Kai Wei
On October 2002, Ministry of Information Industry
2.2 Government attitude                                      published f...
emerge so that mobile subscribers are not keen to move     Regarding to above four questions, officers in Unicom
forward n...
3.4 China Railcom                                            make money as early as possible with theirs WCDMA
difficulties, and convinced ITU to accept TD-SCDMA             References
as a standard. If there is no Siemens, TD-SCDMA ...
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  1. 1. 3G SITUATION IN CHINA Kai Wei Helsinki University of Technology Telecommunications Software and Multimedia Laboratory P. O. Box 5400, FIN-02015 HUT, FINLAND kaiwei@cc.hut.fi Abstract market. They utilize the leak of regulation, to promote PHS system based on fixed network aggressively. For 3G schedule in Mainland China is difficult to predict. It the past three years, the subscribers' number of PHS is being affected by many factors. In this paper, the reached 35 millions. However, comparing with the important factors are illustrated from the points of number of mobile subscribers, the number of PHS government, existing GSM operators, potential new 3G subscribers is a mite on an elephant. Up to the June of operators, local and foreign 3G equipment vendors. 2003, the number of mobile subscribers is 238 millions, Especially as a main factor, the influence of China in which China mobile takes two third of them. initialized 3G standard TD-SCDMA is laid stress on. In China, the number of mobile subscribers increases Key Words considerably each year. Subscribers' consumption 3G in China, TD-SCDMA, Licenses power is potential. According to APRU (Average Revenue Per User), mobile subscribers can be categorized into three types of market: high-end market, 1. Current mobile market situation in middle market and low-end market. The businessmen, China managers, lawyers, editors and people whose charge of mobile is paid by employers build up high-end market. In the past 15 years, telecommunication business They have strong capability of payment and need to use progresses ambitiously in Mainland China. The biggest mobile frequently. Young people, workers and students telephone network is built. The number of phone are mainstay of middle market. They have low income subscriber is the No.1 around the world. Up to June or have no income at all. But they pursue fashionable 2003, it reached 472 millions. The revenue of telecom stuff and use mobile infrequently. Usually they more industry is about 42 billions euros in 2003. The revenue prefer to use short message. And surfing web through distribution of each telecom service is listed in the table mobile is quite popular amongst them. The low-end 1. market is composed of old people and peasants. Usually they have out-of-date style of mobiles and hardly use Table 1: Distribution of telecom services revenue [1] them. Telecom Service Percentage 2. Attitude of government toward 3G and Mobile Network 46.2% behind reasons Local Fixed Network 33.1% 2.1 How to issue license Long Distance Network 14.9% As the first 3G license issued in Finland in 1999, the flood of issuing 3G licenses surged around the world. It Data Communication 5.4% brings plenty of revenue to governments through fierce Paging 0.4% auction, meanwhile it puts heavy burden on operators so that their development is halted. How to issue license Satellite 0.1% affects the construction of entire telecommunication infrastructure. Since China is still under the initial phase of market economy. Competition mechanism is not mature, self-adjustment can not work well. So the From table 1, we can see that mobile service dominates macroeconomic control is required. Also since two telecommunication market. In Mainland China, there types of 2G system: GSM and CDMA, are employed in are five giant telecommunication operators. Two of China. And 3G standard TD-SCDMA initiated by them, namely China Mobile and China Unicom provide China needs to be supported. The auction is not the best mobile service. The other three, namely China Railcom, way to issue 3G licenses. Instead inviting public China Telecom and China Netcom mainly offer fixed bidding will be introduced [2]. The public bidding is telephone service. Even China Telecom and China manipulable. With it, winner is chosen not only based Netcom have no mobile license, motivated by getting on price offer, but also its capability and technical offer more profit, they are eager to snatch the share of mobile are taken into account.
