CHALLENGES FOR CHINA'S TELECOM INDUSTRY IN AN INCREASINGLY ALL-BROADBAND/MOBILE WORLD
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Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
CHALLENGES FOR CHINA’S TELECOM
INDUSTRY IN AN INCREASINGLY ALL-
BROADBAND/MOBILE WORLD
Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Deutsche Bank 2010 China Access Conference
January 14, 2010
1
Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
The “100 Percent Ceiling”
Broadband Mobile will be the most
significant part of the TMT Ecosystem
“There will be no limit on the number of
connections as part of the mobile grid…
Everything has the potential to be connected
to the web…call it the 100 Percent Ceiling”
Ivan Seidenberg
Chairman & CEO of Verizon
CTIA Wireless 2009
2
Jack B. Grubman
Magee Group, LLC
Paradigm Shift in Telecom www.mageegroup.com
jbgrubman@mageecap.com
-Explosive Not Glacial
Old Paradigm New Paradigm
1. Old business model: end-to-end control of network assets— 1. New business model: shared network assets, differentiation
vertical integration occurs on applications, content, customer care and performance
2. Distinct devices attached to unique networks dominated service 2. Blurring of lines: multiple services go over converged networks to
delivery assorted devices—single complex technological environment
•TV-Video •Mobile Video, Internet TV
•PC-Data •Market share fragmented amongst many players
•Telephone Voice
•Market share concentrated among a few big players
3. PC-centric world 3. Mobile-centric world
•Main link to Internet •Mobile web-based content will be dominant source of
information, games, services, etc.
4. New service introduction incremental 4. New services transformational
•800 Service Voice, Caller ID, Premium Cable, Downloads •IPTV, Mobile-Content, Streaming Mobile Video, Peer-to-Peer
5. Devices passive to network 5. Devices drive network services and thus explosion of bandwidth
•Network capabilities “pushed” to end-user equipment—network use
capacity drives demand •Smartphones lead deployment of 3G/4G network capacity
6. Enterprise/home-based management of facilities and services 6. Web-based services such as cloud computing, software as a
service
7. Value in physical assets 7. Value in applications/content
8. Modest, predictable demand growth within largely well-defined 8. Explosive, unpredictable bandwidth growth that transcends
geographic bands. Very low increase in demand per user borders. Large growth in mobile data traffic per subscriber driven
•Regional/national demand for traditional services by multitude of wireless broadband devices
•Global demand for non-traditional services
9. Network upgrades driven mainly by sheer volume 9. Advanced next-gen application will require intelligent network
technology beyond capacity upgrades to support the diversity
and quality requirements of advanced next-gen mobile apps.
10. Reasonable tracking of revenues with demand 10. Divergence of revenue and demand—much lower revenue yield
•High revenue yield on narrowband services (e.g. old long per unit of bandwidth (e.g. video streaming)
distance rates)
11. Walled gardens for wireless carriers 11. Off-deck applications
•Wireless carriers only offered home-growth content and •Wireless carriers allow 3rd party developers to access their
features networks
-iPhone/ATT deal drove this
-Google now developing a Smartphone not sold via carriers so
it can dictate features 3
Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
4
Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
5
Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
6
Jack B. Grubman
Magee Group, LLC
Internet Access Method Globally
www.mageegroup.com
jbgrubman@mageecap.com
2008 •Most people who access the
Internet (esp. browser-based
content), do so via a mobile
device either solely or part of the
time
-Japan has become the first
country to report that the majority
of usage as in times an Internet
user logs on is also from mobile
users. This still does not mean
that the total usage in terms of
traffic even in Japan has yet
shifted from PCs to mobile.
However, Japan became the first
country where the usage times on
mobile exceed usage times on
PCs in 2007 as reported by the
Japanese regulator.
7
Source: Tomi Ahonen Almanac 2009
Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Mobile Communications will be Largest
Disrupter in the TMT Ecosystem
Is Mobile the Great Cannibilizer?
