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Wireless Infrastructure Newsletter

Musical chairs signal upheaval for Chinese telcos August 27 2015

The smaller operators swap chairmen, as business pressures mount and radical restructuring may loom

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The three Chinese operators once seemed protected, by their state ownership and vast market growth potential, from the storms that buffet most carriers. That is no longer true, as the companies face economic slowdown, which will only intensify the challenges they share with their free market counterparts - generating profits at a time of massive LTE capacity investment; and increasing ARPU when internet giants like Alibaba control the bulk of consumer usage.

The seriousness of their challenges was highlighted by the recent reshuffle of top executive positions at the three companies. China Mobile's chairman, Xi Guohua, has retired and been replaced by Shang Bing, vice minister of the MITI (Ministry of Industry and IT). Meanwhile, the chairmen/CEOs of China Telecom and China Unicom have swapped companies - Wang Xiaochu now heads up Unicom while China Xiaobing leads Telecom.

These represent the first changes of leadership for 11 years and signify the need for new thinking as the telecoms market faces massive new challenges, to boost capacity and coverage while also reducing costs and boosting profits. Both Mobile and Telecom reported a fall in half-year net profits recently, while Unicom, although its profit was up by 4.5% year-on-year, suffered a drop in revenues and customer numbers (though a major factor in the sluggish results was the imposition of VAT on telecoms services last year).

The total service revenue of the three operators fell by 0.9% in the first half of 2015, as they face rising competition from over-the-top providers as well as from MVNOs, which were allowed for the first time last year. The government has been piling on the pressure for the firms to deliver faster mobile broadband services, as part of its national Internet Plus strategy to boost economic growth and social change - but also to reduce their tariffs. This will entail massive cost reductions, and the three companies have already placed most of their passive infrastructure, such as towers, into a joint venture.

There have also been rumors that the government would consider merging the two smaller players, Telecom and Unicom, to achieve economies of scale, and some analysts believe the CEO swap may be the first step towards that. Guang Yang of Strategy Analytics told ZDnet: "The swap of chairman between the two operators might be the first step to prepare the merge. At least, the two chairmen in their new positions may be willing to strengthen the collaboration between the two operators, such as infrastructure sharing or national roaming. Through the collaboration, the two operators may be able to manage their costs more efficiently and lower tariffs faster."

However, at a time of economic upheaval in China, the executive changes, and the swirling rumors of reforms to the governance of state-owned companies, may increase uncertainty in the market and help China Mobile to surge ahead.

While the last major top-level reshuffle was in 2004, the Chinese telecoms market went through its biggest structural change in 2008, when the government ended the split between mobile and fixed-line operators and created three integrated providers. China Mobile took over wireline carrier China Tietong, and China Telecom gained Unicom's CDMA network, while another fixed-line player, China Netcom, was merged into GSM-based Unicom. There is speculation that the government may be considering another round of convergence, which could involve TV providers, creating quad play giants rather than just combining the two smaller telcos for efficiency purposes.

Whatever the structure of their sector, the operators are having to adjust to a world where they do not control the consumer's mobile usage or primary user experience. Baidu, Alibaba and Tencent, the largest Chinese internet apps players, now account for almost 60% of time spent on mobile devices, according to calculations by Forrester Research. The firm says Chinese consumers spent 18.2 hours a week on mobile internet activities, and about half of that (9.2 hours) went on Tencent's messaging app, WeChat.

Baidu is the leader in mobile search, Tencent in social media and Alibaba in m-commerce, though all three are moving into one another's strongholds via acquisitions and inhouse developments, and adding new ways to dominate the user experience, such as digital wallets.

China casts dark shadow over Qualcomm's outlook July 24 2014

Chip giant beats Wall Street forecasts with quarterly results, but warns of licensing shortfalls in China

By Caroline Gabriel

Qualcomm's quarterly cycle this year is becoming predictable - it warns of problems ahead in China, then delivers strong results anyway. Three months ago, it reported solid performance for its fiscal second quarter, but disappointed Wall Street with a downbeat forecast, largely because of uncertainties in the Chinese market. It predicted fiscal Q3 revenues at the low end of analyst expectations, between $6.2bn and $6.8bn, but in fact, has turned in a sales figure of $6.81bn, up 9% year-on-year. Net income was $2.24bn or $1.31 a share, while non-GAAP earnings were $1.44 a share.

