Disclosure will force China to end its heist of corporate secrets

This is no surprise: in the wake of damaging revelations about its online attacks on the west, China has disclosed attacks on its networks.

Not only was last week's Mandiant report a gamechanger, I’m predicting that within a year or two China will drop its large-scale corporate espionage programme.

In part, that's because China's disclosures in fact highlight the criminal nature of the PLA hacks. Whereas China has only suffered attacks on military sites, the real damage in the reports by Mandiant and Business Week were the details of China’s theft of business secrets.

Sooner rather than later China will come to see the corporate attacks as a low-percentage play.

The underlying narrative in western reporting has been of a clever China Inc. stealing into foreign networks, downloading terabytes of data and seamlessly transferring it to its own corporate sector for easy profit.

In truth, China’s giant, secretive bureaucracies don’t play well. They are severely constrained by their size, dysfunction, deep-rooted corruption and suspicion of each other (proof point: it took Beijing a typically tardy ten days to respond to Mandiant).

Mandiant estimates PLA hacking teams have stolen data from hundreds if not thousands of foreign organizations. The task of sifting through those petabytes of material, identifying valuable corporate information and somehow directing it to the ‘right’ agency or state enterprise would tax the most efficient system.

To take one prominent example, the attempts to steal Google’s search engine secrets don’t seem to have helped Jike, the Chinese state-backed search engine with a market share of close to zero.

More likely, I suspect, is that the corporate attacks have taken place with the tolerance of rather than the active direction by the top leadership. Few officials would wish to get into a scrap with the PLA, and certainly not on behalf of foreign corporations.

Plus, this being China, it’s not beyond the bounds that some PLA officers are running these hacks commercial agendas in mind.

This is not to say that politically-motivated attacks, such as those on activists’ Gmail accounts, or on the New York Times and Bloomberg, aren’t directed from the highest level, or that none of the corporate spying has yielded results.

But these industrial-strength raids on corporate networks surely yield little, except increasing embarrassment. China may despise the democratic west but it can ignore world opinion only up to a point.

Just as diplomatic and trade pressure forced China to stop transferring weapons technology to the Middle East in the 1990s, transparency will help it abandon its heist of foreign commercial secrets.

Anti-trust, Chinese style

Remember the probe into China Telecom and China Unicom for alleged anti-competitive behaviour?

The two companies were called out for price discrimination against rival ISPs back in November 2011 - the first such case under the 2007 Anti-Monopoly Law in Chinese telecoms.

Fifteen months on, it remains the only such case and its status is very much a mystery.

A long piece from the Beijing News (posted here on Sina Tech) quotes an anonymous source as saying the investigation “has met with considerable resistance.”

No surprise there. Anti-trust researcher Wang Xiaoye says that the facts of the case are clear. If this had happened in the EU, it already would have been settled, with heavy penalties imposed on the operators.

The two Chinese operators do face potential fines of billions of yuan, but of course the case has to be settled first.

Technically, there isn’t even a formal record of a case.  It came to light through a CCTV interview with a National Development and Reform Commission official. The NDRC is investigating, but has posted nothing on its website. Neither operator has mentioned the case in its financial reports, or made any contingencies for it.

The two operators have reportedly asked for the case to be dropped, and have promised to cut their broadband access fees (though that presumably would only make it harder for their competitors).

In other words, it’s business as usual in Chinese telecoms; the operators and the MIIT a law unto themselves in an environment of zero transparency.

A Zhejiang University professor, Zhao Wei, is quoted in the story as calling this ‘Chinese-style anti-trust.’

This maybe history, but it's worth recalling because the market is liberalising to allow in MVNOs. The MIIT has had almost nothing to say about how it will guarantee the newcomers access to incumbent networks or protect them from price discrimination. Etcetera, etcetera.

Happy New Year of the Snake. Here’s to more of the same.