Cannibalization Threat by Media Channel
Ability to cannibalize other media content
Threat to be cannibalized Print Recording Cinema Radio TV Internet Mobile
Print Some No No No Yes Yes
Recording No No Some No Yes Yes
Cinema No Yes No Yes Yes Yes
Radio No Yes No Yes Yes Yes
TV No Yes Some No Yes Yes
Internet No No No No No Yes
Mobile No No No No No No
Carriers with most fully advanced 3G/4G networks will benefit 8
Source: Tomi Ahonen Almanac 2009 most
Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Different Ways of Assessing 3G Penetration
2008
•3G penetration is at best an educated guess but most estimates put the
number approximately 400 million. Most “developed” 3G markets began
deployment between 2003-2007. Countries where mobile penetration is over
100% (e.g. Italy, Sweden) actually have higher 3G penetration of total
population than of mobile subs
•For China—delays in 3G deployment has put China behind the 3G curve
Percent of Mobile Subs with 3G Devices Penetration of 3G Per Capita of Population
Korea 71.0% 67.0%
Japan 83.0% 67.0%
Italy 38.0% 48.0%
Sweden 35.0% 43.0%
UK 27.0% 32.0%
Germany 24.0% 23.0%
USA 28.0% 20.0%
China1 4.1% 2.76%
17.2% (2013 estimates) 13.7% (2013 estimates)
Global Average 15.0% 6.0%
1Using
9
2010 estimates to account for lag in 3G deployment versus other countries
Source: Netsize Guide 2009, ITU, Tomi Ahonen Almanac 2009, ComscoreMobilens
Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Industry Players Looking to Capitalize on Potential of Converged
Next Gen Networks
Network-Centric
Hosted Business and
Consumer Applications Web-Based Services
Such as Cloud Computing
-China Mobile -Telecom Italia
-Comcast -Verizon -AT&T -China Telecom
-France Telecom -NTT -Verizon -Google
-Sprint -Vodafone -China Unicom -IBM
Ad Supported/ -China Telecom -ATT
Search-Centric -BT -China Unicom
-Google
P2P
-Yahoo!
Communications-Centric
-AIM
-Skype
-Google Talk
Media-Centric
User-Centric
-Apple -News Corp Solutions
Entertainment-Centric
-BitTorrent -YouTube
-Disney
-Universal
-Viacom
Commerce- -SONY
Centric
-Amazon.com Community-
-eBay Centric
Mobile Centric Web-
Based Content -Craigslist -Facebook
-MySpace -Twitter
-Hulu -AT&T -SINA
-China Mobile -Vodafone 10
-China Unicom -Verizon
-China Telecom -NBC/UniversalJack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Getting Behind the
New Paradigm Buzz Words
• Network Sharing—will carriers do the once unthinkable?
—Sooner than one would have thought
• LTE—Is the hype justified?—Yes, but will take until end
of this decade to be dominant mobile broadband
technology
• Mobile Broadband—How big is big?—Bigger than one
can count and happening now
• IPTV—Nice concept but will it be more than a niche
(though sizable) service?—Guess today is no
• Cloud Computing—When does it hit the ground in scale
and scope?—Not obvious
11Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Likelihood of New Paradigm Realization
Probability of Scale Deployment
High Medium Low
-Web-based services/content
Near-term -Mobile Video
(1-2 yrs) -Mobile Internet
-Network Sharing of passive
elements
Likely
Intermediate -LTE deployed
IPTV
-Network Sharing of active
(3-5 yrs) network elements
Timing
Long-term -LTE/4G as dominant Cloud Computing Pure Virtual Network
operators as the norm
(over 5 yrs) mobile broadband
technology
Single Device for all services
-Seamless shifting of
content between devices
Upshot: Mobile Broadband real and occurring more rapidly than networks can keep up with;
Network Sharing will be new carrier business model; LTE is the 4G standard but 2015-2020 12
before pervasive adoption; IPTV and Cloud Computing may look better in powerpoints than in
realityJack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Network Sharing
Not New—Just Evolving
• This Evolution of Network Sharing will be
among Mobile Network Operators who
own spectrum versus Old Reseller/MVNO
model which was between operators with
spectrum and those without spectrum
13Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
14Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
15Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Greater Rationale to Share Passive Rather Than Active Infrastructure
-Passive infrastructure non-strategic active -Cost of Passive infrastructure is rising—due to increasing prices for
infrastructure strategic source of competitive property, steel, cement, etc.—Moore’s Law does not apply
advantage -Cost of Active infrastructure is declining thanks to ongoing decline in
prices of electronic components
Multiple Drivers for Sharing Passive Infrastructure which support the functioning of the network (e.g. towers,
shelters, ducts, power supply, battery backup, etc.)
