What is China’s outlook for an LTE 2012?

By Beijing correspondent Dr. Lin Sun

In a recent interview, Yang Hua, Secretary General of TD-SCDMA Alliance, called for a “pre-commercial” LTE service in 2012, right after second phase testing, referring to the term used in China for service to a small number of customers before it opens to the public.

Unfortunately, it appears his wishes, along with the members of the group that wait to benefit from TD-LTE, may remain empty-handed.

Industry analysts say it could take 3-5 years for LTE to roll out commercial service in China, not so much for tech reasons, but to work out how to strike a balance between current 3G service and LTE. In recent months, 3G service has shown signs of acceleration at China Unicom (CUC) and China Telecom (CTC) while TD-SCDMA is taking the opposite direction.

Clearly, China Mobile has every reason to jump the gun to preempt competition, but the government does not want LTE to disrupt the course of WCDMA and EV-DO, especially when the latter do not have immediate plans to migrate to LTE.

For now, CUC and CTC only say they are following LTE development closely, but want to focus on 3G after hefty investment.

TD-SCDMA is a different story. It began with inherent “defects”, but a strong push by the government in the name of national pride and a rising star in a new generation of technology. Now we know it did not exactly work out as dreamed, despite the hundreds of billions sunk into the project.

China Mobile Communications Corporation (CMCC) was reluctant to take on TD-SCDMA in the first place, but as a government-owned company, bit the bullet and threw out business conscience. When customers voted with their wallet, the result came with no surprise.

What is the cost for CMCC? Loss in 3G customers, or more precisely, high-end customers and profit since most profit is generated by the high-end segment. So far, CMCC has done little to reverse its fate; realistically, there is little it can do. In addition to a bad technology, it also suffers lack of handset supply, while inadequate speed also hurts smartphone purchase and use of mobile apps. What’s more embarrassing, TD-SCDMA gives CMCC a bad image as a 2G service under a fancy name.

But TD-LTE should fare better. For one, China Mobile has aligned itself to a true international standard. Softbank of Japan and Bharti Airtel of India have rolled out TD-LTE service, and at least 30 other operators are reportedly undergoing trials. In China, TD-LTE has received broad support from equipment makers and operators around the world, in the hope LTE will bring tremendous gains given China’s market size and CMCC’s clout.

And, talking about saving face, TD-SCDMA is not a total loss because its core network can be used for TD-LTE since the two employ the same TDD transmission scheme.

So far for TD-LTE, it made steady progress in 2011. CMCC conducted extensive testing in six cities and preliminary reports show there were no major technical barriers. The second phase testing will start in January, mainly for different makes of terminals in various network environments.

According to CMCC’s schedule, second phase will last through June if everything goes well. CMCC does not say what will follow after that, but some analysts doubt a commercial trial will begin because it will take time to evaluate the results and possibly some re-testing; while preparation for equipment bids and negotiations can take even longer. Most of all, the decision for commercial service will be made by the government, not CMCC which is more complicated than just a service.

Proceed with Caution

Despite encouraging result from first testing, there are still “many and complex problems in networks, chipset, testing equipment and multi-mode terminals” says the Secretary General. Down the road, TD-LTE is facing three big challenges: spectrum allocation, interworking of terminals and business models, warns a senior expert.

CMCC admits it does not have a ready solution, the only way is to test, test and test until all wrinkles are ironed out. After struggling for TD-SCDMA, it cannot afford another flop, losing public confidence and market share to rivals.

In a way, LTE has put CMCC in a somewhat ambiguous rather than an envious position. Despite its denial, CMCC has already lost the 3G battle with an inferior technology. Latest data shows China Unicom surpassed CMCC for the first time in monthly customer growth with 3.4m for WCDMA versus 2.7m for TD-SCDMA in November. It is only a matter of time before China Unicom and possibly China Telecom too overtake China Mobile in 3G.

For CMCC, taking on LTE is a turning point; in its mind, TD-SCDMA is already a thing of the past; in fact, CMCC has taken out the word TD-SCDMA in advertising but used more general terms like quality and price.

All this is pushing CMCC to LTE as a game changer and leverage. To be fair, CMCC is the most qualified operator to undertake LTE in China given its market share, experience and finance, but nothing is permanent in the telecom industry. After 20 years of becoming the world’s largest operator in terms of customers and network capacity, CMCC is facing the most serious challenge in its history.

The dilemma is that no one, including CMCC, knows if LTE will help the company make a new leap or drag it deeper into a hole. For LTE, the issue is not technology or industry support, but demand for high speed and ability or willingness to pay for the service.

When analysts study LTE market in China, they often forget a fundamental factor that China is essentially a poorer country than many others so that the measure of success lays not so much in the merit of technology but whether it is affordable by the majority of the society.

Often, techynology and services that are popular elsewhere fail badly in China, it is not because the Chinese have problems adopting the technology or service; they do want it but they cannot afford it.

The sluggish start of 3G was blamed for the high cost and the recent acceleration comes after service fees were repeatedly cut and low-cost smartphones flooded the market. Unfortunately the economic aspect of market is beyond CMCC’s control which adds to LTE’s uncertainty not seen in other countries.

Beijing Correspondent Dr Lin Sun

Lin Sun, Ph.D., has 25 years of experience in China´s telecommunications industry. His career spans switching and transmission technology, wireless, broadband and broadcasting. He was a senior executive for China at various companies and is now a consultant on investment, technology and competition in China.

Dr. Sun has published and spoken extensively on the telecom issues. He received a Ph.D. in telecommunications from the United States. Contact him here.

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