The figures comfortably exceeded Wall Street estimates - analysts had targeted non-GAAP earnings of $1.22 a share on revenue of $6.52bn. However, this was only the second time since 2010 that Qualcomm had reported less than 10% year-on-year revenue growth in any quarter, a sign of the growing competition in its core smartphone processor space.

The cycle of warnings followed by over-achievement is not, in this case, just a corporate tendency to manage Wall Street expectations but a genuine sign of the unpredictability of the Chinese market, on which - like most companies in the mobile food chain - Qualcomm is dangerously reliant. "The company's guidance is becoming harder to achieve given the apparent delays in the roll-out of LTE in China," Bill Kreher, an analyst at Edward Jones & Co, told Bloomberg in April. "In the near term, results may be choppy."

His predictions are proving right, and Qualcomm CEO Steve Mollenkopf admits: "The launch of LTE in China is very important to Qualcomm, and it's difficult to predict." The company is particularly eager to see China Mobile's base convert to 4G, as it has created a TD-LTE iPhone for the carrier, but also because it has effectively been excluded from royalty revenues in the operator's 3G technology, TD-SCDMA.

There are other issues in China however, including probes by the NDRC government body into antitrust and corruption - seen by some as part of a broader assault on the US firm's market and IPR position - and difficulties in getting full revenues out of the complex customer base. In its new quarterly statement, Qualcomm reduced its outlook for the current fiscal Q4, because some Chinese licensees "are not fully complying with their contractual obligations to report their sales of licensed products to us".

It cited "certain licensees under-reporting a portion of their 3G/4G device sales and a dispute with a licensee" as well as possible delays in signing new licences while the NDRC investigation is ongoing.

The gap is significant - while Qualcomm expects 1.3bn 3G/4G devices to ship in calendar 2014, the number that will be reported to it for licensing purposes will be between 1.04bn and 1.13bn, because of "units that we believe may not be reported to us, are in dispute or are currently unlicensed. We are taking steps to address these issues."

Qualcomm president Derek Aberle said on the analyst call that "we are experiencing some near-term challenges in the licensing business, particularly related to China. This is something that we will take care of. "But he added, echoing other unknowables in the Chinese business, "the timing is pretty uncertain".

Licences deliver the bulk (at least two-thirds) of Qualcomm's profits and shortfalls in that area cannot be fully offset by any strong trends in chip sales, which have far lower margins. So the disputes will hit the current quarter - net income in the quarter ending in September will be $1.03 to $1.18 a share, Qualcomm forecast, disappointing analysts, who had looked for $1.23.

However, chips account for most of the firm's revenues and rising sales of high end chips will propel revenues in fiscal Q4 to between $6.5bn and $7.4bn, in line with consensus Wall Street predictions of $7.13bn. In fiscal Q3, Qualcomm shipped a record 225m chips, up 31% on the year-ago period, and the number could rise as high as 245m in the current quarter, which would be a 29% increase. New launches from its two largest customers, Apple and Samsung, as well as Chinese LTE, should boost the second half of the year, though there are fears of those handset giants losing share to lower cost vendors, which may not be Qualcomm customers - especially Chinese manufacturers, which often turn to local suppliers such as MediaTek.

Those competitive shifts, and a general move towards lower cost smartphones, are challenging to Qualcomm and will accelerate its efforts to expand in other markets such as the WiFi home and the internet of things. But those trends are fairly well understood and have been factored into analysis of the US giant for some time. By contrast, the Chinese market, especially the licensing and antitrust issues, are creating nervousness with their unpredictability.

Suji De Silva, an analyst at Topeka Capital Markets, told Bloomberg: "Qualcomm told investors that they had the China customers under contract, that it's all worked out. Now we're getting a sense that it's still a challenge. Qualcomm is trying to monetize its technology and China is a more challenging market."

Qualcomm has been investing heavily in China to build a local ecosystem and strengthen its ties with the big three operators there. Simultaneously with its results statement, it announced a commitment to plow up to $150m into Chinese start-ups at various stages, in the important growth areas of ecommerce, semiconductors, education and health. The activity will be managed by Qualcomm Ventures and the first recipients of funding are Cambridge WoWo and Boohee, in mobile education and healthcare respectively.

