Wednesday, May 17, 2017

China telecoms market update - Part 2

Fixed broadband subscribers for March 2017 (millions):

Total subs Added March Total '16 March vs trend
China Mobile 85.681         2.411   22.595 Above average
China Unicom 76.589             0.357   2.906   Above average
China Telecom 125.82           0.970   10.590 Average
Total 288.352           3.738   36.091 Above average

Comment on the above

There is nothing exceptional about these monthly numbers, although its worth noting that China Mobile, a very late official entrant to this market, only reporting its first surprisingly large international numbers in February 2016, is now well past China Unicom and with around 30% actual fixed broadband market share is also taking almost two thirds of month to month market growth. As a result, its market share is growing steadily each month by about 0.35 points. Also, at the present rate of comparative growth China Mobile could possibly overtake China Telecom in the next three years or so to become the largest fixed-broadband operator. Given China Mobile is already by far China's largest mobile broadband operator it is still difficult to understand what MIIT's plans are for an industry so increasingly dominated by one company. As things stand it would seem logical to merge Unicom and Telecom, which have never really overcome their historic regional bias, and hand out another couple of converged licenses to some of the more successful MVNOs.

The FTTH market

The numbers for this market are not in general publicly reported by the three big operators, though numbers do slip out from time to time. Possibly they report them to MIIT, at least it would be surprising if they did not. On April 18th Digitimes Research reported that, in line with the Chinese government's Broadband China Policy of 2013, and helped by China Mobile's involvement in the fixed-line market, fibre infrastructure has been 'quickly established', and claimed that at the end of 2016 the number of FTTH subscribers in China had increased to 227.7 million, of which 61 million lived in rural areas. Digitimes also claimed 77.8% had download speeds of 20 Mbit/s and above. However, according to the report the number of xDSL subscribers shrank to 19.8 million at the end of 2016, decreasing 60.6% year on year.

It should be noted that Digitimes is normally a quality source of information, mostly about Taiwanese companies, but usually also heavily involved in China. However, this report claimed that the 227.7 million FTTH subscribers accounted for 76.6% of all fixed-line broadband Internet subscribers, which implies that the number of fixed-line broadband subscribers in China at the end of 2016 was 297.26 million. Based on the above official numbers, this seems to be roughly 20 million too high. Digitimes has access to the operator numbers so the implication is that for some reason they are adding estimates for one or more other operators. One possibility is that Digitimes knows or believes that the China Mobile numbers do not include the broadband subscribers of the one time railway operator TieTong.

Although it was reported in November 2015 that China Mobile had agreed a RMB 31.9 billion deal to acquire fixed broadband provider TieTong from China Mobile sister company CMCC it is possible that that consolidation has not yet been fully completed. Moreover, given the size and complexity of China and the power of some of the provinces there may still be a few small local telcos that have maintained an independent existence. Some of the many provincial cable companies, nominally consolidated at national level but still in many cases rather independent, may also serve some customers with fibre. It also seems likely that huge corporations like State Grid Corporation of China also run some internal broadband operations and in any case SGCC has certainly dabbled in the FTTH market in the past, though to what actual level remains unclear.

TenPay online mobile payments system gaining very rapidly on AliPay

In early April 2017 estimates by Analysys of vendor market shares of the huge Chinese online third party mobile payments market for Q4 2016, valued at around RMB 12.8 trillion ($1.741 trillion), up 41.7% Q/Q and 126% YoY, showed Tencent's payment system, TenPay, continuing to gain ground steadily on the market leader AlIPay, a subsidiary of Alibaba. The other more than a dozen payment operators, including ApplePay, averaged less than 1% market share each. Despite a year on year loss of almost 17 points from 71% in Q4 2015, Alipay, remained the market leader in this market with a 54.1% share in Q4 2016, followed by TenPay (including WeChat Payment and QQ Wallet), on 37.02%, with the third-ranked player Yiqianbao on 2.19% and the rest on 1% or less.

According to analysts, TenPay has benefited from the huge 890 million user base of its market leading WeChat social media platform and also since 2014 has successfully targeted China's 'hongbao', or red envelope tradition during the Chinese New Year with reportedly 32 billion virtual red envelopes handled online in 2016,

(NB: the Chinese mobile payment market for 2016 is estimated at $5.5 trillion, or around 50 times the estimated $112 billion for the U.S.)

Top 3 Chinese smartphone vendors in Q1 show 3.7 point market share gain

According to IDC estimates of the size, growth rate and vendor structure of the global smartphone market in Q1 2017, the top three Chinese suppliers - Huawei, Oppo and Vivo - were collectively up 3.7 points in market share year on year to reach a collective 22.40%, while Samsung lost a percentage point from 23.80% and Apple lost 0.5 points from 15.4%. While the market grew an unexpected 4.3% to 347.4 million units the net result of market growth and share decline for the two leaders was that both Samsung and Apple shipments were virtually static year on year at 79.2 million and around 51 million, respectively.

Meanwhile, Huawei grew 1.4 points year on year in share from 8.4% to 9.8% and 22% in unit shipments. While very impressive for a company which has only been seriously in the market since 2011 there are two points that should worry Huawei about these numbers given its clearly stated outrageous ambitions to be the global market leader. The first is that even if Huawei could continue to gain 1.4 points a year, which seems unlikely, it would still take about a decade to overtake the leader Samsung. Secondly, and in some ways more worrying, is given that in almost all the many markets it has entered Huawei is accustomed to being by far the most aggressive competitor, Oppo, whose market share was also up 1.4 points YoY from 5.9% to 7.4%, is growing at least as strongly as Huawei and that is an unusual environment for Huawei. However, according to a Fortune article of January 24th, Richard Yu, head of Huawei's Consumer Group said in November that he expected to overtake Apple in unit market share sometime in 2018. Vivo, meanwhile grew market share much more slowly than Huawei or Oppo, from 4.4% to 5.2%.

China Mobile, Enea, Cavium and ARM to collaborate in validating NFV test cases

On May 2nd it was announced that China Mobile, real-time OS developer Enea of Sweden, ARM of the UK and Cavium of San Jose, a supplier of ARM- and MIPS-based processors, had signed a collaborative agreement whereby Enea's open OPNFV-based commercial core platform (based on OpenStack), ARM's 64-bit processor and Cavium's ThunderX workload-optimised data-centre server processors would be used in China Mobile's Open NFV Testlab as part of its Telecom Integrated Cloud program. The program is designed to validate a variety of NFV tests cases, such as vCPE, vBRAS, vEPC and vIMS, and support Open Network Automation Platform project development and integration.

In relation to the above announcement, in 2015 Wind River, a supplier of software for intelligent connected systems, and China Mobile said they had joined forces on multiple NFV projects including a new NFV test lab as well as the development of virtualised small cell gateway and cloud radio access network (C-RAN) solutions. Also, in January 2016 the OpenStack Foundation published a press release in support of the report Accelerating NFV Delivery with OpenStack on the adoption and business cases driving NFV deployment at leading telecom providers. It claimed that OpenStack was the platform of choice for NFV deployment and noted that AT&T, Bloomberg, China Mobile, Deutsche Telekom, NTT Group, SK Telekom and Verizon were among the organisations documented using OpenStack and NFV.

In addition, in June 2016 Nokia and China Mobile announced the signing of a one-year, Euro 1.36 billion frame agreement for Nokia to provide China Mobile with cloud services, mobile, fixed, IP routing, optical transport and customer experience management technology, as well as support and global services during 2016.



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