Lu Yimin: Apps are the great driver of booming 3G penetration.
Monthly data traffic is five million gigabytes and China Unicom
has more than 50 million 3G users
China Unicom is developing a strategy to expand its presence outside its home market. The company, one of the major operators in China, is discussing global machine-to-machine services with international companies, is investing in submarine and terrestrial connections, and is developing its relations with partners and rivals worldwide.
The company is able to contemplate these global plans because at home it is one of three operators dividing up the world’s biggest market. The three companies — China Unicom and its rivals, China Mobile and China Telecom — did 988 billion yuan worth of business in 2011, worth $155 billion, and that was up 10% on the previous year.
The growth rate continues at that level. The three companies between then recorded sales of $53 billion in the first four months of 2012, up 10.1% on the same period of 2011.
“The mobile internet is booming,” says Lu Yimin, vice chairman and president of China Unicom. “Capacity is stronger, service demands are stronger. This is capacity-based and demand-based.”
Smartphone penetration in China has risen to 60%, says Lu, quoting figures for the first four months of this year. And this is likely to increase following a fall in the cost of smartphones: the cheapest now sells at 1,000 yuan, he says — about $150.
“Penetration of 3G has risen to 152 million across the whole country.” China Unicom’s own figures shows it had 51.7 million 3G subscribers at the end of April 2012 — a rise of 2.9 million in the month.
Wo is China Unicom’s own apps portal. Wo means ‘beautiful thing’
“Apps are the great driver”, says Lu: downloads are 298% up on last year, generating a 187% increase in apps-based revenue. Many of them are downloaded from China Unicom’s own apps store, called Wo. “That means ‘beautiful thing, wonderful’,” he translates. “Our monthly data traffic is five million gigabytes,” he adds.
It can be easy to get seduced into recounting the Chinese market’s huge numbers — but there is no doubt that the Chinese market is huge. With a population of 1.33 billion, the country has one fifth of the world’s 6.84 billion people, and the mobile business is shared between just those three operators, compared with the 700 or so companies that divide up the other 80% of the world’s population between them.
As a result China Unicom has as many customers in one country as whole multinational groups do in other parts of the world. And equipment, software and terminal suppliers look with excitement at the growth prospects, including at its 161 million 2G users, many of whom will convert to 3G over the next few years.
That 2G number rose only 340,000 in April 2012, showing 2G is close to saturation: though, of course, in many parts of the world that figure for one month’s new subscriptions would represent healthy business.
But the figures mean that China Unicom has a total of about 213 million mobile customers — equal to about two million more than the two biggest US operators, AT&T Mobility and Verizon Wireless, between them.
Mobile and fixed
China restructured its telecoms industry in 2008, merging fixed-line operator China Netcom into China Unicom and transferring Unicom’s CDMA mobile business to China Telecom, previously also a fixed-line operator. At the same time, China Mobile, the biggest mobile operator in the world, took over the much smaller China Tietong, mainly oriented towards the railway industry.
China Unicom was unusual in that until the reorganisation it had been a dual-standard 2G operator, with CDMA and GSM networks running side by side — one of the few in the world. Telstra was another, until it closed down its CDMA network to make way for its 3G service.
China Unicom kept its GSM business and, as a result of these mergers, all three operators now have mobile and fixed operations.
Lu came into the company at the time of the merger from Netcom. Today, in addition to his China Unicom responsibilities, he is deputy chairman and a non-executive director of PCCW, the Hong Kong-based fixed and mobile operator which has been run by Richard Li — or Li Tzar Kai — since 1999. He is also on the board of the GSM Association, the mobile industry organisation.
In 2011, three years after the mergers, China Unicom’s revenue was 209 billion yuan, equivalent to a shade under $33 billion, “and first quarter growth in 2012 was 25%”, says Lu.
The company — a Hong Kong subsidiary of which is quoted on the New York Stock Exchange — reported a flat 92.3 million fixed lines at the end of April, but 58.8 million broadband connections, a monthly rise of 10% and a rise of about 26 million in a year. That’s a key area of focus for the company. “We are creating smart cities,” says Lu. “This year China will have 35 million new fibre-to-the-home connections.”
