China Telecom becomes world’s largest CDMA carrier

(Apr 13 2011) 3G , 4G , LTE

1. by Caroline Gabriel, Research Director, Rethink Technology Research

   China Telecom has overtaken Verizon Wireless to become the world’s largest CDMA operator. Its mobile subscriber base has now topped 100m, according to China Daily, while Verizon’s was 94.13, as of the end of 2010.

   Verizon has held the top spot in CDMA almost throughout the technology’s history, but is now itself shifting towards the new LTE platform. The same is true of other CDMA majors like KDDI of Japan and Bell Canada, and by mid-decade most expansion of CDMA networks is expected to be in emerging markets, as well as in China.

   China Telecom will have its own LTE roll-out by then, but it will be in the early phases and the operator has said it plans to enhance its 3G platform for many years to come, providing a valuable potential client for the vendors seeking to prolong the life of their CDMA sales –Alcatel-Lucent and ZTE above all. Its top spot in this equipment segment will give it considerable influence over the development and pricing of networks, an advantage Verizon has leveraged enthusiastically over the years.

   Telecom is one of the cellcos which have stated the intention of deploying CDMA EV-DO Rev B, which is carving out a role in supporting heavy duty data services in emerging markets, in the face of previous speculation that it would not hit commercial reality because of the accelerated rise of LTE. The CDMA Development Group (CDG) argues that there is still plenty of growth left in the technology, especially in emerging economies – where spectrum will not be available for LTE for years but there is a requirement for affordable data – and in bands geared to rural access, notably 450MHz, where CDMA is the only major technology.

   Four operators have launched commercial services using EV-DO Rev B – KDDI in Japan, in its 2.1GHz band; Smart Telecom of Indonesia and Pakistan Telecom in 1.9GHz; and 450MHz player ice.net/Net1, in both Sweden and Denmark. A further 10 carriers have made commitments to deploy Rev B, only one in a band above 1GHz (LG U+ in Korea, in 1.7GHz. China Telecom and Wana of Morocco will use the technology in 800MHz, and the other seven will all roll out in 450MHz. They are Cosmote and Romtelecom in Romania, G-Mobile Mongolia, MTS Ukraine, PTK Centertel in Poland, SkyLink in Russia and Zapp in Portugal.

   Its commitment to Rev B will only strengthen China Telecom’s powerful position in directing the CDMA agenda, which it assumed once Verizon Wireless turned to LTE in preference to the planned 4G upgrade for CDMA carriers, UMB – effectively signing the death warrant for that platform. Telecom then took the crown as most influential CDMA carrier when its 3G roll-out produced a big boost for the technology in 2008-10.

   Some vendors created products specifically for the cellco. In 2009, Qualcomm SVP Cristiano Amon said: “We think 3G in China could boost the CDMA2000 ecosystem ... We are moving forward with all of our R&D for China, specifically CDMA2000. We are introducing a new suite of products.” For instance, Qualcomm introduced multiband 450MHz/700MHz chips for the entry level CDMA series, which was previously available only in a single-band 800MHz implementation, on request from China Telecom.

   Among the key elements of the CDG roadmap are CDMA2000 1X enhancements that increase voice capacity fourfold (to free up more EV-DO data channels); multicarrier EV-DO software upgrades to increase network capacity on existing Rev A networks; additional EV-DO enhancements using software and MIMO antennas, to boost data rates to 32Mbps download and 12.4Mbps upload in a 5MHz channel, plus adding VoIP support.  
   
   In EV-DO Rev B, three carriers are supported instead of one in each channel, and the number of users per carrier is doubled to 30. This is a software upgrade but a further 20% spectral efficiency gain can be achieved with a hardware update to support MIMO smart antennas. Rev B networks are also smarter, with techniques such as better load balancing, the assignment of cell edge users to carriers with less interference, and dynamic allocation of carriers based on load/demand. Such techniques can double real world data rates, especially for users at the cell edge, while advancements at the device end can also boost performance by 50% or more, through antenna and diversity techniques.

   Although the smallest of China’s three national cellcos, Telecom has a higher percentage of 3G users than its rivals, and these have now reached 15m, as of the end of February. However, despite that, it has lower ARPU than that of market leader China Mobile, which reported 2010 ARPU of CNY73 ($11) compared to China Unicom’s CNY43.7 and Telecom’s CNY54.2.

   Its W-CDMA rival China Unicom is also enhancing its network rapidly, rolling out 21Mbps HSPA+ in 56 cities less than two years after building first wave 3G. The carrier is also accelerating its fiber optic investment program to provide backhaul as well as fixed access. High infrastructure costs, as well as handset subsidies, are weighing on Unicom’s profits though. For its 2010 fiscal year, it suffered a 60% year-on-year drop in net profit to CNY3.85bn ($587m), hit by handset subsidies and 3G infrastructure costs. Operating revenue rose 11% to CNY171.30bn. However, mobile services were the star of the show, helping to justify the 3G spend. Their revenues were up 18% to CNY82.36bn, overtaking fixed line services for the first time, as the latter declined slightly.

   In 2010 Unicom added 11.32m 3G users, bringing its 3G total to 14.06m, with 3G ARPU of CNY124 ($19), over three times the figure for 2G. Yet the slow pace of 3G uptake was seen in the fact that 3G revenues are still only 14% of the total, at CNY11.6bn, compared to CNY70.77bn for GSM.

   This was the second year running when Unicom’s profits were halved, as the company has spent heavily on subsidies to attract more users to its 3G networks. It spent CNY3.17bn ($484m) on 3G subsidies, and in the second half of 2010, 80% of this bill went on the iPhone 4, reflecting increased sales of the device – which is only sold by Unicom – but also the hefty burden it brings with it.

   CFO Tong Jilu said the company will spend about 30% of its total 3G service revenue this year on handset subsidies to accelerate growth, and set a capex budget for 2011 of CNY73.8bn, up slightly on 2010’s CNY70.19bn. Of this, 31% will be allocated to 3G expansion and 5% to 2G.

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