Burgeoning subscriber base The exponential growth of the subscriber base leading to increasing wireless traffic.
Emerging technology Freeing up capital for high investment requirements in technologies like HSDPA, 3.5G, LTE
Passive Infrastructure account for 60% of network rollout costs. Along with real-estate prices,
site rentals have also seen a sharp increase. Site owners are aware of relatively large number
of players desiring to rollout in urban or semi-urban areas. Hence the demand for tower sites
and rentals are expected to increase sharply. Shared networks can reduce by 25-30% number
Sharply rising site rentals of sites
According to the spectrum allocation criteria operators get only 10 MHz spectrum for as many
Need for denser coverage due to spectrum as 2mn Subscribers. Hence operators need to have much denser tower locations to ensure
constraints minimum quality standards.
Installation of cell sites has become a cumbersome process as there are a number of
clearances required and involves labor-intensive micro management. Passive infrastructures
Regulatory and planning authorities will speed up the process and trim time to market.
Both the urban planning ministries and municipal corporations are now starting to place
restrictions on new tower construction on the grounds that they pose a health hazard and
New Tower Restrictions congest the skyline.
Few Drivers for Sharing Active Radio Access Network Infrastructure—Actual network elements (base stations,
antennas, microwave equipment, transceivers systems, even spectrum)
Today-Resale by MVNOs An MVNO merely resells talk time
Future Driven by network optimization given increasing traffic loads
The further network sharing goes from passive to active the more carrier focus shifts to 16
service innovation, branding, customer segmentation versus network deploymentJack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
• Pressure to substantially decrease CAPEX
and OPEX while simultaneously providing
blanket mobile broadband coverage is driving
telecom operators to forge network
infrastructure sharing deals
-Rapid uptake of mobile broadband stresses
network capacity—especially hauling traffic to
and from the Internet—risk of a “blackout
-Enables more cost-effective expansion of
next-gen mobile networks into less densley
populated areas
17Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
• Governments (e.g. China) want to curb
duplications in investment
-Has environmental and capital resource
benefits by minimizing proliferation of network
structures/elements.
• Network infrastructure sharing a mobile
rather than fixed phenomenon
-Mobile operators need coverage and have to
focus on next gen services
18Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
-Fixed operators largely have sunk costs in
fiber networks
-Size of pipe a point of differentiation for
residential triple play or enterprise VPNs.
