
Comparisons of PHS with GSM
|
PHS |
GSM |
Charge (per minute RMB) |
0.11 |
0.4 |
Charging |
One way |
Two Way |
Monthly cost (RMB/ month) |
20 |
40 |
Call divert (RMB/month) |
0.06 |
0.1 |
SMS (RMB/message) |
0.08 |
0.1 |
Internet connection (RMB/hour) |
1.2 |
6 |
Connection speed (kbps) |
64 |
14.4 |
Connection |
All sites |
Only WAP sites |
Value added service |
All free |
Average 10RMB |
5. SMS and MMS
SMS (short message service) allows wireless subscribers to
communicate by sending or receiving short segments of text. MMS
(Multimedia Messaging Service) makes it possible for mobile users
to send and receive multimedia messages. A multimedia message can,
for example, be a photo or picture postcard annotated with text,
and/or an audio clip, a synchronized playback of audio, text, or
photo or, in the near future, a video emulating a free-running
presentation, or a video clip. A multimedia message can also
simply be a drawing combined with text.
SMS is a widely accepted form of wireless communication in China.
In 2001, China's SMS revenues totaled $234 million. By year-end
2002, its revenues had tripled to roughly $750 million. By 2007,
SMS revenues are expected to increase to $16 billion, generating
greater revenues than all of Western Europe. As China Mobile and
China Unicom struggle with declining average revenue per user (ARPU)
in other wireless applications, SMS and MMS will gain momentum as
a driver of revenues for these two mobile operators. U.S.
companies looking to capitalize on this lucrative market should
move quickly to provide equipment and content.
China Mobile was one of the earliest Chinese operators to enter
the MMS market. In October 2002, the company launched its
GPRS-based MMS service. SMS had already been established by China
Mobile and China Unicom for more than two years, and was gaining
in popularity. At the time of China Mobile's MMS service launch,
Ericsson and Huawei won the tender for establishing platforms for
China's first four major MMS service centers. Ericsson got the
contracts for the Shanghai and Guangzhou centers, while Huawei got
the Wuhan and Beijing contracts. These four centers will be China
Mobile's backbone for the MMS service. At the end of 2002, China
Mobile had over 50,000 MMS service users, most of them in
specialized professions such as journalism and IT. China Mobile
expects to increase subscriptions to over one million users by the
end of 2003.
China Mobile's strategies for MMS are:
1.
To establish four service centers, so as to prevent overlap
in resources while accelerating the pace of development;
2.
To promote the use of GRPS so as to raise the popularity of
MMS;
3.
To expand promotion so as to gain more new clients for GPRS
handsets;
4.
To promote the use of MMS to attract more users to the GPRS
network, so as to prepare for a good user base for 3G.
China Unicom launched its MMS service in Guangzhou and Shenzhen in
December 2002. Soon thereafter, it launched the service in
Beijing, Shanghai, Guangzhou, Shenzhen and Hangzhou, completing
the launch in the first half of 2003. China Unicom was expected to
implement MMS in an additional nine cities in the second half of
2003. For content, China Unicom contracted with nearly 20 Internet
Content Providers. Today, over 200,000 color pictures at a time,
and over 1,000 types of ring tones can be downloaded from China
Unicom's portal site. In addition, the company offers news,
financial information, weather reports, and a diverse range of
downloads and matching services. China Unicom has also established
a division for MMS promotion, and it is forming a joint venture
with SK Telecom of Korea to expand the service further.
The MMS industry benefits from the widespread popularity of its
services. However it faces certain cost and pricing challenges:
1.
MMS-capable handset prices are around RMB 3,000-4,000 on
average, which can be a major obstacle to subscribers to MMS
services.
2.
The present cost for one MMS message is RMB 0.9, which is
nine times higher than the cost of an SMS message.
3.
China Mobile claims that its GPRS network carries a 171.2
kbps connection speed. But the system can only bring up a speed of
around 30 to 40 kbps. MMS can in fact be operated at favorable
speeds, but only if a 2.5G-based GPRS or CDMA 1X infrastructure is
in place. A 3G infrastructure would support even higher speeds.
