Market, Competition and Policies of China Telecom Sector

1
Market, Competition and Policies ofChina Telecom
Sector

• Asia Pacific Forum on
• Telecommunications Policy and Regulation
• Singapore
• June 15-17, 2005

Dr.Chen Jinqiao, Director of Institute of Telecom
Policy CATR,MII
China Academy of Telecom Research,MII
2
ABSTRACT

• General aspects of China telecom sector
• Competitive landscape of China telecom market
• Chinas fixed line service marketsituation and
  forecast
• Chinas VAS market(incl BB market)
• From substitution to convergence, FMC
• Opening policy after WTOs entry

3
General Aspects of China Telecom Sector
The largest telecom market in the world

• According to network capacity
• Two first placefixed line network mobile
  network
• One third placeinternet backbone networks
• According to subscribers scale
• Two first placefixed line mobile phone
  subs
• One second placeinternet users
• By end of 2004,telephone users in China has
  exceeded ¼ of global users,which catches up with
  world average penetrate rate

4
General Aspects of China Telecom Sector
The largest telecom market in the world

• By the end of 2004,Chinas fixed line subs has
  reached 313 million,mobile phone users 334
  million, and internet users 940 million,which
  relatively stands in first,first and second place
  in the world market.

SourceMII Statistic 2005
5
General Aspects of China Telecom Sector
The fastest growing telecom market in the world

• Consecutive 10 year high speed growth
• From 1994 to 2004
• CAGR in subs30-40
• CAGR in revenue15-25
• Constant CAPEXnearly 25 billion US
• Expenditure on telecom services10-15 growth
  per subs,not referring ARPU(calculated by
  operators)

6
General Aspects of China Telecom Sector
The biggest potential telecom market in the world

• Huge market can be developed
• Penetrate rate is just over 26, far from
  saturation
• Multi-card users lower the population penetrate
  rate
• Significant city-country divide
• Voice service accounts for over 90 revenue
• Various VAS services begin to take off
• High-end consumption has severe demonstration
  effect
• ConclusionThe fast growth speed in Chinas
  telecom market will last another five year.

7
General Aspects of China Telecom Sector
The most influential telecom market in the world

• The largest subs and its increasing purchasing
  power
• The first-rate network facilities and coverage
• The market accommodation for new technology
• Such as xDSL/LAN,GSM/CDMA/PHS,Three 3G
  standards,WIMAX, PTT, NGN,etc.
• The innovative strong operators
• 1st GSM operator,2nd CDMA operator,2nd internet
  backbone carrier,2nd DSL operator,etc.
• In most key areas,no new age if theres no
  chinas market
• 3G,INTERNET,NGN,E-NUMBER,etc.
• Almost every powerful venders take active part in
  China
• Manufacturing,sales,RD,and other business.

8
General Aspects of China Telecom Sector
Telecom market performance in 2004

• Total revenue of 2004 has reached 63 billion
  US,which increase 12.6 to 2003.
• The 2004 income structure is as left graph

SourceMII,The Guidance for China telecom
industry 2005
9
General Aspects of China Telecom Sector
Revenue changes in latest five years(growth rate
slowing)
SourceMII,calculations by yearly statistics, CATR
10
ABSTRACT

• General aspects of China telecom sector
• Competitive landscape of China telecom market
• Chinas fixed line service marketsituation and
  forecast
• Chinas VAS market(incl BB market)
• From substitution to convergence, FMC
• Opening policy after WTOs entry

11
Competitive landscape of China telecom Market
Six nationwide operators dominate basic telecom
services

• They have over 90 of network capacity
• They have controlled nearly 100 subs
• They can supply every possible telecom services
• Two of them major in fixed line network occupy
  international gateway for voices and data
  services
• They have very different power in various telecom
  market
• They are all SOEs,among which four operators have
  been listed in overseas capital market.

12
Competitive landscape of China telecom Market
Small change in revenue market share, by end of
2004
Two large,two medium,two small by revenue, 2003
end
SourceMII,The Guidance for China telecom
industry 2004, 2005
13
Competitive landscape of China telecom Market
Prominent gaps among six operators

• Can be seen in various aspects of
  assets,revenue,subs,prohibit and so on.