The vendor was keen to stress its long term engagement in the Chinese market and said it has had several Chinese investments with successful exits (such as Enorbus (acquired by Walt Disney); Aicent (acquired by TA Associates); and NetQin. Other investments in the country include rising handset star Xiaomi, as well as Thundersoft, MadHouse, CooTek, Yongche, Dolphin Browser, Alo7 and Hawkeye.

With a clear nod to the antitrust investigators, Mollenkopf said in a statement: "Since first introducing our technology and products in China well over a decade ago, Qualcomm has contributed to China's wireless industry through investing in research and development, licensing our advanced technologies, and providing the most advanced chipsets to Chinese companies. Our strategic collaboration with and technical support of the Chinese wireless industry has helped this vibrant ecosystem, helped drive direct and indirect employment, and contributed to economic growth in the entire Chinese wireless industry."

China and Korea crack down on device subsidies July 11 2014

High end smartphone makers could suffer as China demands lower subsidies, and Korea mandates discounts for low end plans

By Caroline Gabriel

Handset subsidies are one of the most contentious issues in the traditional mobile operator model. Carriers bewail the way they eat into profits but many attempts to ditch the practice have failed because of consumer attachment to the low upfront fee for a high end device. Some operators are devising new approaches, notably by providing instalment payments on smartphones, as in T-Mobile USA's 'Uncarrier' scheme. But in many Asian countries, the decisions are further complicated by government regulation of the issue.

In China, the authorities recently told the three mobile operators that they must slash their marketing expenditure, particularly their high levels of spending on subsidies (as well as advertising), to boost uptake of new 3G and 4G services. The SASAC (State-owned Assets Supervision and Administration Commission) told China Mobile, China Unicom and China Telecom that they must reduce their combined marketing spend by CNY40bn ($6.4bn) over the next three years.

This could create yet another problem for Apple, whose Chinese market share has fallen in recent months despite finally netting a distribution deal with China Mobile, the largest cellco. With no low cost model to offer, Apple is heavily reliant on carrier subsidies to make its iPhones affordable, although it has also embarked on some financing deals of its own.

According to a research note from analysts at UBS, around 60% of handsets sold in China are subsidized, and a shift in this pattern will mainly impact the high end of the market, which accounts for about 20% of sales. Apple has about one-third of this high end segment in 2013. By contrast, reduced availability of subsidies should increase the speed of expansion by lower cost, often local vendors such as Xiaomi, Lenovo and Coolpad.

The three operators, especially China Mobile, have repeatedly complained about the impact on their profits of subsidies, which has been felt since the carriers introduced 3G services with their accompanying more expensive devices. Mobile started selling the iPhone at the start of this year and its CFO, Xue Taohai, says this is one reason why subsidy costs will rise by 29% this year.

In nearby South Korea, the three main cellcos have repeatedly landed in hot water with the authorities over excessive subsides, and earlier this year, all three were suspended from signing new subscribers for at least 45 days, for violating caps on subsidies.

Now the government and the regulator, the Korea Communications Commission (KCC), have introduced new rules, which apply to low end handsets too. The KCC says it will move away from its current subsidy cap of KRW270,000 ($265) per device. Instead, it will reflect the fluid nature of the market by adjusting the subsidy cap every six months based on market factors including competition. The ceiling will always be in the range of KRW250,000 to KRW350,000.

The government has also introduced additional new rules in this sensitive area, requiring operators to offer subsidies for low cost plans as well as the expensive deals attached to costly smartphones. The size of the subsidy will be dependent on the cost of the monthly contract. Carriers will also be mandated to offer discounts to new subscribers who wish to continue using their old devices; to those who were not offered a subsidy when they signed up; and to users of smartphones more than two years old.

The ministry of trade said the changes aim to prevent cellcos from attracting customers to the most expensive monthly plans with top end smartphones at low upfront cost.

HTC turns tables on Samsung in Q2 July 08 2014

As Korean leader issues shock warning of 24.5% drop in operating profit, HTC turns in 80% leap in net income

By Caroline Gabriel

After a long period of being relentlessly overshadowed by Samsung each quarter, HTC has finally turned the tables. While the Korean market leader issued a shock warning of almost 25% operating profit decline for the second quarter, its smaller Taiwanese rival ended a three-quarter string of losses and turned in an 80% year-on-year leap in net income.