•Hong Kong Broadband Networks has
explicitly shunned network sharing believing
it would dilute its proposition
-Network architectures among fixed carriers
less uniform than for mobile given varied
starting points in network development
•Cable MSOs and telcos both provide
triple play but over very different network
topologies
19Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Three Major Risks to Network Sharing
Regulatory and Political Operating Model Operational Execution
•License requirement •Valuation of existing •Significant costs may be
imposed on entity owning assets and shareholding incurred in setting up
or operating the shared in the new entities network sharing, which
network •Transfer pricing typically are:
•Limitation on transfer of •Apportionment of benefits -Network upgrade to
spectrum rights and costs remove capacity
•Anti-competitive •Simplicity of day-to-day bottlenecks
behaviors/dominance operations -Investment in network-
status •Impact on branding and sharing software and
•National security (single service-level differentiation infrastructure upgrade
point of failure) •Managing asymmetry of -Redimensioning the
future demand and CapEx network and relocation
investments costs
•Risks and ease of exit -Termination costs of
third-party contracts: multi-
vendor repair and other
subcontractors
•Failure to consolidate the
number of sites and 20
equipmentJack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Intersection of Business & Technology Drivers for LTE
Unprecedented carrier alignment behind LTE
• LTE offers attractive upgrade path to GSM, UMTS, and CDMA operators—
LTE represents the next step in the evolution of the GSM/WCDMA/HSPA
cellular family
• Aligns operators with historically diverse technologies
LTE offers spectrum flexibility
• Scales to variable channel widths and diverse frequency bands
• Expected to launch in 700 MHz (Verizon Wireless), 2.1 GHz (NTT
DoCoMo), and 2.6 GHz (TeliaSonera), in 2010
Alignment of FDD and TDD modes of operation
• Potential to unite global spectrum allocations; TDD historically orphaned
• China Mobile driving TD-LTE with huge scale and urgency
However, carriers face high costs in tight credit markets for migrating to LTE
• Result may be longer rollout period and innovative solutions such as
network sharing and automation of optimization processes through rollout of
self-organizing networks (SON)
21Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Market and Technology Pressures Drive Need for LTE
Deployment to Improve Total Factor Cost of Network Ownership
For wireless carriers, LTE’s flat-IP architecture allows for dynamic, adaptable,
low cost, efficient high bandwidth networks to profitably support data/multimedia
• LTE simplifies carrier’s network
-Flat—IP Architecture embedded from Radio Access Network to Service Delivery
Platform
•Minimizes number of network elements
•Reduces cost
•Eliminates bottlenecks
• Maximizes spectrum
-LTE optimally balances coverage/capacity tradeoff
-Spectral efficiency allows for clever utilization of bandwidth and re-farming of 2G/3G
spectrum
• LTE will be Dynamic not static networks
-Networks will become dynamic and adapt to demand of users versus static networks
designed for average or peak busy hours—no wasted resources
-Self-Optimizing Networks (SON) will simplify network operations via dynamic
configuration by adapting to changes in demand and allocate resources accordingly
•SON allows “plug-and-play” configuration and optimization of networks
22Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Migration Path for Personal Broadband
Mobile 4G
WiMAX LTE
3.0 802.16e
Fiber
Personal
2.0 3G
Broadband
LTE
Municipal
Cable WiMAX
Mbps Community
DSL 802.16d Wi-Fi Mesh
1.0
3G
Pre-WIMAX
Wi-Fi Hot UMTS-HSPA
Broadband
Spots EV-DO RevA/B
Wireless
0.5 2G
GPRS,
1XRTT
Fixed Nomadic Mobile
23Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
24Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Global Mobile Data Traffic Will Double Every Year Through
2013
• Mobile data traffic will increase a thousand-fold in seven years from
2005-2012—half the time it took fixed Internet traffic to increase a
thousand-fold (14 years)
• By 2013, 64% of world’s mobile traffic will be video, up from 40% in
2008—Mobile Video is forecast to have the highest growth rate of
any application measured within the Cisco Index that tracks
networking applications
• Mobile Broadband handsets (>3G) and laptops with aircards will
drive over 80% of global mobile traffic by 2013
-A single iPhone or Blackberry generates more data traffic than 30
basic-feature cellphones
-A laptop aircard generates more data traffic than 450 basic-feature
cellphones
As Smartphones/broadband mobile devices grow as percent of total
base demand for mobile bandwidth explodes 25Jack B. Grubman
Magee Group, LLC
The Cisco Global Mobile Data Traffic Forecast www.mageegroup.com
jbgrubman@mageecap.com
-Growth driven by video over mobile handsets
IP Traffic 2006-2012
2008 2009 2010 2011 2012 2013 CAGR 2008-2013
By Application (TB per month)
Audio 3,612 7,996 16,930 35,486 74,503 154,988 112%