10G rates plummet, but still cost way more in Asia

As 10G becomes the primary unit of international bandwidth, its prices are falling at rates way ahead of traditional SDH/SONET circuits.

In its latest update, TeleGeography tells us the that the price of a 10Gbps wavelength on major routes fell 37% last year, compared with 12% for a 155Mbps STM-1/OC-3 link.

TeleGeography analyst Brianna Boudreau says 10Gbps wavelengths will remain the prime unit of the global wholesale market for some time to come, but adds:

“While 10Gbps price declines will outpace those of smaller SDH circuits for some time, 40Gbps and 100Gbps wavelengths are becoming more widely available. As these products mature and provide volume and cost efficiencies for network operators, savings will be passed on to bandwidth buyers in the form of steady price declines.”

One thing that hasn’t changed is that, despite all the Asian bandwidth buildouts of the past four years, intra-Asia and Asia are vastly more expensive than trans-Atlantic.

Hong Kong-Tokyo and Hong Kong-Los Angeles 10G prices fell at CAGR of 32% between Q4 2009 and Q4 2012 - to $23,250 and $43,800 respectively. But those rates are still way above the average London-New York tariff of $9,000.

China's ave broadband speed is 2.6Mbps

Shanghai residents enjoy China’s fastest broadband, with bandwidth two-thirds higher than the national average, says the latest quarterly survey by CDN player China Cache. 

China Cache’s CC Index puts Shanghai at 4.34Mbps – the only one above 4Mpbs - followed by Fujian and Zhejiang provinces at 3.17 and 3.07Mbps respectively.  Beijing ranks eighth with an average 2.79Mbps.

The national average of 2.59Mbps compares with 2.31Mbps in the third quarter.

Reports the China Daily:

China's western regions fell behind the national average with a connection speed of 2.34 Mb/s, while the Xinjiang Uygur autonomous region was the last on the list with 1.74Mb/s.

Comparing China's three major carriers, China Unicom had the slowest average connection speed of 2.3 Mb/s, slightly behind China Mobile's 2.36 Mb/s and China Telecom's 2.63 Mb/s.

Just as interesting as China Cache’s quarterly broadband rankings is its real-time CC Index which scores operators and major cities and provinces over the past week. 

In the current rankings Shanghai Telecom is still top, but six of other nine at China Mobile provincial affiliates, underscoring the dominance of mobile in the China market.

Meanwhile, Beijing’s Jing Hua newspaper (via Sina Tech) says the capital now has 4.74m fixed-line broadband users, with 52.7% enjoying bandwidth of 4Mbps or above and 20.1% on at least 10Mbps. Last year China’s capital rolled out fibre to 1.14m more homes, taking the total of fibre-capable residences to 4.82m.

Behind Huawei's handset numbers

Huawei made an eye-catching improvement in the handset rankings in the last quarter, but it has still fallen short of its own hefty expectations.

The Chinese firm ranked no. 3 in smartphones and no. 5 overall in IDC’s latest quarterly survey of mobile phone sales. It shipped 10.8m smartphones in the fourth quarter, 90% more than it sold in Q4 2011, and 15.8m phones in total, 13.7% higher.

But even though it improved full-year sales by 9.3% to $7.8 billion,  the consumer division still missed its full-year target of $9 billion. And it looks like it will struggle to meet the $15 billion sales goal for 2015 that the unit set last year.

Richard Yu, the head of Huawei’s consumer business, told Chinese business news site yicai.com operating profit was up 40% but “we missed the target we set at the beginning of the year.”

And while Huawei's Ascend smartphone brand is getting traction, Yu’s team appears still focused on the ODM and operator white labal markets.

One un-named executive is quoted as saying “we need to clearly recognise that commercial success is the key, instead of illusory pursuit of the so-called ‘global brand.’”

For all this, let's bear in mind that Huawei only made the top end of the table in the final quarter of 2012. It ranks outside the top five in both smartphones and handsets for the full year. There's a lot riding on how it stacks up in this quarter.