DigitalWall - Way to China Internet/Telecom

There is only one price killer in the market.

[+] New China Unicom has had a good start

Through the restructuring, China Unicom finally is able to get rid of its long-time burden, the CDMA network. With both the GSM network and the CDMA network, it has had troubles in operating costs and branding. Even its dual-mode phones, which boasts "duel network standby" arouses skeptics among the consumers. If one network is good enough, why should I have two networks?

In fact, for operators, upgrading either CDMA or GSM to 3G would be easier and more cost-effective than building a TD-SCDMA network from scratch. Particularly, operators of the first two modes around the world have mature experience in business operations, the key is to make oneself focused on one thing. In terms of the extent of easiness for upgrading to 3G, getting rid of either the GSM network or the CDMA network would be an intelligent choice.

According to the latest data, as of June, 2008, China Unicom had 120 million GSM subscribers, and a much smaller CDMA user base: only 40 million. For the post-restructuring New China Unicom, which is posed for the 3G market, getting rid of the CDMA network is not a big loss anyway. If it were the GSM network that's split off, New China Unicom would have big trouble in attracting new subscribers in the future.

New China Unicom could easily upgrade existing GSM to WCDMA. In addition, there are numerous handset models available around the world for the standard. What's more, today, WCDMA has stepped into 3.5G, i.e., HSDPA, which enables download speed several times faster than the original target of 384k.In Taiwan, operators have even launched HSUPA, which offers faster uploading speed to enable the uploading and sharing of images and videos.

[+] The hot potato of New China Telecom

In spite of a much smaller customer base, the above technical infrastructures and the 120 million GSM subscribers make New China Unicom a respectful rival of New China Mobile, so long as it could develop and execute correct strategies in the 3G time. With TD-SCDMA, New China Mobile would carry the burden for a while, which might be an opportunity for other operators.

New China Telecom, the operator based on the existing China Telecom and part of China Unicom, would have two major assets, i.e., the 40 million CDMA customer base and the 50 million PHS customer base. However, it is a well-known fact that the PHS customer base has been shrinking each year. Incapable of upgrading directly to CDMA, PHS is feeling the pressure of market competition.

In addition, with its original market position as mobile local phone service, PHS has been offered at a low fee rate since its introduction. To persuade existing PHS subscribers to switch to CDMA, New China Telecom will have to compromise its fee rates. In addition, there's the problem of changing PHS phones with more expensive CDMA handsets. Therefore, the compromise would involve not only the fee rates, but also the entire handset packages.

The key is to migrate existing PHS subscribers to CDMA. The problem is: will the discount rate package be available to the existing 40 million CDMA subscribers? If not, won't they be hurt? If yes, doesn't that mean a decrease of revenue from the existing CDMA subscribers? That's the dilemma.

[+] Vying to be the price killer

If New China Telecom hasn't made up its mind and continues to depend on landline-bound packages for building its CDMA customer base, the result won't be surprising, in which case, price cut would be inevitable. In addition, any price killer would have only one chance. If it cannot be a hit in the market in the first time, any follow-on price cut would be useless.

If New China Telecom doesn't use the weapon of "price cut", it will be used by New China Unicom. By then, there would be no way out for New China Telecom, for there could be only one price killer in the market. Maybe we want to ask: "why should both operators use price cut in market competition? Why can't they target at high-end business people instead?"

It depends on a few factors. First, how fast could New China Mobile launch its TD-SCDMA services? With the leading-edge brand of New China Mobile in services targeted at business people, it is not easy for the other two operators to compete. The only chance for them would be to build their own networks fast enough to seize the business people market before the launch of TD-SCDMA by New China Mobile.

Second, it is impossible to beat New China Mobile's brand among the business people in a short period of time. Sooner or later, TD-SCDMA would catch up. Therefore, for New China Telecom and New China Unicom, price cut is only a matter of time. Particularly, if New China Telecom falls behind New China Unicom in offering a price cut, it would be difficult to launch follow-on marketing programs. Since a price cut is inevitable, why not taking it up earlier as a weapon? ( 2008/06/29 - By Digitalwall.com - Way to China Internet/Telecom )

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- Today in History

New Landscape in China's Telecom Market (3) Who's Gonna Be the Price Killer? - 2008/06/29

New Landscape in China's Telecom Market (2) Opportunities and Burdens for New China Mobile - 2008/06/22

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Would existing GSM subscribers be its assets or liabilities?