SourceSASAC,statistics bulletin
2004 ReferenceCT-China Telecom Corporation Group
,CMCC-China Mobile Communication Corporation
Group ,CU-China Unicom Corporation
Limited,CNC-China Netcom Corporation
Group,CRC-China Railway Communication Corporation
Group,CSAT-China Satellite Communication
Corporation Group,same as follows.
14
Competitive landscape of China telecom Market
Competition in local fixed line services
Subs share in fixed line service market, by end
of 2004

• Four Licensees in local market
• CT,CNC,CRC,CU
• One and Three half networks
• CRC,one nationwide network,whose capacity not
  exceeding 10
• CU,only in 3 big cities,Cheng du, Chong qing,Tian
  jin
• CT,mainly in 21 southern provinces,63 of
  national capacity
• CNC,mainly in 10 north provinces,27 of national
  capacity
• SMP dominate local market,CT in south and CRC in
  north
• Mobile voice and VOIP start to increase
  competition power.

SourceMII,calculations by yearly statistics, CATR
15
Competitive landscape of China telecom Market
Competition in long distance market
Revenue share in long distance market, by end of
2004

• Six Licensees in long distance market
• CT,CNC,CRC,CU,CMC,CSAT
• Three nationwide trunk networks
• CMC,CU, CRC,all together contribute about 30 of
  network capacity
• Two separated Trunk networks allocated in north
  and south
• CT,CNC, all together contribute about 70 of
  network capacity
• One operator CSAT has little capacity
• Long distance service is driven by various
  technology competition
• PSTN,CELLUAR and IP have similar market share .

SourceMII,calculations by yearly statistics, CATR
16
Competitive landscape of China telecom Market
Competition in long distance market

• Long distance market share by various technology
  2001-2003

SourceMII,calculations by yearly statistics, CATR
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Competitive landscape of China telecom Market
Competition in mobile communication market
Four carriers CMCC/CU/CT/CNC
Two licenses CMCC/CU
Five networks CUGSM/CDMA
Three standards GSM/CDMA/PHS
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Competitive landscape of China telecom Market
Competition in mobile communication market
Revenue share in mobile market, by end of 2004

• Nationwide SMPCMCC
• Subs,revenue,prohibit and etc
• Heterogeneous competition rises up
• GSMCDMA
• PHSGSMCDMA
• Weaker operator leads in mobile data services
• CU, cdma 2000 1x has been located
• Growth speed in subs and revenue has been
  dropping down
• PPS subs rise up to more than 20 and hinder
  revenue growth
• ARPU is still reducing by 10 per year

SourceMII,calculations by yearly statistics, CATR
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Competitive landscape of China telecom Market
Competition in mobile communication market

• CMCC Vs CU, MARKET POWER COMPARISON 2004
  END

SourceMII,calculations by yearly statistics, CATR
20
Competitive landscape of China telecom Market
Competition in datamultimedia communication
market
Subs share in internet market, by end of 2004
Revenue share in dataMM market, by end of 2004
SourceMII,calculations by yearly statistics, CATR
SourceMII,calculations by yearly statistics, CATR
21
ABSTRACT

• General aspects of China telecom sector
• Competitive landscape of China telecom market
• Chinas fixed line service marketsituation and
  forecast
• Chinas VAS market(incl BB market)
• From substitution to convergence, FMC
• Opening policy after WTOs entry

22
Chinas fixed line service market
Current situation

• Global market is stepping into steady growth
  phase
• China domestic market has not reached the
  saturation rate
• At relatively low penetrate rate(less than 26 by
  the end of 2004),China has seen clear
  substitution trend in voice service
• PHS services help fixed operators in keeping
  growth speed
• Chinas fixed line operators have been adjusting
  their market strategy to simultaneously advent
  voice service and broadband multimedia services
• Two great barriers must be eliminated in China
• Customers consumption habit and pricing strategy
• Market entry prohibition for telecom operators
  issued by State Administration for Broadcast,film
  and TV,especially in Net Tv.