Samsung had indicated that this could be a tough quarter amid intensifying smartphone competition, as well as ongoing challenges in its TV business. However, the scale of its forecast operating profit decline - 24.5% down from the year-ago quarter - surprised analysts. This was the third quarter of falling operating income in succession.

Guidance on sales figures remained unchanged from its April estimate - consolidated Q2 sales should be KRW52 trillion ($51.4bn), down from KRW57.5 trillion last year, with operating profit of KRW7.2 trillion ($7.1bn). Samsung blamed the weakness on a strong Korean won - at a six-year high against the dollar - and a decline in smartphone and tablet shipments. In addition, it has incurred additional marketing expense to reduce inventory.

The company added to its comments, saying that profits were being hit by increased competition at the low end, not just from Chinese vendors but from European manufacturers. And it also sees slow growth in the handset market as a whole, though it expects a rebound later in the year.

The telecoms unit, which includes the handsets and generates more than 70% of earnings, is likely to see operating profit of KRW5.1 trillion, down from a record KRW6.7 trillion in Q313, on sales of KRW31 trillion, analysts estimate. Samsung will publish the official results and divisional breakdown later in the month. IBK Securities calculates that the vendor's total smartphone shipments fell to 78m units in Q2, from 87.5m in Q1.

The display unit is also under pressure, and pundits predict it will see a 76% drop in operating profit in Q2, to KRW270bn, although analysts expect some improvement in the consumer electronics business, which includes TVs and home appliances. And the chip division is expected to double its profit to about KRW2.1 trillion.

New products and demand for displays will drive better results in the third quarter, Samsung said in its statement. "Samsung earnings will rebound in the third quarter, largely driven by explosive demand for 4G smartphones in China," Claire Kim, an analyst at Daishin Securities, told Bloomberg. "If Samsung can maintain at least 20% market share in that segment, it will see higher smartphone sales during the quarter when the significant impact from Apple's new devices isn't yet expected."

Such comments indicate the huge importance of China, the world's largest smartphone market, to all vendors, and Q2 is seasonally weak there. But of course, Samsung also faces non-seasonal pressures, such as the increasingly impact of Chinese manufacturers like Lenovo and Xiaomi.

Meanwhile, HTC just beat market estimates with its Q2 results, and delivered one stand-out figure, an 80% year-on-year leap in net profit to NT$2.26bn (US$75.6m), ahead of the NT$2.09bn predicted by analysts. HTC also posted an operating profit of NT$2.43bn after three successive quarters in the red on this front. But revenue fell to NT$65.06bn, only just within the company's guidance range of NT$65bn to NT$70bn.

The profits rise vindicated CFO Chang Chialin's pledge, made in May, that the new flagship smartphone, the HTC One M8, would propel its vendor back to profit in the June quarter. The M8's sales are still rising after its launch in March and CEO Peter Chou said it had achieved "positive customer response". However, the profits improvement is also down to the ongoing cost reduction program as well as major efforts to address the supply chain issues and component shortages that dogged recent HTC launches. Chou said: "We have dramatically improved our operational efficiency and supply chain readiness to ensure immediate availability on the launch day."

Qualcomm adds China's SMIC to supply chain July 04 2014

Reduces vulnerability to shortages by extending contract to cover 28nm Snapdragon, in blow to TSMC

By Caroline Gabriel

In 2012, the vulnerability of the highly concentrated smartphone supply chain to component shortages was highlighted when Qualcomm was unable to secure sufficient quantities of its then-new 28nm Snapdragon 4 processors from foundry TSMC. The US firm bounced back quickly, but the problem hit its results for a couple of quarters and led to reports of negotiations with other foundries. Perhaps with all that in mind, it has announced a significant expansion of its relationship with Chinese manufacturer SMIC, which already makes low level components, but will now take on some of the 28nm Snapdragon work.

This is hardly an unexpected move, but will nevertheless be a blow to TSMC, which gets about 22% of its sales from Qualcomm. The US giant's volumes are rising, so its long-term Taiwanese partner may not see a decline in the units it makes for Qualcomm, but any erosion of its share of the high end chip production will be worrying - especially as the beneficiary is not one of its traditional rivals such as GlobalFoundries or Samsung, but from the up-and-coming Chinese chipmaking sector.