 

[+] New China Mobile as the forerunner

In a winner-takes-all market, the forerunner would have considerable leading edge. The New China Mobile with its TD-SCDMA, the New China Unicom with its WCDMA and the new China Telecom with its CDMA2000, which is going to be the forerunner? The bargaining for mergers between operators will last for some time, but the one who completes the merger first might not end up being the forerunner.

Yesterday, I was surprised to see a 3G ad of China Mobile on a Focus Media LCD in an office building in Shanghai. The ad has two implications: 1) 3G video phone is really cool; and 2) at the end of the ad, it is mentioned that TD-SCDMA is being tested, implying that it will be launched soon. The ad indicates that China Mobile is taking the lead.

The ad gives me a few inspirations. First, telecom operators around the world have a common idea in mind when they launch their 3G services: "video phone is a selling point." It seems that Chinese operators are no difference (but they do not know, as a matter of fact, consumers resist the service). The 3G war once waged among telecom operators in Taiwan seems to be about to start once again in the mainland.

Second, it seems that TD-SCDMA would be the last 3G version worldwide. Other versions, including WCDMA and CDMA2000, have been in commercial operation for years and very mature by now. The 3G ad of China Mobile seems to be a forerunner. However, when they could introduce compelling TD-SCDMA offerings is another thing.

[+] New China Mobile faces the same challenges that Hutchison once did

Hutchison is the 3G forerunner worldwide. When Mr. Li Ka-shing tried to develop Three, the telecom operator in Europe, he encountered a lot of challenges from the very beginning. First, with only 3 cell phone models, Three offered consumers very limited choices. We have to admit that consumers need very simple reasons to buy things. Cell phones with appealing appearances are a big reason for switching to 3G. Limited choices would affect sales.

In addition, its initial market positioning toward business people was another problem. Among the 3 models, one was focused on the video phone function, and another one on the email feature. While capable of satisfying some of the requirements, these phones ignored the most fundamental requirement of the business people "making phone calls successfully". As a new entrant, WCDMA had only limited coverage. That means there were a lot of places where its signals could not reach.

In addition to the coverage of signals, there was also the problem of the compatibility between cell phones and telecom networks. Although both telecom equipment suppliers and cell phone manufacturers complied with standards, it was the first time for the two to collide head on in the business environment. Three's cell phone supplier NEC sent a team to Europe dedicatedly to assist Three to adjust the cell phones in line with the 3G networks.

The clumsy process resulted in customer complaints and damage to the Three brand. As TD-SCDMA has been away from the public sight before, its business operation ability is much doubted. Assuming the mission of promoting the Chinese standard, New China Mobile might become the last operator to launch 3G. Therefore, it is necessary to learn from existing experience and lessons, so as to avoid mistakes of other operators.

[+] Would existing GSM subscribers be its assets or liabilities?

At the new start line, do the 3 operators each carry a burden on its back? The GSM customer base of New China Mobile is both an asset and a liability. It is an asset because New China Mobile could attract those with higher value among the existing customers to become its 3G subscribers. New China Mobile has undoubted edge to promote 3G at its own existing outlets.

On the other hand, it is a liability because discounted rates will have to be offered to attract existing subscribers to use 3G services. Of course, it would be better to attract subscribers of other operators. However, if its 3G subscribers are derived from the existing GSM customer base, the total revenue would decrease. In general, with the launch of 3G, the operator would earn less, instead of more.

In summary, New China Mobile would face 3 challenges: 1) how to attract more cell phone manufacturers to make TD-SCDMA phones, ideally with enough models to cover different price levels; 2) how to maintain the existing GSM rates while attracting more users of 3G; 3) how to ensure the quality of 3G calls, i.e., how to ensure the roaming of the calls to its GSM network in areas beyond the reach of TD-SCDMA signals.

Appealing as they are, other value-added services, such as mobile Internet, won't be available before overcoming the above challenges. The much hated video phone might be only a selling point for advertisement. At the late stage of the 3G war, operators around the world are no longer boasting about their value-added services. Instead, they begin to focus on voice fee rate discounts. ( 2008/06/22 - By Digitalwall.com - Way to China Internet/Telecom )

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- Today in History

New Landscape in China's Telecom Market (3) Who's Gonna Be the Price Killer? - 2008/06/29

New Landscape in China's Telecom Market (2) Opportunities and Burdens for New China Mobile - 2008/06/22

Web 2.0 Think Again (5) Unearth the Value of "People" - 2007/06/24

Ultimate Mobile Device (2) Competition of Handheld Game Console - 2005/06/26

There might be 2 big and 1 small, or 1 big and 2 small operators.