MMS requires a speed of 384 kbit/s in order to run properly on
GPRS, and the current CDMA, or 2G, system cannot fully support
MMS.
According to the latest statistics, China has 239 million mobile
users. Those users will send over 60 billion SMS messages this
year, bringing in over RMB 6 billion in revenues to the operating
companies.
Instant Messaging (IM) is a type of SMS, which combines wireless
and Internet technologies. It allows the message to go from a PC
to a PC, or from a PC to a handset, or from a handset to a
handset. IM has grown rapidly in popularity around the world in
just a few years. Some experts now believe that IM may be one of
the most popular computer applications ever. OICQ (also simply
called QQ) is one of the most popular and successful forms of IM
among the Chinese Internet subscribers. It enables real time
communication between PCs, mobile phones and pagers. It is derived
from ICQ, which is one of the most popular forms of IM in the
world. ICQ is an acronym that was originally used in Israel as an
informal shorthand for "I seek you". OICQ supports Chinese
language as well as English language instant messaging.
The scope of SMS offerings has broadened considerably to include,
for example, e-mail and spam, as well as services that are not
delivered over a mobile phone at all, but are ordered via SMS,
such as movies and software. The SMS market is developing fast and
allows the portals and consumers to take advantage of a cheap and
convenient payment system. By making use of the mobile companies'
billing platforms, consumers can simply pay for Internet
purchases, big or small, by adding them to their monthly phone
bills. From this point, consumers can use mobile operators'
payment platforms for unrelated products. At least partly because
of concerns over credit, this payment system has drawn the
attention of financial watchdogs. In response, China Mobile (which
currently manages about 90 percent of the portals for SMS traffic)
recently announced a new guideline, which will prohibit the use of
its Monternet billing platform for mobile-related content
services. In addition, China Mobile also announced that it would
stop collecting payments for SMS services offered by affiliates of
the portals.
6. WLAN
WLAN (Wireless Local Area Network) allows users to access the
network without traditional cable or other material connections.
It will be a potentially important wireless communication
considering its broadband access, mobility and low cost. WLAN can
be applied in many specific usages, such as the mobile office, use
at trade shows, financial services, tourist services, the oil
industry, medical care, and the working floor. WLAN technologies
include LMDS (Local Multi-point Distribution System), MMDS
(Multi-point Multi-Channel Distribution System), WLAN IEEE802.11b,
IEEE802.11a, IEEE802.11g, HiperLAN, and Bluetooth.
WLAN was introduced to the China market in 2001. By the end of
2002 the total size of China's WLAN market was RMB 141 million
with a growth rate of 182 percent. Demand for WLAN equipment in
2002, included AP (access point), accounting for 55.4 percent, NIC
(Network Identification Card) accounting for 37.3 percent and
bridge, accounting for 7.3 percent. The growth of China's WLAN
market came from telecom operators' steps to expand the network,
rather than the demands of the end users. According to a report by
CCID, the total size of the WLAN market will grow to RMB 308
million by the end of 2003, RMB 500 million in 2004 and RMB 830
million in 2005.
China Telecom's introduction of WLAN service allows WLAN users to
access the Internet at a distance of between 10 and 100 meters
from an Access Point (AP). China Telecom combines the WLAN and
ADSL services. Currently its WLAN service covers 21 cities in
China.
Table 10
China Telecom's WLAN Average Charging Scheme for individual users
only
|
Open usage |
Close usage |
512K basic service charge (RMB/month) |
100 |
150 |
512K connection charge (RMB/minute) |
0.1 (after 60 hours) |
0 |
1M basic service charge (RMB/month) |
140 |
1000 |
1M connection charge (RMB/minute) |
0.15(after 60 hours) |
0 |
(Source: China Telecom)
China Mobile has invested RMB 1.8 billion to establish its WLAN
service in 32 cities in China. It combines WLAN with GPRS. There
are a total of 700 access points for its WLAN users to access the
Internet.
