Special Report By Dr. Lin Sun, Beijing Correspondent
At the ITU Telecom World show in late October, China Mobile showcased a multi-band smartphone manufactured by ZTE. The handset runs Android on an MTK chipset and is built to support TD-SCDMA and GSM for voice, with TD-LTE for high-speed data services.
China Mobile has remained tight-lipped about the commercial launch date for TD-LTE and the price points for LTE devices, but a realistic estimate places full rollout at least ten months away. Networks require extensive testing, and device manufacturers need time to ramp up volume production of LTE handsets and data cards.
Although China Mobile remains the world’s largest wireless operator by subscribers, the company faces mounting challenges. TD-SCDMA, the domestic 3G standard, has drawn considerable public dissatisfaction because of slower speeds and spotty coverage. While China Mobile continues to report solid customer growth, the gap with rivals China Unicom and China Telecom has narrowed, and WCDMA or EV-DO could surpass TD-SCDMA within a year.
Compounding the problem, many TD-SCDMA subscribers do not experience true 3G performance. A significant share effectively uses their phones only for voice and text, often defaulting to GSM indoors because of weak TD-SCDMA signals. China Mobile reported 43.2 million TD-SCDMA subscribers as of September, and industry estimates suggest 60–70% of those subscriptions may not be delivering genuine 3G service.
In response to the shortcomings of TD-SCDMA and the competitive threat to its market position, China Mobile began pursuing LTE in 2010 based on the TDD transmission scheme. Choosing TD-LTE rather than FDD-LTE enables a smoother migration path from TD-SCDMA because both use similar time-slot structures for uplink and downlink within a single channel.
In late 2010 China Mobile invited major equipment vendors to build LTE pilot networks across six cities. By the following summer construction was complete and extensive testing commenced, covering network performance, chipsets, indoor coverage, terminals, and core and transport networks. Reports from these trials indicate generally positive results with few critical issues.
A second phase of testing is expected to begin soon and will run for several months, according to a senior researcher at the Ministry of Industry and Information Technology (MIIT). This phase will emphasize R9 specifications and multi-band terminal compatibility, using cross-check test setups that pair different equipment vendors and device manufacturers to validate interoperability.
China Mobile’s goal is clear: ensure a seamless LTE experience for users when roaming, facing weak signals, or moving between networks.
Broad Industry Support
Although TD-LTE has less global traction than FDD-LTE, it represents a significant improvement over TD-SCDMA and could help China Mobile revive growth after a slowdown in recent years. TD-LTE has attracted strong backing from major vendors such as Ericsson, Nokia Siemens Networks, Motorola, Samsung and Nokia, along with Chinese suppliers including Huawei, ZTE, Datang Mobile and Shanghai Bell (part of Alcatel-Lucent). Up to 17 chipset vendors have entered the field—Qualcomm, Marvell, Spreadtrum, Leadcore, Sequans, Innofidei and ST-Ericsson among them—placing bets on LTE’s expansion.
Unlike TD-SCDMA, TD-LTE already has backing from multiple countries. Dozens of operators worldwide are evaluating or deploying TD-LTE, and China Mobile estimated that LTE base station counts would reach roughly 6,500 by the end of 2011 and 30,000 by 2012.
Apple may also be a catalyst. While Apple declined to develop an iPhone for TD-SCDMA, it has shown interest in a TD-LTE-capable iPhone. China Mobile chairman Wang Jianzhou said the two parties reached a “strategic understanding” on an LTE iPhone, and this stance reportedly remained unchanged following the passing of Steve Jobs. If Apple delivers a TD-LTE iPhone, it could accelerate adoption among high-end customers and strengthen TD-LTE’s position.
Though commercial TD-LTE service remains months away, the momentum behind the technology has helped China Mobile move beyond the difficulties of TD-SCDMA. A senior executive projected China Mobile would deploy some 40 TD-LTE trial networks in 2012, with approximately ten transitioning to commercial service. Estimated investment for LTE rollout is in the range of RMB10–15 billion ($1.6–2.4 billion), including about RMB1.5 billion ($240 million) already spent on the initial six-city pilots.
A Solo Strategic Move
To date China Mobile is the primary proponent of TD-LTE in China; China Unicom and China Telecom have shown limited interest. For both operators, continuing to develop their current 3G platforms makes strategic sense: China Unicom has rolled out HSPA+ in roughly 60 cities, offering speeds up to 20 Mbps that overlap with early LTE performance, while China Telecom maintains that LTE is not yet commercially ready to replace its 3G services.