 

[+] 3G might have 3 versions.

On May 24, 2008, Ministry of Industry and Information Technology and National Development and Reform Commission of the People's Republic of China jointly published Notice on Deepening Telecom Structural Reform. The hottest topic it brought was the restructuring of the nation's telecom industry. The notice announced the attitude of the Chinese government toward 3G. For the operators, any action is better than no action at all.

In China, 3G is no longer a matter of "to have or not to have". Rather, it's about making sure to build it first and seeing how to do it next. The latest round of restructuring highlights the support of the government to the Chinese version of 3G: TD-SCDMA. Prior to that, there were many critics towards 3G and even those arguing for a direct leap to 4G. Now, none of these matters. The operators are posed for a massive merger. Following that would be the issuance of 3G licenses and a new round of infrastructure development. Then, 3G comes.

As a pioneer with 4 years of experience in 3G operation, I have written a lot about the new landscape in the 3G market. As a matter of fact, with the delay of 3G license issuance, Chinese telecom operators have the chance to learn the 3G operation experience from their international peers. As a result, the expectation for 3G, which was once irrationally eager, is getting gradually rational.

The restructuring will turn the operators into 3 powers: 1) China Mobile + China Tietong, let's call it "New China Mobile" for the time being; 2) China Unicom's GSM Network + China Netcom, "New China Unicom"; and 3) China Telecom + China Unicom's CDMA Network + China Satcom, "New China Telecom". Specifically New China Mobile is expected to adopt TD-SCDMA as its 3G version, while New China Unicom will adopt WCDMA and New China Telecom CDMA2000.

[+] Subscribers face bigger barriers for changing network in the 3G time

The restructuring plan seems to have taken care of the interest of each party and each 3G standard fairly. Ideally, a tri-player market structure would facilitate competition and benefit consumers eventually. The fact is, however, to facilitate real market competition, the 3 new operators should use the same version for 3G, for example, TD-SCDMA or WCDMA.

Consumers have to buy a 3G cell phone to be able to use 3G services. Think about this: a consumer who has a New China Unicom's 3G cell phone wishes to switch to the 3G network of New China Mobile. What he needs do is just change his USIM card, instead of buying a new cell phone. If such an easy thing occurs frequently, the operators will have to figure out better ways to cater for their customers, and preventing them from changing network.

Now a subscriber of New China Mobile has a 3G, TD-SCDMA cell phone, and wishes to switch to New China Unicom. The problem is New China Unicom's 3G version is WCDMA. So he has to buy a new cell phone, which is by no means easy. With more functions than 2G devices, 3G phones will not be cheap. The consumer begins to hesitate.

As it is now definite that the 3 new operators will get 3 different 3G licenses, this is sure to happen. To a large extent, it has decided the landscape in the future market: the one who builds its customer base first is expected to retain the customers for a considerably long period of time. No one who has spent so much on a 3G cell phone would so casually switch a network in the immediate future.

[+] Customer base building: winner takes it all

One of the most attractive aspects about 3G is the video phone. Being able to see the person at the other end of the call is a feature that people both love and hate (and that accounts for why it has not been popular anywhere in the world). With the existence of different versions, a person with a WCDMA phone will not be able to call someone with a CDMA 2000 phone. The attractive aspect of 3G, it seems, is not so attractive.

For operators, this is both a challenge and an opportunity. If the new operators could persuade lovers (or mothers and sons) to buy their 3G phones (for video phone communication) at the same time, subscribers would increase by couple. For both parties of a call, no barrier exists for using 3G phones of the same spec to make video phone calls.

The above observation has drastically increased the possibility of "winner takes all" in China's 3G market. The one who builds up its customer base first would establish a leading edge. It was the same situation that once occurred as the result of the competition between China Mobile and China Unicom's CDMA Network. The difference is the new landscape brings everybody back to the start line again. At least it gives us new expectations.

If the 3 new operators end up being equal rivals, it would be the consumers who eventually benefit most. Although under the protection of different versions of 3G, changing network is difficult. There would be a landscape of competition between equally powerful players. However, if the tri-party balance is disturbed, there might be 2 big and 1 small, or 1 big and two small operators. ( 2008/06/08 - By Digitalwall.com - Way to China Internet/Telecom )

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- Today in History

New Landscape in China's Telecom Market (1) Winner Takes All - 2008/06/08

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