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 China Mobile's chairman, Xi Guohua, has retired and been replaced by Shang Bing, vice minister of the MITI (Ministry of Industry and IT).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.
By the Maravedis-Rethink RAN research team
Mobile operators know that, if they are to have more than a ‘dumb pipe’ role in the internet of things, they will need to cooperate, using their combined weight to influence standards and support global systems.
This is sparking a number of alliances and cooperation deals focused on applications such as smart grid, industrial internet and smart home, and also one of the most immediate IoT markets, the connected car. In this area, Deutsche Telekom and China Mobile have formed a joint venture focused on China's exploding automotive sector.
The 50:50 JV, called Connected Car, will see the German telco contribute its existing automotive telematics platform, and China Mobile will provide the LTE network to support the services, plus integration and the resources of its widespread channel organization.
"Connected Car is a strategic initiative within Deutsche Telekom, while China is of strategic importance for our Connected Car business. The partnership with China Mobile is therefore strategically of utmost importance to Deutsche Telekom," said Deutsche Telekom board member Reinhard Clemens, in a statement.
The venture will create a cloud-based platform based on DT’s technology and deploy network and hardware elements where these are needed on top of China Mobile’s existing infrastructure. The JV will also develop content services, and integrate and operate the systems.
The scale of the market is important for Deutsche Telekom to extend its reach beyond its own territories. There were 137m cars on the road in China at the end of 2013, up from 24m a decade ago, and DT claims the number of connected cars will reach 68m in 2018. The venture will work with the automotive sector to deploy services in new vehicles but also to retrofit existing ones. It will become operational at the beginning of 2015.
One of the most aggressive mobile operators in the connected car world is AT&T, which says it added 500,000 connected cars to its network in the third quarter of this year, bringing its total to two million in the US. This growth shows why AT&T is so involved in the sector, as its traditional SIM-only business added 400,000 subscriptions in the same quarter. Connected cars and their lucrative data plans will likely be one of the main expansion targets of cellcos over the next few years.
At a recent CTIA panel, AT&T’s chief executive of its mobile and business group, Ralph de la Vega, said the connected car would change the entire wireless industry, and added that research suggested there would be 10m connected US cars within the next few years.
AT&T wants to ensure that all occupants of a car are able to use data on the go, whether it’s the driver using GPS navigation, making hands-free calls or listening to podcasts, or perhaps putting Netflix on to silence the kids in the back. AT&T sees the potential revenue from this data, and wants to get in on the action ahead of the competition – in both new cars and on older models.
The other major benefit that arises from the connected car is the telematics and usage data that can be sent to the car’s manufacturer for analysis, allowing a car to more easily communicate to its driver that it needs maintenance or that their driving style is shortening its service life. This data can also be leveraged by insurance providers, but other more general data (such as time of use or road condition) could be passed or sold on to municipalities charged with maintaining the road surface. A number of apps already use the telematics data to provide car-tracking and fuel consumption information to consumers.
On the network side of things, if AT&T builds out its 4G network coverage to include densely travelled locations (read highways) it can guarantee that streaming connections won’t be lost during cell tower handoffs or through gaps in the coverage. Similarly, a 4G network provides better bandwidth than the 3G handsets and tablets in the car might be able to get – especially if a tablet or laptop lacks a cellular radio entirely. Similarly, when the car is parked up, perhaps on an idyllic fishing vacation in the countryside, you can keep the kids happy with a solid internet connection – bringing the comfort of high speed internet to the great outdoors.
Many more connected car projects will emerge from AT&T’s Drive Studio, located in Atlanta, where the company tests and develops its technologies and products. This lists a number of partner companies and sponsors, including Ericsson, Qualcomm LG, QuickPlay Media, Red Bend Software, VoiceBox, Synchronoss, Accenture, Amdocs and Jasper Wireless.
High end smartphone makers could suffer as China demands lower subsidies, and Korea mandates discounts for low end plans
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.
By Peter White
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.
Chinese search giant sets up Silicon Valley lab as it fights with Google, Microsoft and others to redefine mobile search
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.
If Unicom and Telecom get FDD licences this month, China Mobile's 4G headstart would be severely reduced
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).
Japanese cellco aims to deploy next generation networks in 2020, even though it is unclear what they will look like
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.
By the Maravedis-Rethink RAN Service team
Amid a tortured process which almost led to Pakistan's 3G auction being cancelled, the spectrum sale has gone ahead, with China Mobile emerging as the country's first 4G carrier. This reveals two important trends – China Mobile's slow but interesting emergence as an international player; and the fact that, in countries where 3G has been late to develop, successful operators will be those which can leapfrog directly to 4G.
This is what China Mobile's Pakistani subsidiary, Zong, will be able to do, having had the deep pockets to acquire spectrum in both 3G and 4G bands in the recent auction, while rivals were left making do with 2.1GHz W-CDMA frequencies only. However, there will be LTE competition, notably from Warid, which is also adopting a 4G-first policy, eschewing the auction altogether and planning to build out LTE in its 1.8GHz GSM spectrum. That has the advantage of a growing global device and roaming ecosystem, and Warid could also add assets from its WiMAX unit, Wateen Telecom, to create a common TD-LTE platform with neighboring India, riding on the huge expansion expected in wireless data in that country.