23
Chinas fixed line service market
Steady growth in fixed line phone
New subs will reach from 35 million to 45 million
in the following five years,in which PHS users
may be over 30.
SourceMII,The Guidance for China telecom
industry 2005
24
Chinas fixed line service market
China Vs other 8 countries,penetrate rate in
fixed line service
In 2009,Chinas fixed line service penetrate rate
will reach 35.83,70 more than world average,
38.82 of world subs come from China.
SourceMII,The Guidance for China telecom
industry 2005
25
Chinas fixed line service market
Fixed line operators market performance

• Market demand is driven by subs growth
• Subs are transferring from coast cities to
  middle-west provinces and countryside
• Voice services contributes more than 95 of their
  revenue
• Cell phone and IP telephony are gradually taking
  place of PSTN voice
• The value of bandwidth is rapidly reducing
• Competition based on pricing is leading to less
  and less ARPU for every operator
• CT,70 RMB?, 10 less per year
• CNC,60 RMB?,8 less per year
• CRC,50 RMB?, 5 less per year
• CU,60 RMB?, 10 less per year

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Chinas fixed line service market
Fixed line operators market role

• Main bandwidth suppliers
• Carriers carrier
• Burden international services,including voice and
  data
• Search for new income generators
• Prepaid telephone cards
• Internet VAS services
• Broadband access and applications
• Enlarge business scope
• Obtain mobile license
• Enter broadband content services,such as IPTV

27
Chinas fixed line service market
As integrated information and communication
service provider?

• CT,in its master plan
• Becoming world first-class integrated information
  and communication service provider in 21st
  century.
• CNC, in its master plan
• Launch the plan of Broadband China
• Becoming world leader in broadband communication
  era

SourceMII,calculations by yearly statistics, CATR
28
ABSTRACT

• General aspects of China telecom sector
• Competitive landscape of China telecom market
• Chinas fixed line service marketsituation and
  forecast
• Chinas VAS market(incl BB market)
• From substitution to convergence, FMC
• Opening policy after WTOs entry

29
Chinas Value Added Service market
Ready to take off

• In 2004,VAS market value has reached 7.5 of
  basic telecom services,which amounts to less than
  5 billion US
• CAGR of VAS is keeping at 40-50 space
• Mobile network VAS Contributes almost 70 of
  total income
• Among them,SMS and MMS information services are
  the main application
• Internet based services overpasses fixed line
  network based VAS
• Telecom operators act as key role in VAS
  market,which has two side effects
• Shorten business development cycle
• Unfair distribution rules hinder creativity of
  small companies

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Chinas Value Added Service market
Non state-owned capital play a big role in VAS
market
By the end of 2004,there are over 13000 companies
in Chinas telecom VAS market,in which more than
80 is run by private capital,often cooperating
with foreign capital.
Call center
SP/CP
ISPs
SourceMII Statistic 2005
31
Chinas Value Added Service market
Telecom operators are taking measures to converge
content information
SourceCTs website
SourceCNCs website
32
Chinas Value Added Service market
Broadband communication market currently
dominated by telecom operators
Subs share in BB market, by end of 2004

• First stage is always adequate network resources
• Telecom operators make fully use of their
  advantage
• Close to potential users
• Easy and affordable price to access internet and
  other contents
• Mature billing and settlement scheme
• Various kinds of access technology
• ADSL,LAN,CABLE,PWC,WLAN,B-ISDN etc.
• Every country has its own popular service
• In china,Online game,Net meeting,Instant
  communication,VOD,Stream downloading,VOIP,Remote
  education are very popular

SourceMII,calculations by yearly statistics, CATR
33
Chinas Value Added Service market
ADSL is now biggest access means of BB market
By the end of Feb 2005, Chinas Broadband users
have reached over 27 millions,in which ADSL users
are the most,but its market share is gradually
decreasing.
SourceMII monthly Statistic,Feb 2005
34
Chinas Value Added Service market
CTbest practice in BB market
Development of CTs BB Subs, by end of Feb 2005

• No.1 player
• By Feb 2005,market share adds up to 57.27
• Access way
• ADSL????
• LAN???
• WLAN???
• Service brand
• ??????
• ????Vnet
• ????INet

