CDMA: China Telecom readies for showtime

Charice Wang and CW Cheung/Ovum
06 Aug 2008
00:00

As foreshadowed by the central government's decision on industry restructuring in May, China Telecom announced details on July 28 of its plan to purchase China Unicom's CDMA business. It will pay RMB110 billion ($16.1 billion) in total: RMB 66.2 billion ($9.7 billion) for the network and RMB43.8 billion ($6.4 billion) for the subscribers.

China Telecom will launch commercial trials in October. Most likely it will offer 3G services from March 2009 by leasing network capacity from its parent company (China Telecom Group). On the positive side, it will have first-to-market advantage in offering 3G or even FMC service bundles in China. On the other hand, it faces keen competition in the mobile service market.

As a new entrant and the only CDMA operator, China Telecom faces both challenges and opportunities:

The Challenges

Compared with China Mobile's well-established GSM services, the CDMA business has relatively poor network coverage, a limited choice of handsets and low revenue and ARPU. The 43 million CDMA subscribers account for just 7% of the total 601 million mobile subscribers in China as of June 2008.

China Telecom will face considerable challenges in three areas: (a) product development and service offerings; (b) customer segmentation and market positioning; (c) customer service transformation (from fixed location to on-the-move customer care).

The Opportunities

China Telecom will be in a stronger position to offer fixed mobile and multiple play bundled services (i.e. voice, broadband, IPTV and mobile) because of its leading position in fixed and broadband; the lower cost and faster time to market in upgrading CDMA to 3G over China Mobile's TD-SCDMA network; relative stronger brand, marketing and customer field service in the potential multiple play bundled services market

China Telecom should be optimistic and its goals suggest that it is. It aims to have 100 million CDMA subscribers and an increased market share of 15% in the next three years. It also plans to spend RMB80 billion to expand the CDMA network coverage and to roll out 3G.

Of course, it will be difficult for a small player such as China Telecom to compete against the market leader, China Mobile. So how are new regulations expected to help‾

China 's Anti-Monopoly Law (AML) became effective on August 1 and it should put pressure on China Mobile, given its dominant 70% share in the mobile market. Other potential asymmetric regulations currently being discussed by the regulator MIIT and likely to be imposed this year include:

Mobile number portability (MNP): one possible plan is one-way or asymmetric MNP between the three operators, which would allow China Mobile subscribers to port their numbers to China Telecom and China Unicom, but not the other way

Spectrum allocation of the golden band: China Telecom is most likely to acquire extra 800Mhz spectrum from the MIIT for its CDMA operation in order to allow for subscriber growth. 800Mhz spectrum is more efficient for both 2G and 3G operations with better transmission characteristics for wider coverage and high capacity

Adjustment of interconnection charges: the mobile-to-mobile termination charge might be reduced from the current Rmb0.6 ($0.09) per minute to zero (i.e., bill and keep). This would benefit the relatively small China Telecom as most of its customers' calls are likely to be off-net

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