Table 11
China Mobile's WLAN Average Charging Scheme
|
Option 1 |
Option 2 |
Option 3 |
Option 4 |
Basic service charge (RMB/month) |
0 |
20 |
100 |
200 |
Connection charge (RMB/KB) |
0.03 |
0.01 |
0.01 |
0 |
(Source: China Mobile)
China Netcom has started its WLAN service in the four major cities
of Beijing, Shanghai, Guangzhou and Shenzhen.
Table 12
China Netcom's WLAN Average Charging Scheme for registering users
|
Option 1 |
Option 2 |
Option 3 |
Basic service charge (RMB/month) |
0 |
50 |
100 |
Basic usage time |
0 |
200 |
500 |
Roaming fee (RMB/minute) |
0.5 |
0.5 |
0.3 |
(Source: China Netcom)
China Unicom started its WLAN service late, compared with other
telecom carriers. But it has been very aggressive in promoting its
WLAN with CDMA1X.
Table 13
China Unicom's WLAN Average Charging Scheme
|
Option 1 |
Option 2 |
Option 3 |
Basic service charge (RMB/month) |
0 |
100 |
200 |
Connection charge (RMB/KB) |
0.02 |
0.01(after 50MB) |
0.01(500MB) |
(Source: China Unicom)
In the WLAN equipment market, Cisco, Nokia, Avaya, and BreezeCom
are major suppliers and account for a large portion of the market.
The highlights in China's WLAN market are that:
1.
VPN (Virtual Private Network) will gradually take over as a
main application for most enterprises to provide network security
over WLAN.
2.
IEEE802.11a is expected to become a more popular radio
frequency choice for WLAN access, since it uses 5GHz to avoid
conflict with cordless phones, bluetooth, and microwave oven
usage. It also has 54MB of capacity to support it.
3.
OFDM (orthogonal frequency division multiplexing) is
expected to become a cornerstone technology for the next
generation of high-speed wireless data products and services, and
will be the core technology of WLAN systems.
7. 3G
In the late 1990s, the wireless providers began planning the next
generation of wireless services that would integrate voice
communications with advanced data capabilities such as corporate
LAN access and wireless videoconferencing. This next generation of
wireless services quickly became thought of as 3G services. In
simple terms, third generation (3G) services combine high-speed
mobile access with Internet Protocol (IP)-based services.
The Chinese Government is not expected to make a decision on 3G
until 2004. It is clear that the Government will opt to give
concrete technical support to domestically developed third
generation (3G) mobile communication technologies, which are
widely expected to be the next big thing in the mobile
communications business. Datang Telecom is likely to be a
potential 3G leader in China's wireless market, as the Chinese
Government has allocated broader spectrum resources for TD-SCDMA
(time division synchronous code division multiple access), a 3G
technology developed by Datang, than for completing technologies
developed by European and American companies. Datang is already
looking like the 3G standard maker in China. Siemens, a major
partner of Datang, will also reap profits from the users of
TD-SCDMA technology.
In addition to the China-based TD-SCDMA, there are two other 3G
technologies: the European WCDMA (wideband CDMA), and U.S. firm
Qualcomm's CDMA2000. The Chinese Government's spectrum allocation,
which is very favorable to TD-SCDMA, will impact heavily on the
business of licensing in the future. China will no longer pay
billions of dollars in licensing fees to overseas core technology
owners. Still, it is questionable whether TD-SCDMA can become
China's basic 3G technology, since it is a younger technology with
less of a track record in commercial networks. One of the major
obstacles facing TD-SCDMA is that there are still no TD-SCDMA
chips to support mobile phones. To speed up TD-SCDMA's
commercialization, Datang Telecom has formed an alliance with
seven other telecom vendors to produce sets of TD-SCDMA equipment.
The seven other members of the alliance include Soutec, Huali,
Huawei, Legend, ZTE, China Electronics Corp., and China Putian,
companies that are representing chipmakers, mobile phone vendors,
and network equipment makers.