Video 13,062 38,681 107,714 274,820 650,310 1,390,548 154%
P2P 6,714 15,851 33,784 69,856 134,224 220,829 101%
Data 9,680 22,547 48,984 102,054 217,282 417,847 112%
By Device Type (TB per month)
Handsets 11,266 29,568 76,948 194,132 484,060 1,152,786 152%
Portables 18,461 45,487 105,298 233,706 493,631 880,797 117%
Residential 3,342 10,020 25,167 54,378 98,628 150,629 114%
By Connection Speed (TB per month)
Handsets-Less than 3G 1,141 2,265 4,157 7,129 12,274 19,083 76%
Handsets-3G 5,600 11,821 23,551 46,426 96,777 198,676 104%
Handsets-3.5G and Above 4,525 15,482 49,240 140,576 375,009 935,027 190%
Portables-3G and Up 18,461 45,487 105,298 233,706 493,631 880,797 117%
Residential-4G 3,342 10,020 25,167 54,378 98,628 150,629 114%
By Geography (TB per month)
North America 6,282 16,981 40,808 90,882 201,455 397,265 129%
Western Europe 9,785 25,572 65,381 158,325 341,567 615,477 129%
Asia Pacific 7,709 20,171 50,450 123,397 302,788 701,044 146%
Japan 6,000 13,950 29,910 58,541 103,466 166,109 94%
Latin America 725 1,847 4,715 12,729 35,727 95,668 166%
Central Eastern Europe 838 2,249 5,806 14,586 37,209 88,699 154%
Middle East and Africa 1,729 4,304 10,343 23,755 54,107 119,951 133%
Total (TB per month)
Total Mobile Data Traffic 33,068 85,074 207,413 482,215 1,076,319 2,184,213
26 131%
Source: Cisco, 2009 Definitions:
Portables: This category includes laptops with mobile data cardsJack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
27Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
28Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Mobile Data Users by Different Definitions--2008
Billions of Subscribers % of Mobile Subs
-An increasing amount of mobile users are becoming data intensive
29
Source: Tomi Ahonen Almanac 2009Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
The Market for Next Generation Wireless
Broadband is Here and Now
• Smartphone users (as represented by iPhone) are dramatically more bandwidth
intensive
-As Smartphones ramp-up as a percent of the installed base (currently 13% of global
handsets), demand for bandwidth will explode—taxing network infrastructure
Average
Usage1 IPhone Users Wireless User
Streaming Video 31% 5%
YouTube 30% 1%
Google Maps 35% 3%
Social Networking 50% 4%
Web Search 58% 6%
1Percent of users who utilize a given capability 30
Source: MMetricsJack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
31Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
TV Everywhere May Relegate IPTV to a Niche Service
-Mobile TV will likely dwarf it as an alternative video delivery system
• IPTV is delivered over an all IP infrastructure from headend to set-top box (STB) in a
single stream via multicast to multiple recipients—with STB being a multicast receiver
meaning only desired content is received not a tuner as in broadcast cable where all
channels go to all customers
-While IPTV an elegant solution, nonetheless, in the US Verizon’s FIOS (3 million
customers) is really a hybrid solution with regular video programming delivered over
normal RF broadcast and VOD/interactive delivered over IP. AT&T’s U-Verse (1.8
million subs) is a pure IPTV solution but has been throttled back from original
deployment schedule
• By year end 2009, Multimedia Research Group estimates there were 37 million IPTV
subscribers—up from 4 million in 2005—but revenues amounted to one-half of one
percent of total Global Telecom revenue
-In China, some estimates of IPTV revenues are $300 million or one-quarter of one
percent of total. Pyramid Research estimates China’s IPTV revenue will only account
for 1.4% of total industry by 2014. A particular problem in China is that the regulator
prohibits fixed line operators who are the natural candidates to deploy IPTV from
owning IPTV licenses. License holders (e.g. Beijing TV, CCTV Int’l, Shanghai Media
Group, etc.) must collaborate with operators for service deployment
• IPTV’s biggest challenge is the proliferation of other alternatives to broadcast video—
Mobile TV, Internet TV, and “over-the-top” Websites (e.g. Hulu). These others are far
less capital intensive and costly to deploy
-At the end of 2009, Global Mobile TV Handsets were 86 million—over double Global
IPTV subscribers
32Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
33Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Broadcast Mobile TV Services Already Launched
and is Already More Than Double IPTV Subscribers
MoTV Handsets MoTV Handsets MoTV Handsets
Country Launched End of 2007 End of 2008 End of 2009 Technology
Brazil 2008 - - 150,000 ISDB-T
China 2008 - 600,000 5,000,000 CMMB/STiMi
Germany 2008 - 10,000 50,000 DVB-T
Italy 2006 700,000 850,000 1,000,000 DVB-H
Japan 2006 25,000,000 40,000,000 60,000,000 ISDB-T
Netherlands 2008 - 90,000 180,000 DVB-H
Russia 2006 10,000 20,000 30,000 DVB-H
South Korea 2005 1,500,000 1,850,000 2,000,000 S-DMB
South Korea 2006 13,000,000 15,400,000 17,500,000 T-DMB
USA 2007 50,000 100,000 400,000 MediaFLO
Other Various 50,000 65,000 275,000 Various
40,310,000 58,985,000 86,585,000
34
Source: Rethink ResearchJack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
What Cloud Services Exist Today?