For Qualcomm, the rise of Chinese manufacturers able to adopt new processes and support premium components will be a relief, giving it greater access to capacity and better negotiating power. SMIC currently makes some power management and connectivity chips for Qualcomm but is seeking to push its product mix upmarket, after two consecutive quarters of falling profits. TSMC is actually a minority shareholder in SMIC, the result of settling a trade secrets lawsuit it brought back in 2009.

Qualcomm said in its statement that the new deal "will help accelerate SMIC's 28nm process maturity and capacity, and will also make SMIC one of the first semiconductor foundries in China to offer production locally for some of Qualcomm Technologies' latest Snapdragon processors on 28nm node."

Going forward, SMIC will also extend its capabilities in key process technologies like 3DIC and RF front end wafer manufacturing. It is essential that Qualcomm can drive the roadmaps of its foundry partners since, as a fabless provider, it does not have the same level of control over its processes, or ability to innovate, as Intel.

"This marks a significant milestone on the readiness and competitiveness of SMIC's 28nm process technologies," said Tzu-Yin Chiu, CEO of the Chinese firm. "With Qualcomm Technologies' support, we are confident that our 28nm technologies will become one of the most important growth drivers for the company. We expect that the 28nm product life cycle longevity will exceed previous nodes, which will help better position SMIC to service the needs of Qualcomm Technologies, as well as others."

Chinese trio get FDD trial licences, no 700MHz June 30 2014

All three operators now have paired and unpaired spectrum, but will wait until 2015 for commercial FDD, and 2020 for sub-1GHz

By Caroline Gabriel

China Mobile suffered from being the only major cellco with TDD spectrum for 3G, but has lobbied successfully to grasp the advantage back in 4G. It got its wish that initial allocations, for itself as well as China Unicom and China Telecom, would be in unpaired spectrum, where Mobile has a considerable headstart in expertise, ecosystem and roll-outs. But its rivals may not have to wait too long to receive their preferred, FDD licences too, and all three companies have already been awarded trial rights.

However, it seems likely they will have to wait until 2020 to gain usable spectrum in 700MHz, coveted for its long range and indoor penetration, which greatly reduces the cost of rural build-outs and initial, coverage-driven LTE projects.

Initially, then, all three companies will have higher band spectrum, both paired and unpaired, though it could take a year or even two for the FDD trial licences to be converted into commercial ones (there was a wait of about two years for the same process in TDD, though the huge 'trial' networks which China Mobile constructed during that time were hardly just testbeds.

The length of the wait will be significant for the two smaller operators, whose 3G networks are FDD, and which would prefer to lead with paired frequencies in LTE too, adding TDD at a later stage, for capacity, when the ecosystem has matured. However, Mobile's lobbying for TDD-first means they will have to adopt a hybrid TDD/FDD strategy, a fact which should stimulate the equipment and device ecosystems - another key Mobile objective - but could also make a RAN sharing deal between all three players more likely.

Talks about such an agreement are reportedly ongoing, and the long wait for 700MHz, which improves cost efficiencies for LTE, may be another incentive to come to a deal.

Last week, China Telecom was granted a trial FDD licence so that it can start building networks in major cities immediately, and Unicom and Mobile quickly received their own similar allocations. The bands were not specified but was certainly not sub-1GHz.

China faces the same tensions and trade-offs between the broadcasters, incumbent in the 700MHz spectrum, and the mobile operators, eager for the digital dividend in frequencies which are particularly suited to affordable wide area coverage. The head of China's broadcasting regulator, GAPPRFT, Jiang Wenbo, said this week that it will not complete the handover of the 700MHz spectrum until 2020.

China set to dominate M2M globally as its home efforts lead the way June 12 2014

By Peter White


A report out from the GSMA this week claims that China will take on M2M leadership globally. The GSMA latest report is entitled, 'Connected Living: How China is set for Global M2M Leadership,' and in it the GSMA describes China's rapid M2M adoption growth, due largely to strong government support and its huge population.

The GSMA notes "the M2M market is growing rapidly, with the number of connections set to reach a quarter of a billion this year, accounting for 2.8% of all global mobile connections, double what it was in 2010. China is at the forefront of this growth. It is a country with the world's fastest-growing economy and is now the world's largest M2M market with 50 million connections (up from 11 million in 2010), putting it ahead of the US (32m) and Japan (9.3m) combined - a number that is set to grow exponentially."