C. Competition
It seems that the Chinese handset industry has undergone a major
revolution, with vastly expanded production volume. Even so, most
Chinese manufacturers show low productivity: only eight
manufacturers are capable of turning out one million units per
month. In 2002, 131.6 million handsets were manufactured in China,
of which 7.49 million units were produced by domestic
manufacturers. The domestic share of the China handset market has
grown from 13.8 percent in 2000, to 24.07 percent in 2001, and
39.07 percent in 2002. Major domestic manufacturers like TCL, BIRD
and CECT are regarded as strong contenders for future market
share. For 2003, it is estimated that the total sales volume of
handsets could reach 60 to 80 million units. However, with such a
growth rate, the handset market may experience an over-supply.
Table 14
Comparison of new wireless subscribers with handset production
|
1999 |
2000 |
2001 |
2002 |
New wireless subscribers (millions) |
17.96 |
41.97 |
59.54 |
61.39 |
Total handset production (millions) |
22.68 |
82.51 |
106.22 |
13,155.01 |
(Source: Ministry of Information Industry)
Competition among domestic wireless handset manufacturers has
begun with the emergence of a number of brands, including TCL and
Bubugao, that have the lion's share of the market. Competitors are
also coming from the U.S., Europe, Japan, and Korea. Price wars
are one outcome of this kind of competition. These price wars will
eventually put domestic manufacturers in a difficult position.
According to a recent market survey, the average cost of a handset
unit by produced by a domestic company is US$ 255.37, while the
average cost of a unit produced by an international company is
only US$ 226.04. On average, the cost of domestic products is
12.98 percent higher than that of international companies.
Meanwhile, in the market for CDMA handsets, the price of
international products is US$ 371.69 on average, while the price
of domestic products is only US$ 315.91. (Source: China
Telecommunications News)
In the market for Base station systems and mobile switching
systems, U.S. and European companies own the core technology.
There is no domestic competition so far. This, despite the fact
that domestic companies such as Datang are focusing on 3G
technologies, and are developing a new standard for the next
generation of wireless communications.
Competition also exists in the services sector. China Mobile was a
pioneer in wireless services when it introduced them to China in
the 1980's. As a result of restructuring in the China
telecommunications industry, China Unicom became the country's
second wireless operator in 1994. But China Unicom could not find
a way to compete with China Mobile in the GSM market, since it had
such a small portion of the market.
To prevent potential competition from its counterpart, China
Mobile introduced pre-paid cards to enhance its market share. It
also had to work more closely with the leading global mobile
operator, Vodafone, which currently owns 2 percent of the company.
And it had to emulate the success of the NTT DoCoMo service,
i-mode. It was impossible for China Unicom to compete with China
Mobile until it introduced CDMA to the market in 2002. Competition
between China Mobile and China Unicom then became a competition
between GSM (GRPS) and CDMA, rather than a competition for
subscribers. China Unicom aggressively targeted the potential CDMA
market of high-end subscribers to China Mobile services, thus
cutting away market share from China Mobile. However results still
did not meet China Unicom's expectations. The company had to
include low-end subscribers in its pitch for CDMA sign-ups, by
launching a pre-paid card, too. While China Mobile and Unicom were
redefining their margins, China Telecom and China Netcom were
launching the PHS service in several cities. PHS is expected to
capture some market share from both China Mobile and China Unicom.
D. Sales Prospects
Sales prospects for product and service providers in China's
wireless market in the next couple of years will be driven mostly
by continued expansion and upgrading of the existing system, and
the development and implementation of a new generation of networks
and services. Investment in wireless equipment in China will
continue to grow at 20 percent per year. Industry analysts predict
that China will invest US$ 14.52 billion on wireless
communications networks annually. According to statistics from
CCID, total investment in telecommunications will reach US$ 25.13
billion in 2003. By the end of June 2003, China Unicom had
invested US$ 3.12 billion in its CDMA network. Meanwhile, China
Telecom had invested US$ 2.42 billion, including WLAN equipment.
China Mobile had invested only US$ 1.88 billion in the same
period. The reason for China Mobile's decrease in investment was
that 3G licenses had not yet been decided, and the company was
postponing its investment in 3G equipment. Ambitious investment by
China's telecommunications companies always means enormous
business opportunities for U.S. telecommunications service
providers and equipment vendors. China's development of its own
handset industry will also mean big business opportunities for the
U.S. IC industry.
