Lowest bid: NSN surprises in China 4G tender

Nokia Siemens Networks has thrown a curveball into China Mobile’s multi-billion dollar 4G tender by undercutting the field.

It is the first time a non-Chinese telecom vendor has bid below Huawei and ZTE in a China contract.

The tender, to supply TD-LTE equipment for 207,000 base stations in 100 cities, is the world’s biggest telecom equipment contract this year. 

NSN’s bid of 33,000 yuan ($5,460) per single carrier was the lowest of nine vendors who took part, according to Chinese media reports. Huawei and ZTE both pitched 35,000 yuan.

The move has surely surprised the super-confident Huawei camp, which has publicly predicted it would win the biggest share.

Huawei and ZTE have supplied roughly three-quarters of the equipment for China Mobile’s pre-commercial rollout in 13 cities.  That’s only slightly below the 80% share of China Mobile’s TD-SCDMA 3G network contracts that they enjoyed. 

But foreign vendors have expected a much bigger piece of the globally-supported TD-LTE business, and were reportedly furious at the heavy weighting toward the local players in the trial stage.

As local tech website Sina Tech [zh] delicately observes, China Mobile now faces a “difficult choice.” As the lowest bidder, NSN “normally” would get the highest share.

“But for many years tenders by Chinese operators have tilted towards domestic suppliers, with Huawei and ZTE accounting for the lion’s share, [making it] impossible for foreign vendors to dominate.”

China Mobile is bound by rules of the tender to award to the lowest bidder, yet must “balance between Chinese and foreign” suppliers, it said.

The tender is sure to be watched closely by EU officials for any obvious domestic ‘tilt’. The EU Trade Commissioner has launched a probe into alleged state subsidies for Huawei and ZTE exports to Europe.

Another threat to China 4G: Xiaolingtong

Here’s another problem that could hold up China’s 4G launch: the delay in closing down the Xiaolingtong network.

Xiaolingtong is a fixed-line or limited mobility service run by the two wireline operators, China Telecom and China Unicom. At one point it had more than 100 million customers as a low-priced cellular alternative using Japan’s PHS technology.

It was scheduled to close down at the end of 2011, but at March 31 this year still had 10 million customers (zh).

Yet while Xiaolingtong belongs to two of China’s three operators, the 1880-1920MHz band that it occupies is allocated to their competitor, China Mobile. Not only does it use a designated IMT TD-LTE band, but this was actually allocated to TD-SCDMA as far back as 2002, according to this story in Sina Tech (zh).

Not surprisingly, Telecom and Unicom wish to hang onto their valuable asset. China Mobile wants to take it from them; chairman Xi Guohua is quoted as pointedly saying that “the large amount of spectrum that is not being used very well” should be set aside for the state-backed TDD.

According to Sina, the two sides have reached an agreement whereby Xiaolingtong will handover a portion of the spectrum, but China Mobile will only get the remainder after Xiaolingtong has concluded its resettlement plan for remaining customers.

That could take some time. While the network managed to shed more than 5 million users last year, it still has a considerable number to work through.

Plus, there is still a good deal of activity on the network. Many observers believe the remaining customers are holdouts trying to gouge the operators, yet the network delivered more than 9 billion local calls last year.

On the plus side, China Telecom has just announced that it too will use TDD as well as FDD-LTE.  China Unicom, a W-CDMA 3G provider, is speculated to be planning a similar move. 

Thus, the most likely solution is that two or perhaps all operators will share the Xiaolingtong spectrum. But the hard part will be clearing the frequencies altogether.  It certainly won’t be in time for the expected 4G launch in the first quarter of 2014.

Even at home, China handset brands battle for acceptance

 

Led by Huawei and ZTE, Chinese handset players might be exporting to the world, but they can’t make  the A-list in their home market.

Domestic brands have virtually a zero market share above the key 3000 yuan ($489) threshold, according China’s biggest mobile phone retailer D.Phone.

That applies even to Huawei and ZTE, both in the worldwide smartphone top 5 and both betting heavily on building global handset brands, Beijing newspaper Jing Hua says in this analysis (zh).

Huawei’s Ascend P6, just launched in a high-profile event in London, is on sale at €449 (3600 yuan) in Europe, yet Chinese consumers can buy it for a mere 2688 yuan. At this price the product has no profit margin, according to Huawei handset chief Richard Yu.

ZTE last year priced its Nubia Z5 at 3456 yuan and the titanium version at 7890 yuan, but neither sold well.

In a frank admission (and that might invite the attention of regulators in other markets), Lenovo vice president Feng Xing acknowledges that:

... managers from leading brands like Huawei, Coolpad, ZTE and Lenovo often get together, and the central topic of discussion is how to make products profitable.

Against this, the optimistic view is that the sector has come a long way. Sun Changxu, an analyst at market research firm ESM China, points out that ten years ago, when domestic brands briefly dominated the device market, they were mostly using Korean solutions.

“But now Chinese enterprises can design and build extremely good products, making them much more competitive.”

But in the eyes of demanding Chinese consumers, that's not enough. “[T]heir understanding of brands is mostly embodied in face and price. A high price embodies quality and brand," says another analyst, Yang Haifeng.

China Telecom prepping national 4G tender: report

China Telecom is planning to take its TDD/FDD 4G network nationwide later this year.

Although only officially a trial, it will effectively be a pre-commercial network covering 31 provinces, ahead of the expected issue of 4G licences in early 2013.

The operator decided on the expansion at a meeting late last month and will issue a formal tender in Q4, website C114 reported.  Currently it runs a limited trial in Guangdong, Jiangsu and two other provinces.

The decision follows confirmation recently by chairman Wang Xiaochu that it would deploy both FDD and TDD versions of LTE.

It will be almost certainly the world’s largest integrated TDD/FDD network. Market leader China Mobile deploys a converged 4G network in Hong Kong, but across the mainland is building out solely with TD-LTE.

Wang said most of the coverage load will be borne by FDD, with TDD deployed as a supplement in densely-populated urban areas. 

MAE: Back to the network

If there were one thing Asia's telco leaders agreed on this morning, it's that the network matters.

“All networks are not built the same,” declared Telstra CEO David Thodey at the Mobile Asia Expo keynote.

China Mobile boss Xi Guohua, saddled with the world's most unloved 3G network, readily agreed.

“Infrastructure is still a core competency of operators,” Xi said. “How can we satisfy the needs of consumers? By building the next generation network."

KT's Suk Chae Lee said he was trying to squeeze out network costs by going all-IP, warning that internet firms were now potential network rivals.

“In the old fixed broadband era, telcos were the only network builders and the cost of building a network was not an issue. However, in the new era, competitors like Google and even Amazon are building their own infrastructure, optimised for delivery of content with software-defined architecture.”

Xi and Thodey agreed that pricing would depend on service quality, in turn a function of the network functionality and investment. “[Consumers] will not be happy just with basic service we provide. This is both a challenge and an opportunity for traditional carriers,” Xi said.

But Thodey said the entire customer experience, from the website to the retail store, was critical.

“It's a serious issue. There's such a demand for service I think we are not creating enough value. Are we doing well and are we creating customer loyalty, or are we just doing the basics?”