• Web-based services e.g. Flickr for photo-sharing and
MySpace.com for social networking
• Infrastructure-as-a-Service e.g. Amazon’s Elastic
Compute Cloud and IBM’s Computing-on-Demand
• Platform-as-a-Service e.g. Salesforce’s Force.com and
Microsoft’s forthcoming Azure Services Platform
• Software-as-a-Service e.g. RightNow for CRM and
Cisco’s WebEx web conferencing
• Cloud Services still a small fraction of premise-based
service
Cloud Computing in its infancy—will take until middle-to-
end of this decade for security, reliability and quality of
service issues to be evolved enough for Cloud to scale
35Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
China’s Telecom Industry Challenges
What Are The Next Steps?
• Low hanging fruit picked
-Urban penetration strong, need to drive
growth in rural areas—large potential
avenue for growth in all services
•59% of population live in rural areas
but:
36Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
-86% of fixed asset investment is
in urban areas
-68% of fixed line telephony subs
are in urban areas
-Almost 80% of mobile
subscribers are based in more urban-
oriented Eastern and Central Provinces
-Only 25-30% of Internet users
reside in rural areas—could be addressed
via new technologies such as WIMAX
37Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
• Need to narrow “Broadband Divide” versus other G-8
nations and Asia-Pacific peers
-Driving fixed and mobile broadband will lift ARPU while
enhancing China’s relative attractiveness for global
business
•China ranks very low in fixed broadband subs per
100 population with only 6.7 per 100 versus 25.1
average for G-8 nations and 25.5 for major Asia-Pacific
peers (S. Korea, Japan, Australia, Singapore)
-Good news—nearly 95% of China’s villages
are “covered” for broadband services. Bad news—
penetration is roughly 8%-less than half overall
penetration of PCs (20%) or fixed lines (18%)
38Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
•Despite a nationwide multi-GHZ fiber backbone and
HFC deployed in the provinces, there is virtually no cable
broadband access
-Worldwide there are 85 million cable modem
subscribers representing 20% of worldwide cable subs
-DSL is 80% of broadband users, though only
24% of total fixed telco lines
•China’s penetration of Internet either on a
subscriber basis (7.4% of population) or users basis
(27% of population) are at Global Averages but well
below peer group of leading G-8 Asia-Pacific peers who
have an average Internet penetration of 35%
(subscribers) or 74% (users)
-On the positive side, 85% of China’s Internet
subscribers are Broadband, above Global Average of
66% and in line with average of peer group (81%)
39Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
• Regulatory structure is muddled
-Competing regulatory bodies having jurisdiction on
different slices of a converging TMT pie
•MII/MIIT—broad range of telecom policy
•SARFT—Significant force in many convergence
areas (e.g. awarding of IPTV licenses)
•Telecom subcommittee of State Council—key policy
decisions such as industry restructuring
-MIIT/SARFT clash surrounding Mobile TV standards—
terrestrial-mobile multimedia broadcasting (MDIT) and
China Multimedia mobile broadcasting (SARFT) delayed
full implementation and kept industry from settling on a
firm standard
40Jack B. Grubman
Top 30 Economies in Terms of
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Fixed Broadband Subscribers
per 100 Population, 2008
6.7 Per 100 Inhabitants 41
Source: ITU
ChinaJack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
China Faces Hurdles to Broad 3G Deployment
• Three 3G technologies is two too many
-Causes confusion
-Leads to higher costs
-Makes roaming difficult
• Large land mass makes buildout of national 3G coverage
expensive—a driver for network sharing
-This likely will result in rural parts of China continuing to be
on the wrong side of the Broadband Divide
• The cost to carriers for handsets do not differ much regardless
of market, thus China’s carriers have to subsidize to a larger
degree and have a much larger payback given low ARPUs
versus their counterparts in the US or Europe.