China Telecom’s chairman Wang Xiaochu has said widespread 4G adoption is unlikely before 2014 and highlighted handset availability and other unresolved issues as barriers. For China Unicom and China Telecom, questions about market demand and the cost sensitivity of Chinese consumers also temper enthusiasm for a rapid LTE transition.
Mobile data still represents a minority of total traffic and revenue: today it accounts for less than 30% of volume and only about 10% of service revenue. Moreover, a large share of data consumption is driven by a small fraction of subscribers—roughly 10–15%—while the majority contribute little to data revenues.
Outlook
As a government-controlled enterprise, China Mobile’s LTE ambitions have received strong institutional support. The MIIT has signaled that 3G and 4G should serve as twin engines of telecom development through 2011–2015, with total sector investment expected to exceed RMB1 trillion ($160 billion). About half of this sum could be allocated to LTE, with roughly 60% of LTE spending for equipment, 30% for construction, and 10% for testing and ancillary products.
If executed on schedule, this plan would benefit many players across the LTE supply chain—from chipset vendors and equipment manufacturers to terminal makers, test-instrument suppliers, OSS providers and mobile application developers.
Nonetheless, LTE brings both opportunities and risks. China Mobile chairman Wang Jianzhou expects TD-LTE to help raise ARPU if the service attracts new, especially high-end, customers. Yet that outcome is not guaranteed: consumers satisfied with current 3G performance and pricing have little motivation to migrate. For most Chinese users, 20 Mbps is a premium capability rather than a necessity, and pricing strategy will be critical. If China Mobile prices LTE too high, adoption will lag; if priced too low, the operator risks revenue shortfalls.
Spectrum allocation will also influence LTE’s timeline. Regulators have yet to decide whether to assign 2.3 GHz spectrum—preferred in many countries—for commercial LTE. Current tests use 2.6 GHz with 50 MHz bandwidth, while China Mobile hopes to secure 2.3 GHz for commercial deployments, which would simplify device design for vendors. Because 2.3 GHz is already in use for other services, the government will need to manage reallocation or sharing carefully. Proposals for mixed 2.3/2.6 GHz use for outdoor and indoor transmission exist, but dual-band solutions complicate equipment design and risk interference and compatibility challenges.
China Mobile also faces challenges managing TD-SCDMA alongside LTE. The operator has stated it will not abandon TD-SCDMA, but positioning that standard between low-cost GSM and high-speed LTE is difficult. Today most TD-SCDMA subscribers are lower-end users who primarily use voice and SMS with occasional data—customers unlikely to leap to LTE and more likely to revert to GSM when TD-SCDMA coverage or performance disappoints.
TD-SCDMA remains a financial burden. Since 2008 China Mobile has invested roughly RMB140 billion ($22 billion) in TD-SCDMA, and the service has recorded substantial losses—about RMB14 billion ($2.1 billion) in 2009 and RMB30 billion ($4.8 billion) in 2010, with further losses possible. Low utilization—only around 20% of network capacity in use—and heavy handset subsidies contribute to these deficits. Yet China Mobile continues funding TD-SCDMA upgrades and expansion to avoid leaving costly assets underutilized; a recent fifth tender sought over 50,000 BTS sites valued at RMB20 billion ($3.2 billion).
Some investments in TD-SCDMA help LTE indirectly because the two technologies can share core network elements. Whether LTE will ultimately alleviate TD-SCDMA’s problems or struggle alongside it remains uncertain.
Despite these uncertainties, China Mobile appears committed to moving quickly into LTE. A delay could risk ceding vendor and device momentum to FDD-LTE ecosystems overseas. Conversely, if China Mobile plays its strengths—its massive subscriber base and market influence—it could gain substantial benefits from TD-LTE. As Chairman Wang has noted, China’s large population is a “dividend” that can support sustained growth; the challenge is converting that demographic advantage into profitable LTE adoption without eroding the operator’s long-standing market edge.
Beijing Correspondent Dr. Lin Sun
Lin Sun, Ph.D., has 25 years of experience in China’s telecommunications industry, covering switching and transmission, wireless, broadband and broadcasting. He has held senior executive roles in China and now advises on investment, technology and competition in the Chinese telecom market.
Dr. Sun has published and spoken widely on telecom issues. He earned a Ph.D. in telecommunications in the United States.