  2. 2. On October 2002, Ministry of Information Industry 2.2 Government attitude published frequency allocation of 3G. The TD-SCDMA network is allocated 155M frequencies. Oppositely both WCDMA and CDMA2000 networks are allocated just 2.2.1 3G licenses schedule 120M frequencies together[3]. It is obvious that government inducts vendors and operators to go on the The government has not published any schedule to issue track of TD-SCDMA. 3G licenses. Mainly there are three reasons: At the beginning, only local vendor named Datang Firstly, to determine the time to issue licenses, two develops product based on TD-SCDMA. As the nature essentials should be taken into account, which are of new technology, TD-SCDMA needs a lot of technology and economy. If the standard of technology investment, whatever from technical or financial point is changed frequently, it is hard to be accepted by of view. Datang cannot bear heavy burden on its own. public, because it brings so many risks to vendors and Even it got help from Siemens, but it is utterly operators, even damages the reputation of technology. inadequate in dealing with a severe situation. Under this 3G standard have been changing for many times. It condition, with the help of government, a TD-SCDMA impresses people that 3G standard is not finalized yet. strategy alliance is established. Other seven local Additionally the existing problems in 3G equipments vendors joined alliance. The research and development are obstacles to prevent 3G from commercial using. Up tasks are divided into five areas, which are core to now, in the 3G test being held in China, many network, radio network, terminal chip, terminal and problems are detected, such as frequent handover drops testing instrument. Each participant takes one or couple between 2G network and 3G network, lack of 3G of them. Recently some foreign vendors, such as terminal, various standards for some value added Siemens, Nortel and UTstarcom joined alliance too. services. Currently public have high expectation on 3G. But if performance of 3G were worse than one of 2G, As TD-SCDMA can co-work with either WCDMA or public would be disappointed, even give up any hope on CDMA2000, according to uncertified information, TD- it. Moreover, killer applications based on 3G are not SCDMA will be bound to each 3G license. This means found out. This is another obstacle to deploy 3G. Since whatever it is a WCDMA license or a CDMA2000 current network infrastructure can fulfill the license, TD-SCDMA must be a part of network. Even it requirements of subscribers basically, whatever voice may be possible that one license is issued for a pure services or data services. Before killer applications TD-SCDMA network. emerging, any investment on 3G will be a sort of waste from the point of economy. In the context of above situations, government will not issue licenses in the near future. 3. Attitude of old and new operators Secondly, China invents one 3G standard -- TD- As mentioned above, there are five operators in China, SCDMA. Since invented later than other two standards, two of them serve 2G service. Because facing to it is not mature as them. As 3G network deployment is a different situations currently, five operators have chance to promote the product of national industry, various attitudes towards 3G. improve Gross National Product and maximize national interest, China government would not like to miss it. So 3.1 CMCC (China Mobile Communication it will give time to companies developing TD-SCDMA. Company) Thirdly, as the request of Ministry of Information Industry, which is a telecommunication administration CMCC is the biggest 2G operators in the world, runs a of China government, four operators have been doing pure GSM network. Up to the end of last year, it has field tests around the China from last year. All of three 138 millions subscribers, holds two third of China 3G standards are tested. It is estimated the tests can wireless market. CMCC is very inactive on 3G issue. complete on September of 2004 at the earliest. Then The following conditions prevent CMCC from Ministry of Information Industry will analysis the result preaching 3G. First, it dominates China wireless of tests and make decision accordingly. This implies 3G market, and gets significant profit from it. If 3G is licenses can not be issued by the end of 2004. introduced into China, it has to face challenge