E. Regulatory
Environment
1. CCC Mark:
On May 1, 2002, China began implementing a new regulation
requiring the CCC Mark with a one-year transition period. The CCC
Mark certifies that a product to be used in China meets certain
quality and safety standards. It applies to 19 categories of
equipment covering 132 individual products and components, both
imported and domestically produced. Products must be tested by a
certification authority in China, and the plant where the product
is produced, whether in China or overseas, must be inspected. As
of August 1, 2003, the CCC regulation was fully enforced.
Certification and Accreditation Administration of the People's
Republic of China (CNCA) regulates all types of CCC applications.
China integrated its two previous compulsory inspection systems,
one of which checked the content of products for import and
export, and the other of which controlled quality, into a single
quality control procedure. This was part of its commitment under
the World Trade Organization. Since May 1, 2002, the two previous
symbols used by the two systems, namely the "CCIB" (as safety mark
introduced in 1989 and required for products in 47 product
categories) and the "CCEE" (also known as the "Great Wall" Mark
for electrical commodities in 7 product categories), have been
replaced by the single symbol "CCC" (China Compulsory
Certificate). The new Compulsory Product Certification System is
applied to products related to human life and health, animals,
plants, environmental protection and national security. Any
product covered by the CCC Catalogue requires the CCC mark before
it can be marketed, imported or used for any commercial purpose in
China. Imported products without the CCC Mark may be held at the
border by Chinese Customs and subject to penalties. Component
parts of a manufacturer's finished products may in some cases
require CCC certification; in these cases, the component
manufacturer is generally required to apply for the CCC mark.
Contact information for the Certification and Accreditation
Administration of the People's Republic of China (CNCA) is given
at the end of this report.
2. Radio
Approval:
The State Radio Regulation Committee of China, which is under the
Ministry of Information Industry (MII), regulates all types of
radio and wireless products. Allocation of radio frequency
spectrum targets the optimal utilization of frequency resources.
In China the approval of radio products is mandatory. The Chinese
radio approval scheme is called "Type Approval of Radio
Transmission Equipment". Radio transmission equipment is defined
as equipment for radio communications, navigation, global
positioning, determination of direction, radar, remote control,
telemetry, broadcasting, television viewing, and low power
communications. The Chinese approval agency categorizes this radio
transmission equipment into the following categories:
1: Fixed telecommunications equipment
2: Public network mobile telecommunications equipment
3: Low power devices
4: Specialized mobile telecommunications equipment
5: Broadcasting transmission equipment
6: Aviation communications, and navigation equipment
7: Radar
8: Marine communications, and navigation equipment
9: Satellite communications equipment
3. NAL
(Network Access License):
China's Ministry of Information Industry issues a Network Access
License for all types of telecommunications network equipment. The
NAL is required to ensure that the telecommunications and radio
products operate correctly when connected to the national
infrastructure and do not constitute a risk to the safe and proper
operation of the networks to which they are connected.
4. Security
Products Sales Permit:
The Ministry of Public Security of China regulates the sale of
security products in China. The Ministry has announced the
following 11 types of products, which may be imported into China,
with an Information Security Products Sales Permit.
1. Access Control Products: Firewalls, routers, proxy
servers/gateways;
2. Authentication Products;
3. Security Auditing Products;
4. Security Management Products;
5. Data Integrity Products;
6. Digital Signature Products;
7. Non-repudiation Products;
8. Commercial Encryption Products;
9. Tempest Products;
10. Information System Security;
11. Information Security Services.
Up to now, China does not have a telecommunications law, though
there are many regulations and rules in the telecommunications
industry. The State Council adopted a Regulation on
Telecommunications in September 2000. In general, wireless
services have been more closely regulated since the implementation
of the telecom regulation. Wireless services whether for voice or
for data service required a license from the telecom regulators.
Without a license, no organization or individual is allowed to
engage in wireless services.
F. Market Access
Most large U.S. companies prefer to establish an office in China
and sell their equipment to end-users directly. Wireless terminals
are always sold through agents and distributors. For companies new
to China, there are various ways to access the market. The U.S.
Department of Commerce has developed a number of programs to
assist U.S. firms entering the China market.