The policy is directed by the country’s Ministry of Industry and Information Technology, which has identified many of China’s 375 cities for the “smart city” designation, “with government investment and with the help of operators”, says Lu, who trained as a computer scientist at Shanghai Jiao Tong University and has master’s degree in public administration from Harvard’s John F Kennedy School of Government.
What’s the return on investment for these smart cities projects? “We never talk about the buy and sell. We talk about synergy. We’re looking at industrial convergence involving telecoms, the internet and media. There are potential users in energy, public security, transport, education and in medicine and health.”
There’s considerable potential in cloud computing, he adds. “The Chinese market is synchronised with the world’s developments in cloud,” says Lu. The company runs “lots” of data centres, “not only for the Chinese market” but also for global customers that he lists as including “Amazon, Google and Microsoft”.
Following the 2011 earthquake and tsunami, Japanese customers are now using facilities in China “either as redundant centres or as their prime centres”, he says — and China’s lower energy cost helps that market.
After the industry restructured four years ago the Chinese government issued each merged operator with the 3G licence, specifying in the process which technology should be used.
As a result of that decision, China Unicom has the advantage of running the world’s most widely adopted 3G standard, WCDMA — in contrast with China Telecom, which sits alongside Verizon Wireless as one of the few users of Qualcomm’s 3G family of technologies, and with China Mobile, to which the Chinese government gave the challenging task of pioneering the homegrown TDD variant in 3G and — eventually — in 4G.
China Unicom has now upgraded all its 3G services to run HSPA, the high-speed data upgrade of WCDMA. It is running now at 21 megabits a second “and we’re improving that to 42 megabits”.
He turns back to cloud. The company is planning to become an incubator for cloud services, particularly to develop and test applications in biology and bio-medicine. It’s early days, but the idea seems to be to use the cloud to store data from medical test equipment. “We want to use all our infrastructure and capacity to transfer information. It is a way of enriching life.” Both the company’s cloud computing platform and the Wo applications platform feature in the ideas. “We want to be a base for innovation,” says Lu.
As with a number of other operators — some already public but many more still confidential — China Unicom is developing machine-to-machine applications for use by the car industry. The idea is to have a globally available SIM card that will allow car makers to transmit engine and other data from cars to garages.
Which car manufacturers? At this point the authorities in China Unicom are officially silent.
“We want to use the application for emergency voice services. If people are in an emergency they need voice.” There will be a push-to-talk system that connects the driver straight to a rescue service. “We are serious about security and personal safety.”
China Unicom here has a distinct advantage in using the closest thing the industry has to a global 3G standard. WCDMA and HSPA services are available from Australia to Austria to Arizona, and it would make sense for any car maker to go for such a system. A SIM card from China Unicom would be recognised by, say, Telstra’s Australian 3G network, Telekom Austria’s networks in eastern Europe or AT&T’s in the US.
Internationally minded car makers are already forming alliances with major operators and systems integrators in order to achieve global mobile coverage with a single-source SIM card and mobile module which can roam onto any compatible network worldwide.
Roaming services are a priority for China Unicom, says Lu. “We are number one for our customers when they are roaming outside China. We want to guarantee the quality of their roaming.” The company is working with international roaming specialist Syniverse “on real-time intelligence for roaming”, he adds. “This is called Iris, the international roaming integrated system.”
The idea is to offer customers special roaming packages including features such as their domestic data packages “and the ability to call home as if you are at home”, says Lu.
The company could also offer tailored data about the place the customer is visiting, “such as attractive restaurants, as if the customer is at home”, particularly to take the fear out of international roaming. “We are working with Syniverse to make these things happen.”
Its aim is to be “number one in roaming coverage in the world.” But it does not plan — unlike its rival, China Telecom, which now has a deal with Everything Everywhere in the UK — to run mobile virtual networks in foreign countries. It does, though, have an MVNO in the Chinese special autonomous region of Hong Kong.