from more competitors. CMCC is reluctant to see it happening. Second, recently CMCC upgraded its GSM 2.2.2 Strong support TD-SCDMA network from 2G to 2.5G. If 3G licenses are issued now, CMCC has to catch up with other operators, to Some dignitaries of China government frequently upgrade its 2.5G network to 3G. Then investment on express that they support TD-SCDMA. As mentioned 2.5G cannot be paid off. Third, 3G is good at providing before, it is not only a standard raised by Chinese, but data service in addition to voice service. As the interim also it will bring considerable benefit to China. between 2G and 3G, 2.5G has certain capability to offer Recently there are three pieces of news that can prove data service. However, data service based on 2.5G just strong support coming from China government on TD- takes off. It needs time to foster potential market of data SCDMA. services. Forth, killer applications based on 3G do not
  3. 3. emerge so that mobile subscribers are not keen to move Regarding to above four questions, officers in Unicom forward now. From above reasons, we can see CMCC expressed their opinions and wishes. Unicom hopes has no intension to upgrade 3G in the near future at China government not to issue 3G licenses recently. least. Thus before implementing 3G it not only can get return from CDMA 1XRTT network, and utilize various Although CMCC is reluctant to deploy 3G, one factor financing methods to obtain investment, such as issuing may force it to use 3G. This factor is the frequency of bond, loaning from bank and issuing stock, but also get GSM. The GSM frequency allocated to CMCC will be time to induct its GSM subscribers to move to its out of use in some areas by the end of 2004. Presently CDMA network. CDMA2000 will be chosen as 3G CMCC tries its best to dig out spare frequency and standard. If 3G licenses are issued now, definitely improve reuse of existing frequency. However, sooner CDMA2000EV-DO will be adopted due to it is ready to or later, lack of frequency will bother CMCC definitely. market. Otherwise it will depend on the level of mature It has to rely its future on 3G. to select from either EV-DO or EV-DV. China Unicom is hurry to develop dual-mode mobile, which can Last year, CEO of CMCC expressed hope publicly. support both CDMA2000 and GSM. It indicates that CMCC hopes to use WCDMA as main infrastructure of Unicom has no plan to close its GSM network. 3G, and use TD-SCDMA as supplementary in rural area. It is understandable. Since GSM is used by 3.3 China Telecom & China Netcom CMCC, to save investment, WCDMA is the best choice. To support national industry and enhance the efficiency of network, TD-SCDMA is chosen too. Two years ago, to avoid monopoly in the fixed phone market, original China Telecom was divided apart by China government. The company managing southern 3.2 Unicom (China United Communication China is still called China Telecom. The company Company) managing northern China is called China Netcom. However, due to the saturation of fixed phone market, The other mobile operator, China Unicom is in an none of them has a plan to aggress others market of fix embarrassing situation. It runs both GSM and CDMA phone. In China, the number of mobile users increases network. Originally it just ran a pure GSM network. On quickly, but both of them do not have 2G license. They 2000, it had to import CDMA network from North work out another way to provide wireless service. PHS America since China government wanted to reduce system is an outdated technology invented by Japan. It trade surplus with Unite States. Now Unicom claimed can provide limited wireless connectivity between base that it concentrates on building up CDMA network, but stations connecting to fix network. In China, PHS is its subscribers on GSM network is much more than regulated as a part of fix network, no wireless license is ones on its CDMA network, namely 70 millions in needed. Therefore China Telecom and China Netcom GSM network versus 20 millions in CDMA network. It take the advantage of this regulation to deploy PHS has tried to use cheap phones and low tariff to attract network around China. In China, mobile call is two-way both itself and CMCC GSM subscribers to its CDMA charging. Namely both calling party and called party are network, unfortunately its impact is trivial. charged. Oppositely because PHS is regulated as a part of fix network, then