China’s hefty 4G rollout has come to the rescue of ZTE’s interim result, propelling it to a healthy 1.28b yuan ($180m) profit despite a drop in handset sales.
Total revenue for the six months to June 30 was flat at 37.697b yuan ($6.14b), but carrier gear sales were up nearly 15% to 21.8b yuan.
The China 4G sales also hoisted the margin in the carrier unit by 3.9 points to 39%. In China, the margin increased nearly eight points.
ZTE said in a statement that the “substantial increment” in gross margin and profit was attributable to improved management of contract profitability and the greater sales of 4G kit in China.
By contrast, mobile phone revenue was off 16% year-on-year, which the company said was a result of lower 3G device sales in the China market.
ZTE also predicted earnings for the first nine months would be between 1.7b-1.9b in the first nine months, up 208.2% to 244.5% from a year ago.
Another consequence of China's tortuous path to 4G: China Mobile has all but abandoned its massive Wi-Fi hotspot network, while China Telecom plans to build one of its own.
China Mobile has found that its network of 4.3m hotspots, presumably the world’s largest, and deployed at a cost of 17bn yuan ($2.75b), is uneconomic.
Wireless data revenue across all of China Mobile’s networks last year rose 59%. But Wi-Fi data occupied an unsustainable 74% of all traffic, and generated a microscopic 2.6% of revenue.
The operator returned just 15 yuan per month from each Wi-Fi user - “not even enough for network optimisation, let alone ROI,” a Henan Mobile official in charge of Wi-Fi told Sohu IT.
The result is that China Mobile has cancelled further Wi-Fi construction and has cut back on optimisation and maintenance.
This comes as no surprise, given China Mobile’s well-documented difficulties with TD-SCDMA. In fact it was the poor data performance of the local 3G technology that drove China Mobile into Wi-Fi in the first place.
But low-priced, widely-deployed Wi-Fi is also an attractive alternative to 4G, as early figures from China Mobile's 4G campaign suggest. To the end of April it had sold 14m TD-LTE handsets but fewer than 4m of these had upgraded to 4G.
Sohu IT also points to an unhealthy skewing of the Wi-Fi rollout to a handful of provinces. For some reason, China Mobile’s Shandong unit has installed more than 1m hotspots, Shanxi 560,000 and Henan 400,000 - three provinces with less than a fifth the population accounting for 46% of the installed base.
In light of the poor returns from Wi-Fi, China Mobile is going all-out for TD-LTE and has forecast it will have rolled out 500,000 base stations in 300 cities by year-end.
Yet while 4G has driven China Mobile out of Wi-Fi, it is an accelerant for China Telecom. Chairman Wang Xiaochu said in an interview last month that he is planning to step up Wi-Fi investment.
That’s because the operator is being held back from deploying its preferred brand of 4G, FDD, while its cdma EVDO network is no match for either LTE or China Unicom’s HSPA services.
China Telecom has been issued with a ‘trial’ FDD licence, but for just 16 cities – a long way short of the 300 it’s hoping to reach nationwide. In that light, Wi-Fi makes some sense, yet it's hard to see how China Telecom can avoid the same problems besetting China Mobile once its FDD network gets up to speed.
The best solution would be for a third party to take China Mobile's Wi-Fi network off its hands and wholesale it to the big three or any of the new MVNOs. Ranking 96th in world global broadband speed rankings, you'd think China couldn't afford to allow infrastructure to go to waste. In fact, duplication and waste appear to be the order of the day.
MVNOs who have signed with China Telecom and China Unicom will lose their security deposit if they don't meet subscriber and business targets for their wholesale partners.
As this report on Sina Tech puts it, the arrangements between new MVNOs and the big three operators suggest they are more like retail partners than independent service providers.
In signing up with an operator, MVNOs must pay a deposit and commit to meeting subscriber sign-up targets and revenue targets.
It seems the interconnection rate is also linked to the MVNO's performance. The infrastructure owners will take a cut of MVNOs' total pre-tax revenue – as much as 40%. Unicom is reportedly offering network access on a sliding rate on the basis of annual revenue scale.
If the MVNO’s total revenue is below 20m yuan ($3.2m), it gets a 30% discount. This rises to 40% if sales top 200m yuan. China Telecom's rate for the best-performing MVNO result is a 60% discount.
Along with the lack of regulatory protections, these suggest it's not an easy business to be in, even competing against China's high-priced and unloved oligopolies.
But Sina also quotes one MVNO boss who is not deterred. Wang Xianshu, the head of Busonline, points out that for most of the MVNOs, the new service is an add-on to an existing business, such as online retailing, making that business rather than competing directly with the network owners or other MVNOs.
Interesting story on the resignation of China Unicom vice president Li Gang has just crossed the wires.
To be precise, 57-year-old Li hasn’t been to work since Chinese New Year in early February and his resignation has just been approved by “higher authorities” (almost certainly the Communist Party organization department).
In January Li was rumoured to be leaving Unicom to head up one of the incoming MVNOs.
While there’s a revolving door between China’s SOEs and the bureaucracy – high-level positions are party appointments – senior execs don’t just leave when they feel like it.
As Li’s example shows us, they have a few hoops to jump through. Reportedly he’s been on the Chinese equivalent of ‘gardening leave’ since February.
The spectacle of a top official resigning in the middle of a fierce anti-corruption drive has sparked speculation, but so far there has been nothing to suggest anything other than that he is seeking a lucrative exit to the private sector.
On the other hand, China Unicom has made no announcement about Li's departure, which was formally approved on Monday.
Li became prominent in the early 2000s as head of Guangdong Mobile, which under his leadership contributed a third of China Mobile’s profit. He pioneered some of China Mobile’s biggest brands, such as the GoTone postpaid service and the Shenzhou card for mass market users.
After missing out on promotion at China Mobile he jumped to Unicom in 2005.
While nothing links Li to any malpractice, half a dozen China Mobile executives have been convicted for corruption in the last five years. Vice-chairman Zhang Chunjiang received a suspended death sentence in 2011 after his conviction for receiving $1.15 million in bribes. Last year a vice-president, Lu Xiangdong, was convicted over taking $4.1 million in bribes.