Abstract

During the bidding for 3.5GHz bands starting in 2001 the Chinese government abandoned previous government approval systems and let the market allocate resources, resulting in over ten telecom service providers and new telecom companies being awarded frequencies and operational licenses. But after encountering technological, financial, and operational problems the newer companies were unable to live up to their own expectations and some companies began to abandon the project. Of the new telecom companies, only CECT-ChinaComm is still actively involved, and even the five large traditional telecom companies have only developed small-scale operations.  

China's 3.5GHz band is relatively small so transmission speeds are low, only 10Mbps. Signal attenuation is also high and effective coverage area is low, all of which have interfered with expansion of service. From a cost standpoint, 3.5GHz equipment uses multiple transmission signals and therefore has problems in terms of interoperability; this leads to high costs which were a burden on smaller companies during initial network construction.

The three-year period during which the MII issued 3.5GHz band licenses was also the period in which fixed line broadband access began large scale expansion. China Telecom and China Netcom choose ADSL via telephone line as their primary access method. Because of strong consumer demand and falling prices, this method quickly became the most popular, and put tremendous pressure on 3.5GHz wireless broadband access services.

The large existing telecoms have not used 3.5GHz wireless access as their primary operations or main source of income, but only as a supplemental service. China Mobile and China Unicom, for example, use 3.5GHz for basestation communication and data access. This is because large telecom companies have steady income sources. China Mobile and China Unicom have mobile communication subscriber bases, and mobile voice and value-added services provide them large revenues. Their dominance will not be broken any time soon, so they do not need to rely on 3.5GHz to seek new growth. China Telecom and China Netcom dominate China's fixed line market, and fixed line telephone services are an important source of income for them. These companies would like to move into mobile services, but 3.5GHz obviously cannot meet their needs and their existing fixed line networks are already capable of providing broadband access. Therefore they are not very eager to develop 3.5GHz services. Because these telecoms see 3.5GHz service as nothing more than a supplemental service, they do not feel the need to construct independent operational support systems.

Newer telecom companies like CECT-ChinaComm were awarded licenses, but they were relying on 3.5GHz wireless access as their only source of income, and these frequency resources are not enough to make them competitive with the larger telecom companies. For one thing these companies lack regional networks and backbone networks, and have not developed the necessary operational support networks. They also lack telecom abilities and experience, and have not formed effective business models or industry chains. In addition, they are only providing broadband access; the income from access services alone cannot support a business, and the resulting inability to grow is preventing them from lowering costs.

3.5GHz services have not developed as expected in China. Now as China's 3G networks are nearing commercial feasibility, and large telecom companies are facing restructuring, 3.5GHz operations are even more stagnant. Meanwhile, WiMAX technology and the WiMAX industry are gradually maturing and drawing considerable interest. WiMAX has not been assigned a frequency band yet, so there is a chance that it will become the new 3.5GHz technology, and help solve existing 3.5GHz technology problems. For 3.5GHz frequency band companies, this could bring new opportunities.

Appendix

Research Scope

This report analyzes the 3.5GHz wireless services market in China, including spectrum policies and bidding, telecoms' service development, and equipment suppliers.

 Glossary of Terms

List of Companies