3G licensing and industry restructuring are the most widely debated mobile issues in China. However there are also other local issues changing the industry landscape.
The central government is in a controlling position to shape the market landscape, be it through 3G licensing, industry restructuring, mobile tariffs or foreign participation. The timing of licensing does not seem important to the regulator; delays are more linked to the readiness of the home-grown 3G standard, TD-SCDMA, and its ability to compete against the well-established WCDMA and CDMA technologies. The heavy protection of state businesses will continue to make foreign company investment difficult in the 3G era, despite the country's World Trade Organisation (WTO) commitment.
The long-awaited industry restructuring is likely to give rise to more competition in the mobile marketplace. Without an official signal from the government on when licences will be issued, how many will be awarded and what standards will be adopted, mobile carriers are taking slow and cautious moves in 3G investment and preparing themselves for the capital expenditure. Ovum expects that 3G investment and network rollout will be modest in the beginning, as high returns are unlikely in the short term. While 3G investments will depend mostly on the regulatory direction, the operators are putting their focus on strengthening their 2G position.
As the market leader, China Mobile is hungry for continuous growth to maintain its controlling position. Its growth is being fuelled by EDGE upgrades to promote higher-bandwidth services, a low-cost approach to rural market development and overseas expansion in developing markets. The biggest risks to the operator remain the choice of 3G technology and excessive tariff reduction.
China Unicom remains the second player as it bears the burden of multiple networks and competes against the market power of China Mobile. The CDMA business struggles to achieve scale and profitability, and its future looks unpromising. The company needs to improve network efficiency, strengthen the strategic partnership with SK Telecom and exploit its potential of being a fully integrated operator.
Fixed-to-mobile substitution (FMS) is also escalating in China. This will give rise to a robust mobile sector going forward. However, despite this, growth in rural markets and national one-way charging will exert further downward pressure on mobile operator ARPU. Carriers need to continue to develop innovative value-added services that will be effective revenue generators for the long term.