3G Wireless Will Reshape China's Telecom Landscape - Report

China's telecom services market will undergo dramatic changes over the next three years, once the national government awards licenses to offer licences -- changes that will include a short-term increase in capital spending and probable carrier consolidation, according to a new report released by Heavy Reading, Light Reading's market research division.

China's largest network operators will make significant shifts in their capex plans as they ramp up for the next phase of network modernization, according to the report. These shifts in capex will have significant ramifications for telecom technology suppliers worldwide as they look to establish themselves in the world's largest national telecom market. "Western telecom equipment vendors are scrambling to line up local partners in China to have their 3G play in place as soon as licenses are awarded," notes Dennis Mendyk, Managing Director of Heavy Reading. "China's delay in announcing the 3G winners has helped some Western vendors by buying them a little more time to pull deals together."

Nokia is the latest Western vendor to announce a partnership with a domestic 3G manufacturer in China, joining incumbent suppliers Nortel Networks, Alcatel, Ericsson, and Siemens in the China 3G partnership race.

China's big telecom carriers have curtailed capital expenditures over the past two years, partly in anticipation of the spending spree that will come when 3G licenses are awarded, according to the new report. And at least one of China's top four top network operators is likely to be shut out of the 3G licensing contest, prompting a carrier realignment that could result in the breakup of one of those operators, the report concludes.

Other key findings from Telecom in China: Carrier Capex Trends include the following:

3G is critical to China's telecom carriers, because despite healthy subscriber growth rates, China's network operators are facing flat or declining revenues due to intense price competition. Average revenue per user (ARPU) has declined significantly since 2003, due not only to competition among wireless operators, but also to personal handyphone system (PHS) subscribers being signed up by fixed-line service providers.

The immediate future for 3G licensing remains unclear. All of China's major operators are pursuing 3G licenses, but the timing of their issuance by the national government remains unclear. Recent reports suggest that 3G licenses may not be awarded until sometime in 2006.

China's network operators expect capex to grow in 2007. This year's decline is expected to level off in 2006, as carriers being spending on 3G network buildouts. The combination of 3G buildout and final preparations for the Beijing Olympics is expected to increase capex by about 5 percent in 2007."

Posted to the site on 17th October 2005