only calling party is charged. By Nowadays, Unicom has been evolving its CDMA utilizing this superiority plus offering four times network to 1XRTT, but has not upgraded its GSM to cheaper tariff than GSM, after 3 years fighting, the GPRS. For China Unicom, it has many difficulties on number of PHS subscribers reaches 35 millions. There its way to 3G. Those difficulties can be concluded as is adequate room for subscribers increasing if PHS four questions. First, it invested heavily on GSM network could be expanded. network to compete against CMCC at the early time, then it had to spend 10 billions euros to set up CDMA The period of disinvestments of PHS is about 20 network and upgrad it to 1XRTT. It is estimated that at months. If they invest continuously, they cannot get least 10 billions euros are needed to upgrade CDMA to investment back if 3G licenses are issued soon. If they CDMA2000. First questions would be where it can get stop to invest on PHS, it means they lost potential PHS investment on 3G? Second, it has both GSM and subscribers. They are in a dilemma whether to invest on CDMA network. The subscribers on GSM network is PHS or not. Hence the officers of two companies urge much more than ones on CDMA network. Which Ministry of Information Industry to publish schedule of standard should it choose for 3G? Third, If Unicom 3G, then they can make a plan accordingly. In general, would favor of CDMA2000, then how can it deal with both of them hope 3G licenses could be issued as early its GSM network? Forth, there are two CDMA2000 as possible. After all, PHS is a product out of date. It is standards, one is raised by Qualcomm, named not worth investing on it too much. CDMA2000EV-DO, and the other is raised by Nokia, named CDMA2000EV-DV. Currently EV-DO is more Regarding to selection of 3G standards, officers of mature than EV-DV, but the efficiency of EV-DV is China Telecom claimed that they prefer to WCDMA. higher than EV-DO. Which CDMA2000 standard The officers of China Netcom have not commented on should Unicom select? selection of standards ever.
  4. 4. 3.4 China Railcom make money as early as possible with theirs WCDMA and CDMA2000 products. China Railcom was separated from Ministry of Railway. It run only fix phone network for railway 4.2 Attitude of foreign vendors system before. Now they are providing service to public. Its market is trivial. It is estimated that four As foreign vendors already have capability to provide pieces of 3G license will be issued. Then China 3G equipments based on WCDMA or CDMA2000 Railcom seems not possible to get one of them. If the standard, and historically China is considered as a fifth license could be issued, whether to apply it by significant and profitable market, foreign vendors have China Railcom is a question. To setup a 3G network, at been actively promoting 3G in the past 3 years. least 10 billions euros are needed. Because China Railcom does not have a sizable cash hoard, also it is 4.2.1 WCDMA vendors hard to loan that much money due to its current market share and performance. China Railcom may stay out of As the supporters of WCDMA, Nokia, Ericsson, NEC 3G. and Siemens strongly boost WCDMA. They use three advantages of WCDMA to persuade China to accept it. 4. Attitude of vendors on 3G First, due to GSM is holding most market of 2G. To Due to both GSM and CDMA are used in China, upgrade to WCDMA from GSM, it can be done therefore the vendors producing either WCDMA or seamlessly. CDMA2000 or both are promoting their products crazily. Even TD-SCDMA is invented by Chinese. Second, whatever for new operators or old operators, However, only one local company develops products the cost of WCDMA is much lower than CDMA2000. based on it. Other leading local vendors are The reasons are (1) The efficiency of WCDMA concentrating on developing products of WCDMA or hardware is higher than CDMA2000, thus it required CDMA2000. Regarding to the 3G, all of vendors have less physical sites. (2) Comparing with CDMA2000 different attitudes. with 1.25MHz carrier, WCDMA with 5MHz carrier can offer higher data rates and carry more users 4.1 Attitude of local vendors simultaneously. (3) Each base station of WCDMA can support up to 12 carriers, but CDMA2000 only can support up to 9 carriers. (4) The capability of WCDMA Local vendors can be classified into two types: one is to frequency reuse is 30% higher than CDMA2000.