SourceMII monthly Statistic,Feb 2005
35
Chinas Value Added Service market
Development of CNCs BB Subs, by end of Feb 2005
CNCbest practice in BB market

• No.2 player
• By Feb 2005,market share adds up to 34.3
• Access way
• ADSL
• FTTXLAN
• Service brand
• ????CHINA 169
• ??E????
• ????
• Everyday online

SourceMII monthly Statistic,Feb 2005
36
ABSTRACT

• General aspects of China telecom sector
• Competitive landscape of China telecom market
• Chinas fixed line service marketsituation and
  forecast
• Chinas VAS market(incl BB market)
• From substitution to convergence, FMC
• Opening policy after WTOs entry

37
From substitution to convergenceFMC
Service substitution is taking place in many areas

• The trend of voice service
• Mobile voice
• Video telephony
• Packet service
• VoIP
• Whats mobile voices strong points?
• Anytime/anywhere
• portability
• Similar quality
• Fast decreasing cost
• Where mobile network can not do for fixed line
  network
• High capacity
• Big bandwidth
• Long online services
• Radio frequency unavailable

38
From substitution to convergenceFMC
In China,mobile voice are increasingly taking
service away from fixed line telephone

• Reduce the growth speed of fixed line subs
• About 10 percentage
• PHS has more influence than GSM/CDMA
• Transfer fixed line traffic volume
• Especially short time conversation
• How much is decided by tariff comparison between
  two services
• Fixed line operators are short of competitive
  tools
• Cost gap
• Service difference
• Ask for mobile licenses
• Build PHS networks to avoid traffic transferring

39
From substitution to convergenceFMC
China is taking active actions to meet the
challenge of FMC or widely speaking,network
convergence

• China is planning to introduce new networks
• 3G/WIMAX
• IP V6/NGN/NGI
• Telecom operators will no longer be confined to
  special services
• Integrated service license
• Lessening conditions of market entry
• Advent network sharing in different areas
• Public network and dedicated network
• Telecom network and internet/intranet
• Fixed line network,mobile network and satellite
  network
• Encourage all venders to develop FMC equipments
  and put into practice
• Supply customers with integrated
  services,whatever the access way is

40
ABSTRACT

• General aspects of China telecom sector
• Competitive landscape of China telecom market
• Chinas fixed line service marketsituation and
  forecast
• Chinas VAS market(incl BB market)
• From substitution to convergence, FMC
• Opening policy after WTOs entry

41
Opening policy after WTOs entry

• Current status of foreign firms in China telecom
  market
• Up to date, only two nationwide JVs has been
  approved in VAS market
• More foreign firms are waiting for better chance,
  especially in internet and mobile networks
• Some foreign firms have entered China market in
  illegal ways
• Most of them apply two kinds of investment
• indirect waycontract cooperation, or
  shareholder
• Direct waylaunch of JV

42
Opening policy after WTOs entry

• Why not actively come in?
• The limit in business scope, regions and share
  ratio
• The market space of opened services is not big
  enough
• Difficulty in finding proper partners
• Seek for more control over ownership
• Complex procedure for JVs application
• Worry about unclear regulation environment in
  China telecom industry

43
Opening policy after WTOs entry

• Coming opportunities in China market
• VAS market
• Subs and revenue are fast growing
• Alternative way in MA or establishing new JV
• Mobile market
• Everlasting increasing market in the world
• Various kinds of network standards in 2G and 3G
• Little possibility in building up nationwide
  infrastructure
• Availability of regional license or MVNO

44
Opening policy after WTOs entry

• Considering to perfect opening up policies
• Introduce and modify laws and regulations in
  market entry
• Simplify approval procedures
• Establish positive investment environment in
  telecom sector
• Advent SOEs to cooperate with multinational
  companies to enhance competitive strength of
  telecom operators
• Evaluate feasibility of more flexible policies
  such as MVNO, regional license to encourage
  foreign firms to actively participate in China
  telecom market

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More Information
Http//www.cttl.com.cn
E-mailchenjinqiao_at_vip.sina.com