The GSMA believes that the technology is key to the future, saying that "M2M is transforming the world around us, making our lives, homes and cities smarter and more efficient with a never-ending stream of real-time actionable data, whether it's smart meters monitoring our energy use or remotely checking patients with chronic diseases."

The GSMA reports that as of January this year, 428 cellular operators in 187 countries had launched M2M services. In 2010 there were 74 million global M2M connections comprising 1% of total global SIM connections, but now there are 242 million global connections accounting for 3% of all global SIM connections - a CAGR of 35%.

Developing economies have now surpassed developed economies in the share of total M2M connections, rising from 48% in 2010 to 52% in 2014. The fastest growing region worldwide was Asia (54% CAGR), then Latin America (43% CAGR) and Africa (42% CAGR).

But the rapid growth of M2M in Asia is largely due to the actions of China, the largest M2M market in the world by some way. With its strong government support for IoT projects, as well as Government ownership of the three largest telecom and mobile operators, it's no great surprise to find that China is leading the way in M2M adoption, given that "its sheer size offers economies of scale not available to smaller countries."

The Chinese government still actively supports IoT R&D, earmarking the industry as a development and investment priority in 2011. It is set to invest $603 billion in the M2M ecosystem by 2020, as part of the 12th Five Year Development Plan (2011-2015).

The three state-owned mobile operators - China Mobile, China Telecom and China Unicom - are all "experiencing tremendous growth, particularly in the agricultural, healthcare, automotive, retail and consumer electronics sectors and the country's rapidly expanding middle class."

The report quotes Alex Chau of Machina Research, who says that 180 million smart meters have been deployed in China, with a further 60 million planned. Haihua Li of the China Academy of Telecommunications notes that 26 Chinese provinces had deployed electronic toll collection systems, used by 5.1 million drivers. M2M systems are extensively used in Chinese freight transportation, monitoring the condition of perishable goods that are moved around the country by train.

219 Chinese cities had announced smart city rollouts by February 2013, aimed at tackling urban congestion and traffic flows in the dense metropolitan environments. Another uniquely Chinese approach is the 343 pollution management centers are used to monitor 15,000 contamination sources in real-time.

China Mobile is the largest MNO in the world, with 767 million connections as of the close of 2013. It is also the largest M2M operator, with 32 million connection at the end of 2013 (up 10 million in one year). In 2010 it launched its dedicated IoT wing, out of which arose its proprietary Wireless Machine-to-Machine Protocol. Although using the protocol allows manufacturers easy access to the vast China Mobile network, surely open standards are vital to the future of IoT. It will be interesting to see how the GSMA reconciles proprietary technology with its policy of creating a single common M2M specification.

China Telecom is the largest fixed line operator in China, with 156 million lines in 2013, and the third largest MNO, with 186 million mobile connections. It began constructing an IoT platform in 2007, working on system integration and constructing a purpose built lab in 2011. It manages 800,000 security cameras under its Mega Eye business, as well as 700,000 active subscribers for its Chinese version of the GM in-vehicle OnStar service.

China Unicom is the second largest telco in China, with 88 million fixed-line subscribers, and is also the second largest MNO, with around 281 million mobile connections. In 2013 it handled 10 million M2M connections, with global partnerships with Cubic Telecom (to link Cubic M2M devices using its cellular network), remote healthcare monitoring with Beijing Municipal Health Bureau, as well as a number of automotive partnerships for fleet management and IVI systems.

If China can turn its hand to exporting its wealth of M2M and IoT experience, the native suppliers could easily become dominant outside China as well, a move that is probably about to start happening this year.

Baidu is powerful new contender in deep learning race May 20 2014

Chinese search giant sets up Silicon Valley lab as it fights with Google, Microsoft and others to redefine mobile search

By Caroline Gabriel

Behind nearly all the interesting new mobile web business models lies a massive artificial intelligence, or deep learning, engine. Some of these are being developed in great secrecy to support the next wave of services from Google, Facebook or Microsoft. Others, like IBM's Watson and AlchemyAPI, are open to a broad developer community, while the next stage will be 'as a service' platforms - a possible business for some operators, like AT&T, which have developed advanced analytics systems to examine their own networks and subscriber behavior.

