Although China’s telecommunications markets are developing at a rapid pace, Dr Thomas Hart of the EU-China Policy-Dialogue Support Facility says that overall they are lagging behind developed nations. Although a plan to bring the nation up to speed has already been tabled, the challenge now, he says, is its implementation.

China already boasts the world’s largest online population, having just surpassed the threshold of 600 million online users. There are around 1.2 billion mobile subscribers, 400 million of which are using 3G services. According to the Ministry of Industry and Information Technology (MIIT) however, only 175 million Chinese users had access to fixed broadband services in 2012, a penetration rate of just 13 per cent, and way behind the developed nation’s average of 25.7 per cent.

By the end of 2012, the rural broadband penetration rate was only 6.3 per cent. Bandwidth and network speeds suffer by international comparison, and prices are way above international standards. Misrepresentation of available connectivity quality and frequent service flaws add to the government’s dissatisfaction with sector players. In October 2013, the National Development and Reform Commission (NDRC) urged China Telecom and China Unicom to cease monopolistic behavior and collusion.

At the end of 2013, China Mobile received a license to offer fixed-line broadband services, finally completing the process that was started in 2008 when the Chinese telecommunications companies were consolidated into the three major players as they exist today (China Mobile, China Unicom and China Telecom), with the aim of establishing three companies offering the full range of services, and promoting competition between them.

The goal of “facilitating the construction of broadband, compatible, safe and ubiquitous next generation national information infrastructure” was included in China’s 12th Five-Year Plan for National Economic and Social Development. In 2012, the State Council started preparing a ‘Broadband China Strategy’, jointly developed by 11 ministries or commissions, such as the NDRC and the MIIT.

The Broadband China Strategy and Implementation Scheme was finally published in August, 2013. It stresses that “broadband networks are the strategic public infrastructure in the national economic and social development of the new era.” The strategy introduced ambitious broadband targets: by the end of 2013, 40 per cent of households are to be covered with fixed broadband and 25 per cent of citizens should have 3G or 4G mobile available, increasing to 50 per cent for fixed and 32.5 per cent for mobile by 2015. By 2020, all rural and urban areas are to have broadband coverage, with connection speeds of at least 50 Mbps (megabits per second) for urban areas and 12 Mbps for rural areas.

The challenge now is how to implement this plan, and this depends on how it will be paid for, how the investment burden is shared between the public sector and the operators. China is not alone with these questions—the EU member states are facing the same challenges. While China comes from a starting point of state-owned enterprises with limited decision-making authority on their broadband investment strategy, the EU markets have been almost fully liberalised, with a strong focus on market-driven solutions.

Both starting points now face their limits when it comes to encouraging the large investments needed for ensuring comprehensive broadband availability, and even more when the challenge is to roll out next-generation networks providing ultrafast connectivity. The frequently updated EU Digital Agenda Scoreboard already indicated that many EU member states will be unable to achieve their respective broadband targets, the short-term EU-level Digital Agenda targets are already almost impossible to achieve.

In China there are now several main actions underway that directly or indirectly support the broadband plan. Rollout of 4G has just started and promises to bring very quick results. This is also expected to be an important piece in the puzzle of connecting rural areas where fixed-line infrastructure is not a commercially viable option. The MIIT announced that before the end of 2014, commercial 4G services will be offered in more than 300 cities, and expects the number of 4G users to exceed 30 million.

All three operators were awarded a Time-Division Long-Term Evolution (TD-LTE) license in December 2013, allowing the official commercial rollout of 4G services after years of trial services. Just as with the allocation of 3G licenses, there was an element of politics and strategy involved: the home-grown TD-LTE standard is given space to first establish itself before the internationally-licensed competing FDD-LTE standard, with its much more mature supply chain, will be permitted—these licenses are yet to be awarded.

Source: Pyramid Research Mobile Demand Forecast, Q3 2013

It appears that China Mobile will benefit from this approach as the company has the greatest interest in moving on to TD-LTE, which it developed together with Huawei, ZTE, Datang Telecom, Qualcomm and others, and leaving the less impressive TD-CDMA behind. China Mobile also announced it would push for low-cost handsets for less than RMB 1,000, allowing China’s 4G market to become Asia’s most rapidly growing one, despite its comparatively late start.

Parallel to this development, a long-awaited new element of competition was introduced. At the end of December, eleven companies were named that would receive a license to operate as Mobile Virtual Network Operators (MVNOs). Virtual operators buying capacity wholesale and repackaging it for end customers have been a decisive force in bringing down prices for both fixed and mobile services in the EU; with the strict regulation of the Chinese MVNOs, and the limit to Chinese-owned companies, the same is not likely to happen in China. Still it can be seen as an important step to gradually introducing market elements in a telecoms sector that has been dominated by companies still essentially being state-owned utilities without much interest in competition.

Implementing these existing policy measures is one challenge, but there are plenty more open questions. In the EU, as in China, the operators are facing over-the-top service providers offering mobile communications services through mobile applications, cutting into the operators’ revenues while not being subjected to the obligations and restrictions of telecoms operators. The surge of smartphones, online video services, the Internet of Things, ubiquitous computing are all putting high pressure on network capacity, especially mobile.

Dr Thomas Hart is Senior Advisor to the China Academy of Telecommunications Research (CATR) and to the EU-China Policy-Dialogue Support Facility (PDSF). The PDSF was asked by the EU Commission and the MIIT to support the EU-China Dialogue on these issues and help identify current trends, challenges, solutions and areas for joint action. In a first step, the project procured a report on the broadband market and policy environment, and in a follow-up activity this will be complemented by the analysis of emerging trends and challenges. For more information see www.eu-chinapdsf.org/.