An Introduction to the Telecom Infrastructure Environment in China

1
An Introduction to the Telecom Infrastructure
Environment in China

• October, 2008

2
Content
China Telecom Market Overview
1
Telecom Infrastructure Opportunity In China
2
3
Asia Wireless Market Overview
Subscriber Number (Millions)
Market Size (US Billion)
Number Of Players (Market Concentration)
Favorable Policy Support for Sharing
Wireless Penetration

• China Mobile 78
• China Unicom 22
• China Telecom (new)

46
China
600
65

• NTT DoCoMo 50
• KDDI 31
• Softbank19

Japan
101
70
80

• SKT 51,
• KTF 32
• LGT 17

South Korea
44
17
88

• Mobile One
• SingTel Mobile
• StarHub

Singapore
5.6
NA
116

• 9 Carriers
• Highly Fragmented

India
22
250
20
Estimated
4
Wireless Market Comparison
China
U.S
Population (MM)
1,300
300
Subscribers (MM)
600
260

• China Mobile
• China Unicom
• China Telecom (new)

• ATT
• Verizon
• T-Mobile
• etc

Major Operators
China Mobile
ATT
Subscribers (MM)
369
70

• Revenue US52,152 MM
• Net Profit US12,720 MM

• Revenue US118.928 MM
• Net Profit US11,951 MM

PL (2007)
ARPU (US)
50.6
12.9
MOU
743
455
ROE
10
25
Mar-June 2008
5
China Telecom Market Development

3G licenses to be issued in 2008
Market Openness
China Unicom IPO in 2000
China Mobile IPO in 1997

• Highly regulated and government controlled
• China Mobile China Unicom Oligopoly in wireless

• Start deregulation and market opening
• Market new entrant of China Telecom in wireless
  market

• Strictly government controlled
• China Telecom Monopoly

1995
Time
1987
2008
6
Telecom Infrastructure Investment In China Grows
Rapidly, And Is Accelerating
Number of Towers Of China Mobile (In Thousands)

• Largest and fast growing subscriber base in the
  world
• The launch of 3G networks will further boost
  investment in infrastructure assets
• Industry restructuring increases opportunity for
  infrastructure sharing

38
CAGR 26
7
Vicious Cycle of Small Players
Penetration
Customer Satisfaction
Sales
Marketing
Investment
Tower
Low Penetration Rate
Low Reception/Customer Satisfaction
Low Revenue/ Profit
Low marketing expense/ market share
Low Capital Expenditure
Small Number of Towers
Smaller Carriers Are Motivated To Increase
Coverage More Efficiently
8
Complex Decision-Making Process
Carrier Internal Decision Process
External Influences
SASAC
Corporate HQ
Provincial Company
Municipal Company
Complex decision-making process coupled with a
variety of external influences makes sharing
difficult to materialize
SASAC is State-owned Asset Supervision and
Administration Commission MIIT is Ministry of
Industry and Information Technology
9
Major Challenges For Sharing

• Wrong budgeting process
• Capex and opex are budgeted and planned at the
  corporate level and allocated to provincial and
  city levels local entities have no discretion to
  shift capex to opex
• Lack of incentives
• Decision makers lack incentive to cooperate with
  third-party providers
• Core asset mindset
• Chinese carriers still view their towers as
  strategic assets, and are therefore unwilling to
  concede ownership
• Lack of strategic thinking and planning
• Quota focused with little flexibility/innovation
  
• Bureaucracy

Internal (Carriers)
External

• Lack of material policy/law from government to
  address the issue of construction overlap

10
Critical Success Factors For Infrastructure
Sharing In China
Guanxi (relationship)

• Relationship-based society dictates
  business-building approach

2
1
Lobbying efforts

• The state-controlled nature of Chinese carriers
  and inefficient decision-making process determine
  governmental power over carriers.
• Governmental regulations to enforce
  infrastructure sharing is required.

Four Success Factors
Four success factors
Patience
3

• Sharing industry in China will take a long time
  to develop

4
Site acquisition capabilities

• Site acquisition is a headache for carriers
• Need ground-level, localized workforce to push
  things forward