The Gold Key Service is one of these programs. Via this service,
the Commercial Service in China helps U.S. firms meet with
potential Chinese partners face to face. U.S. companies can work
with a U.S. Export Assistance Center (USEAC) close to their
offices in the U.S, or contact the Commercial Service in China
directly.
Another useful service for U.S. firms is the International Partner
Search (IPS). Via the IPS the Commercial Service in China will
locate, screen, and assess potential qualified sales
representatives, agents, distributors, joint venture partners,
licensees, or strategic partners for U.S. firm's products and
services, communicating with the U.S. company via e-mail or
through a USEAC. It is then up to the U.S. company to follow up
and make direct contact with one or more of the potential
partners.
Trade shows are another useful means of market access. The
following are some of the better-known shows and conferences that
include wireless participants:
China International Optoelectronic Exposition (CIOE)
Exposition: September 6-9, 2003
Technical Conference: September 5-9, 2003
Venue: China High-Tech Fair Exhibition Center, Shenzhen
http://www.cioe-online.com/
Wireless China 2003 @ Beijing
Date: September 8-10, 2003
Venue: State Guest Hotel, Beijing
http://infoexevents.com/2003wirelessbeijing/
CeBIT Asia
Date: September 18-21, 2003
Venue: Shanghai New International Expo Center, Shanghai
http://www.cebit-asia.com/all.htm
Value-Added Service Conference 2003 (VASC2003)
Date: October 15-16, 2003
Venue: Beijing
http://www.newtele.com/ours/conference/conference2003-10/conference2003-10-index.htm
2003 International Conference on Computer Networks & Mobile
Computing
Date: October 20-23, 2003
Venue: Shanghai
http://www.computer.org/cspress/CATALOG/pr02033.htm
PT/ Wireless & Networks Comm China 2003
Date: November 12-16, 2003
Venue: China International Exhibition Center, Beijing
http://www.2456.com/eng/showsinfo/info/info1.asp?eid=2542&order=22
2003 China International Conference Technology and System
Exhibition
Date: December 16-18, 2003
Venue: Beijing China International Exhibition Center, Beijing
http://www.avinfo.net.cn/english/index.htm
China Cable Broadcasting Network 2004
Date: March 23-25, 2004
Venue: China International Exhibition Center, Beijing
http://www.ccbn.net.cn/
China Western International Telecommunication Expo 2004
Date: April 26-29, 2004
Venue: International Expo Center, Xi'an
http://www.sunlane.cn/426/index.htm
The 9th China International Lasers, Optoelectronics and Photonics
Exhibition , ILOPE
Date: April 27-30, 2004
Venue: China International Exhibition Center, Beijing
http://ilope.ciec-exhibition.com.cn/
G. Key Contacts
1. Government
offices
Ministry of Information Industry
Address: 13 West Chang An Avenue
Beijing 100804, China
http://www.mii.gov.cn
Telecommunication Administration Bureau
Address: 13 West Chang An Avenue
Beijing 100804, China
Tel: 86-10-6603-3870
Radio Management Bureau
Address: 13 West Chang An Avenue
Beijing 100804, China
Tel: 86-10-6836-6480
http://www.srrc.gov.cn/
Telecommunications Equipment License Office
Address: # 28 Xin Jie Kou Wai Dajie, Xi Cheng District,
Beijing 100088, China.
