BEIJING Oct 29 Faster isn't necessarily better
for China's telecom carriers as they prepare to roll out
high-speed 4G mobile phone networks at the expense of their
profitability for years to come.
China Mobile Ltd, which has the most subscribers
in the world, is investing billions of dollars to upgrade its
infrastructure so clients can enjoy speedier Internet and data
access once the government awards 4G telecom licences before the
end of the year.
Its rivals China Unicom Hong Kong Ltd and China
Telecom Corp Ltd are being forced to follow suit,
especially as China Mobile is in talks with Apple Inc
to carry its latest smartphones, which require 4G to function at
While the pressure is strong to keep up with international
standards, China's mobile carriers will, like their peers in
other emerging markets, struggle to recoup their investments.
"In a best case scenario, it would be no less than four to
five years to turn profitable," said Juan Jose Rio of Delta
Partners, a global telecoms, media and technology advisory and
investment firm based in Dubai.
Chinese mobile subscribers are notoriously frugal, which
means any 4G package must be attractive enough to lure users
away from the slower data plans they currently use, a factor
likely to eat into profit margins.
The upgraded networks also enable subscribers to better
utilise technology that makes classic revenue-generators like
SMSes and calls obsolete, further eroding revenues.
"Chinese carriers may price contracts at a level that's
profitable straight away but it probably won't go down very well
with Chinese consumers because of the higher price point for
plan," said Teck-Zhung Wong, a Singapore-based analyst at
information technology consultancy IDC.
The network upgrades in the world's biggest mobile phone
market are a boon for equipment vendors like Shenzhen-based
Huawei Technologies Co Ltd and ZTE Corp
, which already each won over 25 percent of China
Mobile's $3.2 billion 4G tender.
Huawei expects revenues of $2 billion from 4G investments in
2013, and a 10 percent year-on-year increase in its 4G revenue
over the next two years. ZTE also sees growing income as
carriers continue to invest in 4G at least until 2015.
"A nationwide 4G network is a huge undertaking - the cost of
building system equipment alone is conservatively estimated at
more than 100 billion yuan ($16.4 billion)," said Gu Xiang,
ZTE's deputy general manager for wireless products.
Faster mobile Internet allows subscribers to use apps like
the hugely popular WeChat from Tencent Holdings Ltd
for messaging as well as voice and video calls. China Mobile has
blamed such apps for diminishing revenues, leading to a
lower-than-expected third-quarter net profit.
While all three networks must make substantial investments,
the road to 4G is likely to be easiest, and cheapest, for China
Unicom which only needs a simple update to its current 3G
network to achieve the globally popular FDD-LTE standard.
China Telecom is the worst off.
The smallest of China's carriers has the most 3G
subscribers, and its third quarter net profits are up 20 percent
on the same period last year in what is its third straight
quarter of double-digit growth.
It neither has the cash of China Mobile, nor the easily
upgradable network of China Unicom, and now faces the choice of
sticking with 3G and hoping it will keep its subscribers, or
shelling out for the more expensive jump to 4G.
"There is always an inherent conflict between spending more
or optimising the assets you have already used on the ground,"
said Delta Partner's Rio.
"They could still utilise their network for five years
without having to introduce any new technology, however this new
technology is available and there is pressure from the market
and consumers for them to invest in this technology."