-This could thwart aggressive marketing of broadband mobile
handsets which drive traffic and ARPU
42Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Snapshot for 3G in China for Each Carrier
China Mobile China Unicom China Telecom
Technology TD-SCDMA WCDMA CDMA EVDO
285 cities at end of Sept, 335 cities
238 by end of 2009, all prefectural by end of 2009 expand to county by July 2009, 342 cities and 2000
# of Cities with 3G level cities (about 335) in 2011 level in 2010 Countries
Number of base Over 50,000 in Sept 09, up to Over 100,000 3G base stations in
stations 160,000 by 2012 in 335 cities 82,300 by end of 2009 3Q 09
Over 100 TD handset models and
Number of handsets up to 300 terminal models by end of Over 300 WCDMA terminal models 200 models by Nov 2009. Currently
available in 4Q 2009/early 2010 are available for the China market over 80 EVDO models available
30mn to 85 mn by 2011, depending
on market acceptance and 20 to 30 mn. (Goal of 1/3 of 3G
Subscriber goal availability of TD-SCDMA handsets market) 12 mn by end of 2010
Data download speed
(theoretical) 3.6 Mbps 7.2 Mbps 3.1 Mbps
Open Mobile Phone OS, based on 3-year agreement with Apple for Considering all OS including
Smart phone Google's Android system. oPhone iPhone. Smart-phones with all Android, Linux, Windows CE, and
operating systems developed with 6 vendors major mobile OS also available Symbian
43Jack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Unicom Has Best Migration Path to 4G
• China Unicom is in the best position from a technology
perspective
-WCDMA which Unicom uses is the most widely deployed 3G
standard
-WCDMA supports almost 10% of worldwide subscribers and
over 60% of 3G subscribers
-LTE is the likely 4G standard and WCDMA is part of the
GSM/WCDMA/HSDPA cellular family from which LTE will
evolve
• China Telecom currently has most base stations but network
sharing mandates could mitigate this advantage
• China Mobile is saddled with a technology that is a
disadvantage in terms of cost, handset availability, and ease
of network switching…but its dominant market position is a
44
strong benefitJack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Regional IDI1 (Asia and the Pacific): High
Correlation of ICT2 Levels and Income Levels
China’s IDI tracks per
capita GDP—Korea
is well above
predicted curve with
Japan and Australia
slightly over
n.b.: Globally,
Scandanavian
countries have IDI
levels most above
predicted curve
1IDI is an index that mathematically weights factors such as access, usage and infrastructure for fixed, mobile and Internet networks in a given country
2ICT is Information and Communications Technology 45
Source: ITUJack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Can China Keep Pace with
Broadband Mobile Revolution
China’s revenue mix expected to trend towards mobile and data
-Only occurs if 3G deployment is successful and China also drives fixed
broadband expansion along with macro-economic facts such as rising per
capita GDP
Total Mobile Total Mobile
63% 73%
Mobile Data
17% Total Data
26%
Mobile Data
30%
Fixed Data
Mobile Voice Mobile Voice
9%
46% 43%
Total Data
42%
Fixed Data
Fixed Voice 12%
28% Fixed Voice
15%
2008 2013
46
Sources: Pyramid, IDC, othersJack B. Grubman
Magee Group, LLC
www.mageegroup.com
jbgrubman@mageecap.com
Thank you
Magee Group, LLC
www.mageegroup.com
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