The time is ripe for China to focus on unified broadband

By Tony Brown

The completion of China Mobile’s long-running merger deal with fixed-line player China Tietong in December was the last piece of the jigsaw in the Chinese government’s restructuring of the country’s telecoms market. Now the government needs to figure out an orderly path for China Mobile to fully enter the broadband market.

It was hardly a secret from the outset that China Mobile’s management was less than enamored of the prospect of taking over the loss-making China Tietong, which is comprised of the telecoms assets of China Railways and was formerly known as China Railcom.

China Mobile’s management had made it clear that it would prefer to enter the fixed-line-broadband market from scratch and on its own terms rather than be handed the messy affairs of China Tietong and its 70,000 employees.

Still, given that the government has not even given China Mobile official permission to enter the fixed-line-broadband market, the operator has had little choice but to play nice and try to work out how to integrate China Tietong into its business.

China Mobile ‘going rogue’

At the same time, though, China Mobile has been taking the first steps toward building its own FTTH-based networks across the country via its regional subsidiaries, having already deployed trial networks in 20 provinces. The firm has rolled out about 100,000 FTTH connections.

As is often the case in China, the operator is moving ahead despite the absence of official government approval to enter the fixed-line-broadband market but is covering its tracks by saying that the networks are for trial purposes only.

But the reality is that everyone in the market knows that China Mobile’s nascent FTTH-network rollouts are certainly no trial and that the operator is deadly serious about becoming a genuine full-service operator and is in no mood to wait for the government to grant it official approval.

The government has no serious objections to China Mobile’s entry to the fixed-line broadband market. In fact, the Ministry of Industry and Information Technology and other influential policy bodies, such as the State Development and Reform Commission, are eager to see the operator become a full-service player. The problem for the MIIT is more of a political one, in that China Mobile’s entry into the fixed-line-broadband market is fiercely opposed by current broadband duopoly China Telecom and China Unicom – which are both fearful that the cashed-up firm will dominate the market in the same way it dominates the mobile market.

As a result, the MIIT does not want to antagonize either of the operators by being seen to officially sanction China Mobile’s fixed-line-broadband foray, leaving China Mobile’s FTTH networks with “trial” status until the MIIT feels the time is right to make its entry into the fixed-line market official.

Wait and see

It is likely, however, that the MIIT will wait and see how China Telecom and China Unicom fare in the nascent 3G market against China Mobile – itself burdened with the unwelcome task of deploying homegrown 3G technology TD-SCDMA rather than its preferred WCDMA/HSPA – before officially allowing China Mobile into the fixed-line broadband market.

If China Telecom’s 1xEV-DO services and China Unicom’s WCDMA/HSPA services fare well, the MIIT will feel more confident about allowing China Mobile into the fixed-line sector because it will be able to argue that the market is competitively balanced.

But simply giving China Mobile official approval to enter the fixed-line broadband market will not solve all of China’s broadband problems overnight.

With China Mobile already actively rolling out FTTH, China has three operators deploying FTTH networks across the country, with no plan in place to avoid overbuilding or network duplication among the operators.
The network rollouts of China Telecom and China Unicom are separated by operating zones: The former operates in 21 southern provinces, and the latter operates in 10 northern provinces. But China Mobile is governed by no such operating restrictions, and with successful subsidiaries across the country, the cashed-up operator is simply cherry-picking the best spots to deploy its trial FTTH networks.

A plan is needed

No matter how uncomfortable China Mobile’s entry to the fixed-line broadband market is for the MIIT or its rivals, it is happening regardless of what anyone says or thinks about the idea.

Therefore, unless the MIIT wants to have a bunch of expensive and unnecessary network construction in key areas of the country, the government and industry players need to sit down and come up with a plan to roll out FTTH services in an orderly and efficient manner.

Of course, China Telecom and China Unicom are unlikely to be receptive to this idea and will almost certainly maintain their strong opposition to the prospect of ever giving China Mobile an official OK to enter the fixed-line-broadband market.

Both operators need to face the realities of the situation and not only accept that the broadband market is about to get a third serious player – though it will take at least five years for China Mobile to acquire a fixed-line-broadband network of a significant size – but that they need to work with China Mobile to ensure an orderly rollout of FTTH networks.

There is no sense in having the operators build competing FTTH networks across the country, which will lead to waste and inefficiencies that will result only in financial losses for the operators and higher broadband prices for subscribers.

Unless the operators are willing to sit down with the MIIT and work out some kind of network-sharing deal – which seems unlikely at this stage – they will have to find a way to divide the country into coverage areas to prevent redundancy in their networks.

Ensuring rollouts of high-speed FTTH networks in inland provinces away from the overcrowded eastern seaboard is a major policy goal of the government, part of its effort to attract industrial investment to the provinces and stop the dangerous migration to Beijing, Shanghai and Guanzhou.

As a result, it is in everyone’s interests that the MIIT and the three broadband operators get together to work out a plan for FTTH deployment, to prevent a costly competitive clash that could set back the country’s FTTH rollout to a significant degree.