[4] fully focus on TD-SCDMA, the other is to involve in developing TD-SCDMA while producing products Third, among the issued 3G licenses worldwide, 113 based on other 3G standards. At the beginning, only one out of 120 are WCDMA licenses, only 7 are local vendor Datang develops TD-SCDMA products. It CDMA2000 licenses [5]. It indicates that WCDMA is is difficult to achieve anything quickly without strong more acceptable than CDMA2000. technical and financial support, consequently the schedule of marketing TD-SCDMA products is delayed a lot. Even currently China government gives strong 4.2.2 CDMA2000 vendors support to it and TD-SCDMA strategy alliance is established, however, TD-SCDMA products are not Oppositely, Motorola, Nortel, Lucent and Qualcomm ready yet. It is estimated that TD-SCDMA products preach the advantages of CDMA2000 in China. They may come to market at the beginning of 2005. As a stress on existing references around the world and result Datang does not expect China government to advanced features of CDMA2000. In the meantime, issue 3G licenses soon. they built up research centers in China to show confidence to China government in order to gain the In China, some powerful local vendors invest on trust from it. WCDMA and CDMA2000 significantly. They have developed entire WCDMA and CDMA2000 products. 4.2.3 Attitude toward TD-SCDMA Those products are sold worldwide. They have been pushing government to issue 3G licenses for long time. When those foreign vendors sensed that China Since theirs products are ready for market. They would government will not issue license until TD-SCDMA is like to get return from China 3G market as early as ready. All of them claimed that WCDMA or possible. However, as the present attitude of CDMA2000 can co-exist with TD-SCDMA in same government on 3G, they seem not to get breakthrough network, especially in the impacted area TD-SCDMA in China. With the publication of frequency allocation can supplement capacity. All in all, they desire of and rumor of possible licenses binding with TD- getting more share in China market. SCDMA, local vendors sense the giant interest of TD- SCDMA, most of them joined TD-SCDMA strategy It is worth mentioning here that amongst all of foreign alliance, and project to get a share from it. Even though, vendors, at the initial research phase of TD-SCDMA, they still hope 3G licenses can be issued, after all they only Siemens supported Datang. It invested on research, are the competitors of Datang, and also would like to sent experts to help Datang to overcome technical
  5. 5. difficulties, and convinced ITU to accept TD-SCDMA References as a standard. If there is no Siemens, TD-SCDMA may be given up by Datang already. Even Siemens has its [1] J.L. Li, Analysis of China 3G market, own WCDMA products, it still gives help to the Communication World, 2003. http://www.cww.net.cn/ development of TD-SCDMA. Without doubt, China Near3G/Article.asp?id=7838 (Referenced 10 February government will award Siemens with certain market 2004) share due to its contribution to TD-SCDMA. [2] Y.Q. Zheng, Bidding methods of 3G, 5. Conclusion Communication Industry Daily, 2003. http://www.cww.net.cn/Near3G/Article.asp?Id=8859 From above statements, it could be inferred that China (Referenced 11 February 2004) government will not issue 3G licenses by the end of 2004. The most important reasons for that are [3] SRRC, Frequency allocation for 3G, 2002. applications based on 3G are not mature and TD- http://www.srrc.gov.cn/fg39.htm SCDMA is not ready for market. (Referenced 11 February 2004) Four pieces of 3G licenses will be issued since China [4] PeopleDaily, WCDMA plays a leading role in 3G, Railcom is incapable to run 3G network. If TD- 2003. http://past.people.com.cn/BIG5/it/53/305/ SCDMA could be ready in 2004, thus the types of 20030307/938227.html (Referenced 19 February 2004) license would be 2 pieces of WCDMA+TD-SCDMA, 1 TD-SCDMA and 1 CDMA2000+TD-SCDMA. If not, [5] F. Fang, Foreign Vendors prompting WCDMA, the types of license would be 3 pieces of 21CN, 2003. http://it.21cn.com/itnews/newsgn/2003- WCDMA+TD-SCDMA and 1 CDMA2000+TD- 01-16/910996.htm (Referenced 20 February 2004) SCDMA. With this kind of combination, it can leave sufficient room to TD-SCDMA. Even licenses are issued, it is just a start point for 3G. It will take 3 to 5 years to build up a 3G network to cover whole Mainland China. .