In the just-concluded auction, four of Pakistan's existing cellcos - Zong, Ufone, Mobilink and Telenor - gained a 3G licence while China Mobile's local subsidiary, Zong, also purchased national spectrum in the 1.8GHz band – anointed this week by the GSA as the world's most popular for LTE. It promptly proclaimed itself "Pakistan's first and only 4G operator", adding: "Zong is committed to providing the fastest mobile internet and best 3G/4G network in Pakistan."
The Pakistan Telecommunication Authority (PTA) sold 3G frequencies in 2.1GHz and gave the winners the option of also buying 1.8GHz licences, but only Zong took up that offer, despite speculation that Pakistan would be one of the countries, slow to 3G, which would choose to leapfrog straight to 4G. That leaves Zong and Warid in the cat seat in true wireless broadband.
Warid plans to deploy LTE in five cities this year, saving outlay on 3G licences and build-out. Warid is reported to be planning LTE launches in Islamabad, Lahore, Faisalabad, Multan and Karachi. It could also potentially migrate WiMAX spectrum in 2.5GHz to TD-LTE in future.
The main reason for the other cellcos saving their money and sticking to 3G at this stage is the cost of LTE handsets. A PTA official commented: "Launching LTE services is a difficult proposition as LTE handsets are very expensive; 3G handsets are more common in Pakistan as well as the rest of the world." Of course, Zong will be able to tap into the massive buying power of its parent to secure lower cost devices, particularly from the Chinese ecosystem, which is moving towards low cost LTE smartphones during this year.
In the latest auction, four blocks if 2.1GHz spectrum raised US$902.8m in total. According to the PTA website, two operators agreed to pay over $300m each for 10MHz of spectrum and two paid $147.5million each for 5MHz. The PTA had originally said the minimum lot would be 10MHz, but changed the rules during the process, presumably to keep smaller or poorer players in the game. The regulator has not yet announced which operator won which frequencies, or the details of the 1.8GHz sale, but if Zong paid the reserve price of $210m, the state probably raised a total of $1.1bn from the whole auction.
By the Maravedis-Rethink RAN Service team
The patience of those who kept the faith with Alcatel-Lucent is starting to be rewarded after more than eight years of one of the stormiest marriages in technology. However, behind the recurrent losses, the management dramas and the endless rounds of cuts and reorganizations, ALU has been playing some highly strategic long games. Several of these have fed directly into a huge $1bn, one-year contract the firm has announced with China Mobile - a deal which goes some way to justify the focus on converged IP and virtualization, in particular.
The deal is to "provide technology that will move the world's largest mobile service provider to an all-IP ultra-broadband network paving the way for future network functions virtualization (NFV) and cloud-based services", said the official statement. Technologies involved will include lightRadio distributed RAN units for TD-LTE overlay, evolved packet core elements, IP routers, optical transmission systems such as OTN 100G, fixed broadband access technology based on GPON, and professional services.
Of course, every vendor will hope that China Mobile, with its huge wireline and LTE expansion programs, will be a savior this year. In the carrier's recent financial results call, its capex forecast for the year was RMB225.2bn ($36.3bn) came in about $3bn ahead of analyst expectations, with much of that being driven by TD-LTE. The operator gained its commercial licences late last year and can now offer full services on its 'trial' network as well as expanding it rapidly. ALU has about 11% of the current TD-LTE awards (about the same as Ericsson, with NSN having 14% and the rest going to Huawei and ZTE). Its aim will be to increase that percentage, and the way to do that will not just be about TD-LTE base stations, but taking a far more strategic role in China Mobile's famously radical network strategies.
This is clear in this latest award, which is not about the LTE RAN but speaks to the close collaboration ALU has with China Mobile in the area of virtualization, particularly Cloud-RAN. The world's largest mobile operator - flush with fiber and with an almost greenfield willingness to leapfrog other carriers on the back of new architectures - is the biggest flagwave for C-RAN, and ALU has enjoyed a seat at the top table in the intensive R&D around the platform.
More immediately, this large contract helps vindicate ALU's decision to focus on a converged platform built around wired and wireless IP. In its recent restructuring, initiated by former CEO Ben Verwaayen and executed by current chief Michel Combes, it resisted calls by some shareholders either to spin/sell off the mobile unit, which has lower market share than the company as a whole, or conversely, to emulate NSN and focus very specifically on mobile broadband. The latter would have been foolish, given that ALU's core current strength is in IP routers, but the former looked feasible.
However, Combes's team have kept the faith that, as carriers increasingly move to converged quad play platforms, they will want converged suppliers, and that thinking is clearly seen at China Mobile. The frame agreement is worth $1bn over just one year, and so should have a significant impact on short term performance, a fact which sent the French giant's shares upwards on Thursday. Neatly, the announcement coincided with a visit to France by Chinese president Xi Jinping to commemorate the fiftieth anniversary of French-Chinese diplomatic relations.
At last month's Mobile World Congress, ALU and China Mobile demonstrated Cloud-RAN and NFV, and the vendor also supplies many elements to the cellco including its lightRadio distributed base stations, to support the TD-LTE overlay roll-out, small cells, and evolved packet core elements. The two companies co-developed the lightRadio MRO (metro radio outdoor) unit for TD-LTE.