But don't be fooled by the fact that all these names are American. As in most areas of advanced technology, Chinese web giants and research institutions are matching their western counterparts dollar for dollar in development of next generation AI engines, with a particular focus on supporting mobile services such as advanced context-aware search (of which Apple Siri, Google Now and Microsoft Cortana are just infant examples); as well as analytics and personalization services for enterprises and IoT (internet of things) providers.

The 'Chinese Google', search provider Baidu, is particularly active in developing mobile and web platforms which will start by dominating its home market, but will also look for global presence, especially in emerging markets like India and Indonesia, where no player is yet as entrenched as Google is in the west. As well as their substantial homegrown R&D resources, the big Chinese players are going global in terms of tapping expertise too.

Baidu has set up a research lab in the heart of Silicon Valley, in Yahoo's home town of Sunnyvale. And it has hired a Stanford computer science professor, Andrew Ng, to head the global Baidu Research operation. Ng is a catch - he worked on deep learning at Google when it was doing its 'Google Brain' project; was a founder of online learning organization Coursera; and is a well-known figure in the AI field. He illustrates how Silicon Valley brains are no longer a resource mainly available to US firms. While based in Sunnyvale, where Baidu says it will invest $300m in its new facility over five years, he will also oversee several labs in China.

Baidu also set up its Beijing Deep Learning Lab last year and says it has already made progress in key technologies which will revolutionize the online search experience, making it open to many inputs (such as gestures and voice) and able to predict users' needs and behaviour, based on sophisticated analysis of context, location and history. That prediction can then be the basis of all kinds of analytics to support activities like targeted advertising, demographics research (as well as more sinister 'big brother'-type uses). Among Baidu's areas of research are image recognition and image-based search, voice recognition, natural language processing and semantic intelligence, machine translation and advertising matching. The firm has already introduced an app to identify objects in smartphone photos.

Kai Yu, director of the Deep Learning Lab, told MIT Technology Review that the new Silicon Valley lab would be targeted with fundamental research, while his lab will examine how to apply the deep learning breakthroughs to new commercial products and services.

Google will be eyeing these developments with fear. It is essential to its power and revenues that it continues to dominate and shape the search experience and just last week, CEO Larry Page acknowledged in his annual 'Founder's Letter' that "in many ways, we're a million miles away from creating the search engine of my dreams - the one that gets you just the right information at the exact moment you need it with almost no effort".

"Information is Google's core," as Page noted in his letter - gathering and analyzing vast quantities in all kinds of formats, in order to deliver the new breed of search results, but also to track people and machines more efficiently than ever before, to power the core revenue generators, advertising and big data. As well as Google Brain and the Google Now engine, it acquired DeepMind to bolster its capabilities.

However, others want to usurp its position. Microsoft recently set up a new special projects group within its R&D organization, according to insiders, which aims to take on the similar Google X unit, and is headed by Norman Whitaker, formerly deputy director of innovation at the US Defense Department's research arm DARPA. The new Microsoft initiative is working on "disruptive technologies that could benefit the company and society" and has a long list of targets, including machine learning/AI, mobility, big data, distributed computing and user experience design, according to a recent job advert.

Chinese cellcos to get FDD LTE spectrum this month? May 14 2014

If Unicom and Telecom get FDD licences this month, China Mobile's 4G headstart would be severely reduced

By Caroline Gabriel 

China Mobile appeared to have played a blinder when it succeeded in getting the government to assign TD-LTE spectrum to all three Chinese cellcos, before the more common FDD frequencies. But the headstart it secured may be far shorter than it had hoped, with the government reported to be ready to award FD-LTE licences this month.

The awards of TDD licences first gave Mobile, which already had huge TD-LTE trial networks in place, a major lead over its two rivals, which had hoped to build out 4G in paired FDD spectrum, as they did in 3G. Those operators, China Unicom and China Telecom, were faced with the choice of adopting a hybrid TDD/FDD strategy, or falling behind in the 4G race by waiting for FD-LTE licences.

However, if they do secure paired spectrum at an early stage - rather than having to wait anything between six and 18 months, as previously rumored - they will be able to major on their preferred technology and keep TD-LTE as a secondary resource, perhaps for small cells or enterprise networks. Reports from Xinhuanet say that the Ministry of Industry and IT (MIIT) is set to issue FDD licences to Telecom and Unicom on May 17, although initially these will be just for 20 cities.