And China Unicom is investigating the use of wifi in order to offload data traffic for its customers when they are outside China. “People want to save their money,” he says. The company is in discussions with BT in the UK, for example, about a possible agreement.
Telefónica is closer to China Unicom than most overseas companies: the two have shares in each other, though the Spanish incumbent has just sold almost half its roughly 10% stake for about $1.4 billion. China Unicom has a director on the board of Telefónica, and Telefónica’s CEO César Alierta is on Unicom’s board.
Relationships between operators are essential. “Not all service providers can cover the planet.” Partners, including Telefónica, include AT&T Mobility, Everything Everywhere and Vodafone in the mobile sector, and companies such as Level 3, Sprint and Verizon in the fixed world. There’s even a relationship with UK-based cable operator Virgin Media, which provides connections to a UK car factory, with China Unicom responsible for the links in the industrial city of Chongqing. “We work with everybody.”
The company has active teams in Hong Kong, Japan and Singapore in Asia, but it is also expanding its European operations. “We’re expanding our investment in Europe,” he says, listing activities in Frankfurt, Paris and Stockholm, as well as the team based in London. “The UK is the centre of our investment,” and there are links from there to Johannesburg in South Africa. That’s by submarine cable, and the company is a determined investor in links around the world.
“We’re investing in cables,” he adds: across the Atlantic, for example, “and we’ve bought a lot of cable to Egypt [and] to east Africa”, he says. “We are investment in the Pacific and I have landing stations in the US, in Oregon. We are investing in the Asia Pacific Gateway, from Singapore to Japan.”
There is an attractive project starting up to connect the BRICS countries — Brazil, Russia, India, China and South Africa — with a submarine cable. “We are one of the investors. It’s not a high cost.” And there’s a short connection under way to Taiwan, linking to Chunghwa Telecom on the other side of the straits. “China Unicom owns the landing station in China. It will be in operation in November.”
The company has interests in two terrestrial links to Europe via Russia, one of which runs via Sweden. Terrestrial cables “have very low latency and land cables are more secure [than submarine cables]”, he notes.
“We invest in a lot of infrastructure. As a leader in China we want to serve the rest of the world. We want to share the advantages and the solutions. This is our ecosystem concept. We want to bring the people together, businesses together, the globe together. We want to create a global village.”
This is “not only wireless and wireline” he adds: “We want to make the connectivity work, end to end, switch to switch.”
Strategy for LTE
There’s one thing on which China Unicom appears to be cautious, though: 4G. “The three operators in China have put a lot of investment into 3G,” he says. “As we improve speeds we need enough time for people to appreciate the benefits of that. So we’re not panicking to rush to LTE.”
There are impressive LTE developments going on, he accepts — some significant moves into TDD-based LTE in China and in FDD in the rest of the world, with an increasing interest in dual mode services.
But it all depends on licences. “The Chinese government is not in a hurry. They are evaluating the technology and working on roadmaps.”
China Mobile is trying TDD in five cities, he notes. China Telecom “has LTE trials” and “we are in several cities”. But they are trials, not full commercial services.
What appears to be holding things up is “not the technology but the terminals: every technology is dependent on the devices”. That, of course, is waiting for the industry to design the integrated circuits and to build them into viable, cost-effective terminals. “It’s not about the technology, it’s about the integration, and how much it costs,” he says.
The industry’s been here before. There was a joke circulating in the mid-1980s in Europe, when GSM operators were in their early days of rolling out the new digital technology to replace analogue services, that the initials stood for “God send mobiles”. And in the early years of this century, 3G phones were bulky and unattractive, with low battery life and poor performance.
There are today few problems with 4G base stations. “But look at the devices. Customer are looking at how convenient they are. They want something that can work anywhere, anytime, for anything.”
And China Unicom “does not want to be the first mover” in LTE, he says. “We want to learn.” Caution is the word. GTB
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