Tel: 86-10-8205-0166; 86-10-8205-2754; 86-10-8205-8761
Fax: 86-10-8205-0168
http://www.tenaa.com.cm
Ministry of Commerce
Address: 2 East Chang An Avenue
Beijing 100731, China
Tel: 86-10-6512-1919
Fax: 86-10-6519-8173
http://english.mofcom.gov.cn/
Certification and Accreditation Administration of the People's
Republic of China
Address: A10 Chaowai Dajie, Chaoyang District
Beijing, China
Tel: 86-10-6599-4139
Fax: 86-10-6599-4559
http://www.cnca.gov.cn/download/english.html
Shanghai Communication Administration
Address: #1200 Yan An East Road
Shanghai 200003, China
Tel: 86-21-6390-2000
Fax: 86-21-6390-3000
http://www.shca.gov.cn
Shanghai Informatization Office
Address: 7F Sun Tong Infoport Plaza, 55 Huaihai West Road
Shanghai 200030, China
Tel: 86-21-6282-2266
Fax: 86-21-6283-2939
http://www.shanghaiit.gov.cn/indexe.htm
China Wireless Telecommunication Standards group
Address: 28, Xin Wai Avenue, West City District
Beijing 100088, China
Tel: 86-10-8205-1521/29
Fax: 86-10-8205-1524
http://www.cwts.org/cwts/index_eng.html
2. Wireless
Communications Operators
China Telecom
Address: 33 Er Long Road, Xicheng District
Beijing 100032, China
Tel: 86-10-6602-1209
Fax: 86-10-6602-7229
China Telecom, Shanghai
Address: 61 Sichuan North Road
Shanghai 200085, China
Tel: 86-21-6324-0069
China Unicom
Address: A133 Xi Dan North Street Xi Cheng District
Beijing 100032, China
Tel: 86-10-6650-5588
Fax: 86-10-6611-4366
http://www.chinaunicom.com.cn/index
China Unicom, Shanghai
Address: 9/F Unicom International Tower, 547 Tian Mu Road West
Shanghai 200070, China
Tel: 86-21-6353-5555
Fax: 86-21-6353-5533
China Mobile
Address: No. A53 Xin Bian Men Nei Dajie Xuanwu District
Beijing, China
Tel: 86-10-6360-0121
Fax: 86-10-6360-0145
http://www.chinamobile.com/main/default.asp
China Mobile, Shanghai
Address: Rm. 2903 Hi-tech King World, 668 East Beijing Road
Shanghai, China
Tel: 86-21-5308-9988
Fax: 86-21-5308-0400
http://www.shmc.com.cn/English/index.htm
China Netcom
Address: Building C, 156 Fuxinmennei Avenue West City District
Beijing, China
Tel: 86-10-6611-0006
Fax: 86-10-6611-0009
http://www.chinanetcom.com.cn/
China Satellite Communications Corporation
Address: Xueyuan Road Haidian District
Beijing 100083, China
Tel: 86-10-6202-6997
Fax: 86-10-6202-6997
http://www.chinasatcom.com/English/index.htm
Unicom Guomai Communications Co
Address: Guomai Mansion No. 1207 Jiangning Road
Shanghai 200060 China
Tel: 86-21-6276-0000
Fax: 86-21-6276-3318
http://www.unicomgm.com/english_unicom/index.htm
3. Research
and information resources for wireless industry
China Net for Information Industry (CNII)http://www.cnii.com.cn/ecnii/index.htm
CNII was established by the People's Post and Telecommunications
News Office (PPTNA). It is an authoritative news agency in
China's info-communications industry. CNII is the only website
that owns issuance rights granted by the State Council Information
Office.
Address: No. 11, Anyuan Road,Chaoyang District
Beijing, China
China Telecommunications Network (C114)
http://www.c114.net
C114 is a very important portal in China's telecommunications
industry. It has contracted with many large telecommunications
companies, such as China Telecom and China Netcom.
Address: Room 1102, 288 Zhaojiabang Road
Shanghai, China
CCIDNET
http://english.ccidnet.com/ccid.htm
CCIDNet is under the Ministry of Information Industry. It was set
up as an offshoot of the China Center for Information Industry
Development. It is widely recognized as one of the
largest, most influential, and modern of China's top-tier
information service conglomerates.
Address: FL10 CCID Building, 66 Zizhuyuan Road, Haidian District
Beijing, China
ChinaNex
http://www.chinanex.com/cnservice/about.htm
ChinaNex.com provides market information and analysis on China's
telecommunications industry, including voice and data services,
wireless communications, the Internet, broadband, satellite
communications, electronics, and telecom manufacturing and
regulations. The objective of ChinaNex.com is to keep equipment
manufacturers, operators and investors well informed about China's
fast growing market, now driven by technology, service,
competition and demand. ChinaNex.com bases its operations in the
United States.
Email: info@chinanex.com
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