Both carriers have run trials in both types of spectrum. It is unclear whether China Mobile will also gain FDD frequencies, or will remain TDD-only, as it was, reluctantly, in 3G, where it was saddled with the homegrown TD-SCDMA technology while its competitors were allocated the more mainstream W-CDMA and CDMA2000 platforms.

While Mobile's support is boosting the global device and roaming ecosystem for TD-LTE, the economics of FD-LTE still look better for now. And the business case for 4G should improve further for Unicom and Telecom, if they agree an infrastructure sharing deal, which is currently the topic of preliminary negotiations between all three cellcos. Although such an agreement would reduce capex and opex costs for all the operators, the smaller ones are expected to benefit most, since Mobile would lose some of its first mover advantage in LTE roll-out if the access network - not just passive infrastructure like towers - is included in the deal, an outcome the government supports.

Unicom's preferred 4G strategy is said to be hybrid, leasing TD-LTE infrastructure from Mobile while building its own FD-LTE. It is already investing in dual-mode devices. It is clear that the previously stagnant Chinese mobile market is set for major shake-up. The MIIT is acting far more quickly in allocating 4G spectrum than it did during the painfully protracted 3G process. Network sharing could give Unicom and Telecom a better basis to narrow Mobile's lead, especially in rural areas. The first MVNOs are starting to offer services, with retail giant Alibaba among the 20 or so which will go live this year.

And the MIIT has also just deregulated retail telecoms prices so that the three major carriers can set their own prices without the need for government approval. That will enable them to respond more flexibly to market changes and to compete more aggressively.

Consumers hope it will lead to lower rates, pointing to the huge difference in China Mobile's prices on the mainland and in the more competitive Hong Kong market (about $9 gets a user 1,700 minutes, 10,000 texts and unlimited data in Hong Kong; but only 350 minutes, 10Mbytes of data and no texts in the rest of China).

Docomo signs six vendors for '5G' program May 08 2014

Japanese cellco aims to deploy next generation networks in 2020, even though it is unclear what they will look like

By Caroline Gabriel 

'5G' is succeeding in being overhyped before anyone even knows what it is, and before 4G has been widely deployed. Whether this points to shortening technology cycles or marketing desperation, most so-called 5G projects have been attempts by individual players to promote their favorite technologies as candidates for next generation standards. However, when Japanese carrier NTT Docomo talks next generation, there is usually more reason to listen, given the company's track record in driving and shaping new technologies.

Docomo was so far ahead in 3G that - ill-advisedly perhaps - it launched its own pre-standard version, FOMA. It was also in the vanguard of R&D for 4G, feeding into LTE standards and testing gigabit systems way back in early 2011. It works closely with selected vendors to steer them in its preferred directions and tap into their combined R&D resources, an approach now matched by China Mobile. And it is doing the same for '5G', working on experimental trials with six partners.

These partners include Docomo's long term Japanese allies, NEC and Fujitsu, which are well versed in supporting the cellco's R&D directions and, even in commercial scenarios, customizing equipment to ensure the operator can be early to market. The others are the major LTE OEMs - Ericsson, Alcatel-Lucent, Nokia and Samsung - but notably excluding Huawei and ZTE. That may reflect some of the same concerns about Chinese suppliers that the US has cited - officially on the grounds of national security, but perhaps really because of commercial fear - or a revival of the old competitiveness between Chinese and Japanese technology programs.

The basic aim of Docomo's project is to get peak speeds to 10Gbps and above with very high availability and very low latency. The carrier wants the resulting systems to be commercially deployable in 2020.

The six partners will carry out experiments in parallel, with Docomo as the coordinating force. The particular focus is to test and confirm the potential for access networks running in high frequency spectrum, above 6GHz, but potentially up in millimeter wave ranges of 70GHz or 80GHz. This could theoretically support very dense, high capacity networks of very small cells.

In January, Docomo signed a memorandum of understanding with Nokia to explore the potential of the 70GHz band, with plans for an experimental 5G proof of concept system. This is being implemented using National Instrument's (NI) baseband modules which currently make up the system for rapid prototyping of 5G air interfaces.

Ericsson said it would focus on the 15GHz band in its Docomo cooperation, as well as HetNet and antenna advances. And NEC's particular activity will be to verify enhanced time-domain beamforming technologies, supporting very large numbers of antennas for small cells. This could improve Multiuser MIMO approaches to accelerating speeds, reducing interference and boosting capacity.


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