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SCMP Reporter

China Telecom, Unicom unlikely to topple industry leader in next 7 years
The mainland's mobile-telephone services market is entering a new phase of full competition, with China Telecom introducing  its  Surfing brand and China Unicom preparing to launch a 3G trial in seven cities.
Although the two operators are pouring billions of yuan into building new infrastructure and subsidising handset sales, their combined market share will still remain small compared with that of market leader China Mobile.
Credit Suisse said China Mobile could remain the dominant player for the next seven years as China Telecom and Unicom complete their restructuring and directly challenge the market leader. China Mobile's market share based on service revenue could fall  to 79.5 per cent in 2012 from a forecast 83.5 per cent next year.
While Unicom and China Telecom could  take  14 per cent and 6.5 per cent respectively of the market  by 2012,  that would still not be a significant threat to China Mobile.
China Telecom, which acquired Unicom's CDMA mobile business for 110 billion yuan (HK$125 billion) earlier this year, last week unveiled its subsidiary responsible for mobile device development. The high cost of CDMA mobile devices has long deterred users from signing up for the service.
More than 50 handset makers have taken part  in sourcing activities for China Telecom's CDMA operations. They include foreign brands Samsung, LG, Motorola and Nokia and  domestic brands such as ZTE Corp and Huawei Technologies. The company targets to reach 100 million mobile subscribers in three years.
China Telecom's Surfing is a new brand for the CDMA mobile service, which will be differentiated from Unicom's previous New Horizon brand. Surfing will have its own brand handsets  for China Telecom's value-added services such as yellow pages and mobile internet service.
China Telecom   has 28 million  CDMA mobile users. It  will need to add 24 million  every year to  reach the 100 million user target. However, Credit Suisse estimated China Telecom could add only 17.8 million subscribers  a year.
'[To achieve the 100 million subscriber target] would require substantial marketing and handset subsidies of, say, 700 yuan per subscriber,' Credit Suisse analyst Jeffery Tan wrote in a research report last week.
China International Capital Corp analyst Chen Haofei estimates that China Telecom may pay a subsidy of about 600 yuan  for each new CDMA customer and urge users to pre-pay a lump-sum  fee. 'Such prepayment and subsidies arrangement could place competitive pressure on Unicom,' Mr Chen wrote.
China Telecom's CDMA technology can smoothly upgrade from the existing CDMA 2000 network to CDMA EV-DO,  which is a 3G standard, and provide faster transmission speeds of up to 2 megabits per second. The company  says it could launch 3G services within a month after the government issues a licence.
Unicom, the smaller GSM mobile operator,  is reportedly preparing to  launch 3G commercial trials in  Shenzhen, Wuxi, Shanghai, Baoding, Zhengzhou, Foshan and Liuzhou. Unicom will provide 3G services based on the European  WCDMA technology. Each city will install 100 base stations.
Analysts believe  Unicom will focus on the development of the 3G service, as it has  the most mature technology, rather than growing its 2G business. One of the catalysts will be the use  of so-called asymmetrical regulations such as preferential interconnection charges  from China Mobile.
An interconnection charge is a charge between telecommunications operators for phone calls.
'A discount of 2 fen to 3 fen per minute on interconnection charges will save Unicom 800 million yuan to 1 billion yuan a year,' said  CLSA telecommunications analyst Francis Cheung. However, such revenue only accounts  for less than 1 per cent of Unicom's revenue.
The company's profit may fall if it decides to subsidise 3G handsets.
With the two smaller operators  struggling to build new mobile networks and  turn around their businesses, China Mobile  is likely to remain the winner in the next couple of years given its strong subscriber base and  solid government support for its 3G business that uses  homegrown technology.
'Having a strong balance sheet with net cash of 178 billion yuan should serve it well in times of rising competition and difficulties in the credit market,'  Mr Tan wrote, adding that the market has already factored in the potential impact of  market competition,  which could bring down profit margins and  slow revenue growth.
Tall order
Number of CDMA users China Telecom has to add each year to reach its target: 24m



Mobile firms step up market fight