In the Absence of Reintegration and 3G, It's Estimated That the Network Carriers' CAPEX Will Reach 210 Billion RMB in 2005

US : Research and Markets has announced the addition of Telecom Infrastructure--Annual Report on CAPEX Investments by Operators 2004-2005 to their offering

Our Findings

General Introduction to the Market of the Chinese Cellular Infrastructure

- 2004 saw a reduction in telecommunication investments. The investments that were made were more prudent, rational, and on a smaller scale than previous years. The actual investment was 213.7 billion US dollars, which was down 3.5% compared with the same period of the previous year. While China Mobile, China telecom and China Tietong invested more than they planned, China Netcom and China Unicom invested less than expected.

- The following outlines the general structure for the equipment expenditures of 2004. 24.4 billion RMB was invested in fixed networks including switching, access, broadband, and PAS. 25.5 billion RMB was invested in mobile networks including CDMA and GSM (16 billion in GSM and 9.5 billion in CDMA). 7.7 billion RMB was invested in optical networks. 4.3 billion RMB was invested in new businesses, including intelligent networks. 10.4 billion RMB was invested in operation support systems. And, 5.1 billion RMB was invested in IP networks.

- The main uncertainties that influence the CAPEX of network carriers in 2005 are the reintegration of previously separated carriers and the issues of obtaining 3G licenses. The 2G mobile infrastructure will maintain their usage until new 3G licenses are issued. So, the market for 2G equipment will wither after the 3G license are dispersed.

- In the absence of reintegration and 3G, it's estimated that the network carriers' CAPEX will reach 210 billion RMB in 2005. This is almost equal to that of 2004. And since the 3G licenses will not be issued until the second half of 2005, neither the exact date nor the number of licenses will significantly impact it.

- Before the issuing of 3G licenses, cellular network carriers will mainly invest in rebuilding and upgrading their existing network. They will put the remainder of the investment capital into customer service management, promoting quality and securing customer loyalty. As they prepare for the 3G explosion, fixed network carriers will still strategically focus on broadband and reduce PHS investments.

- In the cellular infrastructure market, the percentage of sales from domestic manufacturers has reached 7%. In the 2G expansion, there were very few changes in the general structure of market for network equipment. With the diversity of investments from network carriers, the competitiveness of domestic manufacturers became much stronger due to the price advantage.

Characteristics of the Major Market Segments

- The switching and routing devices of China Mobile's GSM network are working at a rate of 84%, which is a relatively high figure. They are attempting to get the most of their network as they attempt to meet the demands of network expansions for new customers and prepare to transfer the emphasis of network construction to 3G after licenses are issued.

- The market of VAS data equipment, such as GPRS, is developing quickly. It will continue to increase in 2005.

- The switching and routing devices of China Unicom's GSM network are working at a rate of 98%. Lack of investments has affected the quality of the network. This has caused a large loss of customer loyalty, which accumulated to 51% in 2004. China Unicom has adjusted its strategy for 2005. It is anticipated that investment in 2005 will be much greater than in 2004.

- After three expansion phases, the switching volume of China Unicom CDMA network has reached 50 million, and the switching and routing devices are only working at a rate of 54%. This is very low; China Unicom's investments should be more rational in 2005.

- In 2004, the broadband market, based on ADSL, continued growing. This trend will be kept in 2005 as the newer technologies are deployed. ADSL2+ will be widely used for new installations as the old users slowly upgrade to the new faster speeds. Although the network carriers will still focus on users of Internet access services, the attention will change to IPTV, causing a fervent investment period as they upgrade maintenance and support systems. They will also install systems and platforms for charging and payment functions. Meanwhile, VDSL, EPON and other broadband access technologies will be introduced into the market. The total investment in broadband for 2005 is expected to reach 5.54 billion RMB.

- As for the PAS business, China Telecom and China Netcom have refocused their efforts to enhancing marketing, augmenting their user base, promoting new network installations, and covering their PHS investments. These investments will continue increasing. However, in 2004, PHS construction of China Telecom and China Netcom was mainly focused on volume expansion, optimization and enhanced coverage. Equipment investments decreased from 16 billion RMB in 2003 to 11 billion in 2004, and will continue to decrease toan estimated 4 billion in 2005.

- NGN and VOIP are still in the introduction stage. Their impact on the industry is just beginning to appear and is not fully expressed.