26 June 2002 -- China's Ministry of Information Industry (MII) reports that Chinese telecom usage, including mobile and fixed line, grew 13% in the first five months of this year.
MII said China had nearly 370m telephone users at the end of May, including 196m fixed-line phone users and more than 170m mobile phone users. Also, during the first five months of this year, more than 26.57m people became mobile phone subscribers - a rate of more than 5.3m per month. Over the same time-frame, China's fixed-line telephone users increased by 16.82m to 196m, or at about 3.4m per month.
Meanwhile, the wireless paging business shrank during the five-month period. About 10m people stopped using their pagers, most of whom turned to more convenient mobile phones. China has 25m wireless-pager users, but the number should decline as more people opt for mobile phones.
MII also reported that about 2.6m people went on-line during the period. China now has a total of 38.7m Internet users.
Experts who track the China telecom market said MII's most recent data is in line with historical data previously supplied by the Chinese government.
According to the US Department of Commerce (DOC), China is currently the world's second-largest telecoms market. There are also now more mobile phone users in China than in the US, which it overtook in July 2001. The current number of mobile phone users in China - 170m at the end of May, 4m more than the previous months - far exceeds that of any other country. The DOC also expects China to surpass the US as the largest fixed-line market over the next few years.
Fueling the growth of fixed lines is China's insatiable demand for Internet access. The Yankee Group, a Boston-based telecom consulting firm, estimates residential demand for Internet access in China grew 109% in 2001 and demand for Internet access from enterprises grew 134% in 2001, with a projected compound annual growth rate of 83% and 104% respectively, between 2001 and 2010. Chinese data subscribers will reach 50m by 2005 and over 280m in 2010, according to Cisco, which is one of the most active optical networking companies in China today.
Nevertheless, there are clear signs that the market in China is undergoing a temporary slowdown. This is due partly to declining exports of components and systems to U.S. and European customers, and partly to delays in capital expenditures by two of China's largest domestic fixed-line carriers.
MII reported that China's main carriers jointly invested USD4.3bn in network construction during the first five months of 2002, or only 70% of the investment made in the same period the previous year.
Earlier this year, China's former monopoly fixed-line provider, China Telecom, was officially split up into two businesses. What was once a fixed-line monopoly is now two entirely new entities: China Netcom and a new more streamlined China Telecom. The two firms will provide fixed-line telecom services in the northern and southern parts of the country, respectively.
The government's stated goal for the realignment is to encourage Baby Bell-like competition between the two carriers, and, in so doing, provide Chinese consumers with cheaper and higher-quality service. Most industry experts now believe that capital will rise sharply once the bust-up of China Telecom begins in earnest, stimulating competition, driving carriers to upgrade their network facilities and provide more services.
Under deregulation, as decreed by MII, the "new" China Telecom Corp will be entitled to retain the goodwill and intangible assets of the "old" China Telecom; maintain existing business in 21 provinces and cities in southern and northwestern China; and hold onto 70% of the national trunk-line transmission network assets owned by the former China Telecom. The "new" China Telecom is now currently targeting 7% revenue growth in 2002, up form 5.6% last year (its lowest growth in a decade) and has publicly announced that it will go public as soon as possible.
Meanwhile, 10 northern provincial corporations of the former China Telecom - including those in the provinces of Henan, Shandong and Northeastern provinces, together with the former China Netcom, and Jitong Communications Corp - have been merged into the new China Netcom Communication Group Corp, holding 30% of the national trunk line transmission network assets.
The government reports that the two new corporations will soon have two fixed-line telephone network enterprises with equal capacity in China's telecoms market. The two companies both have complete domestic long-distance trunk transmission networks and local telephone networks in their own areas, and they are also allowed to build and operate local telephone networks in each other's areas.
In addition to these two main telecoms enterprises, the Chinese market hosts four other major telecom corporations: China Mobile (the dominant mobile carrier, with 37% market share), China Unicom (30% mobile market share), China Satcom (which currently serves TV stations rather than telecoms customers, but is now linking up with leading cable TV companies) and China Railcom (a spin-off from China's rail sector, which is currently building an internal 128-city broadband network).
In addition to these quasi-private organisations, China is expected to continue to maintain a number of internal telecom systems for the army, airlines, coastal patrol units, and public security sector. There are also numerous fibre-based cable companies (both national and provincial) dabbling in telecom. Even the information technology industry is getting into the act. Great Wall, an arm of personal computer maker Great Wall PC, has more than 100,000 broadband network users around the country. It recently received a license from MII to provide residential broadband access services in 13 Chinese cities.
Western telecom companies may also soon play a major role as carriers in China. According to the government, the goal of restructuring is to, wherever possible, gradually open the telecoms market to foreign capital, thereby fulfilling its promises upon entering the World Trade Organization (WTO), to bring competition to a market currently dominated by Chinese ventures.
However, the period of internal readjustment has dragged on longer than most equipment providers have anticipated. It is currently anticipated that large-scale purchase by China's two newly launched fixed-line carriers will resume on massive scale in 2003. The fall of 2002 is expected to be an important "design-in" phase for component, systems and cable makers supplying equipment to meet internal Chinese demand.
Some market researchers believe the anticipated resurgence in capital spending will have a very positive impact on the Chinese fibre-optics market.
KMI (a leading market research company also owned by PennWell, parent company to Lightwave, Lightwave Europe and Lightwave China) reports that the domestic fibre production volume in China will experience a compound annual growth rate of 27%, rising from 5.8m fibre-km in 2000 to 16.4m fibre-km in 2005. KMI also predicts that China will use about 16m fibre-km from overseas suppliers in 2001 and 2005. Domestic fibre suppliers will provide China with 7m fibre-km in 2001, rising to 16m in 2005. China has more than 200 fibre-optic cable manufacturers; collectively, they used only 22% of their cabling capacity in 2001, KMI said.
Continuing deregulation and accession into the World Trade Organization will accelerate China's fibre-optic network expansion beyond the 10% annual growth it has experienced in the last decade.
Fibre-optic cable deployment in China - among all carriers and expressed in cumulative route kilometres - grew nearly four-fold to 2.2m route-km over the five-year forecast period, up from 575,700 route-km in 1996. Deployment is forecast to reach 4.1m route-km in 2005, KMI said.
China had installed a cumulative 8.7m fibre-km by 1996, KMI reported. The installed base grew to 36m fibre-km in 2000 and will rise to 102m fibre-km by 2005. Fibre deployment will continue in the next five years at a compound annual growth rate of 11%.
Most carriers plan to expand their networks, especially at the local access level, KMI predicts. Annual demand for fibre for national long-haul networks will decrease over the forecast period, but demand for intra-provincial, local access network fibre will continue to grow. In late March, the Chinese government reported that China's optical communications section last grew 10%.
The sales value of Chinese-made optical products - including optical fibre, cable, spare parts and optic transmission equipment - exceeded USD482m in 2001. At that time the government also said that the market share of China-made optical products reached 55% in 2001, for the first time surpassing similar products made by joint ventures or imported from abroad.
-- Al Furst, Contributing Editor