China’s state-owned operators just keep rolling along

It came as a surprise to many when China’s premier Li Kequiang recently criticised the country’s mobile Internet as being expensive and slow. Average mobile connection charges are just as fast—in cities at least—as in the US and Europe. Data usage charges, at around $11/GB are no more than in the developed world. And there has been a very rapid take-up of 4G.

What Li’s criticism highlights is the importance of the largely state-owned telecoms industry to the government, and a long-standing policy of bringing affordable telecoms to all. The structure and development of the industry in China since the founding of the People’s Republic in 1949, has been unlike anywhere else in the world in many respects with the state involved in both macro and micro management.

Following years of tinkering with the number, scope and size of state-owned telcos, just prior to the advent of 3G in 2008 there was a final industry restructure.

China Mobile remained as a pure mobile operator, and was awarded unpaired spectrum to provide 3G using the China-developed TD-SCDMA standard. Unicom merged with fixed-line operator China Netcom to provide WCDMA 3G services as well as fixed-line voice and broadband, while China Telecom got back into mobile by being given Unicom’s CDMA division to provide CDMA2000 3G services. Telecom is both the world’s largest fixed-line provider and CDMA provider.

Although China Mobile’s 3G development was disadvantaged by the government’s choice of operating system for it, the path to 4G TD-LTE was made a lot easier from its experience with providing 3G on unpaired spectrum. From the beginning, state planners pushed for TDD technologies by allocation more TDD spectrum in China than anywhere else in the world.

Using unpaired 2.6 GHz spectrum, China Mobile has piled on 135 million 4G subscribers since commercial launch 16 months ago, and expects 250 million by year end. China Telecom and Unicom launched their TD-LTE networks several months later and will increase capacity by adding FD-LTE for hybrid networks. They have around 20 million 4G subscribers between them and also expect rapid growth.

As with each new generation of mobile technology, the government has allocated an ample supply of free spectrum to the carriers. This means they have plenty of capex available for network rollout, with China Mobile already having installed more than a million 4G base stations. China Mobile is now the world’s largest 4G operator by some distance; it is also the world’s largest 3G operator and simply the world’s largest operator with more than 800 million subscribers. The amount of spectrum it controls will in the future allow both intra- and inter-band aggregation of several carriers to provide ultra-fast speeds which even the fussy Premier Li should not be able to fault.

All three companies are listed on both the New York and Hong Kong Stock Exchanges, but with the bulk of shares still being held by the government.

Although China’s joining the WTO has forced some opening of the value-added telecoms sector to both local and foreign investors, with a batch of MVNOs being the latest liberalization, the state will continue to control—and control well—the core telecoms business, mixing state-ownership and market discipline mechanisms.