China’s anticipated 4G licensing process “will result in inefficient capex” for the country’s operators, while on the flipside providing equipment vendors with a chance to repair their credit profile, according to Fitch Ratings.
The agency believes that some operators will be challenged as they are set to rollout two parallel networks, due to the fact that licences will first be issued for TD-LTE networks (likely by end of 2013), followed by a separate process for FDD-LTE (sometime in 2014). While China Mobile is likely to remain focused on TD-LTE only, Mobile World Live has previously reported that China Unicom and China Telecom will use both connectivity platforms.
Fitch believes FDD-LTE support will enable China Unicom and China Telecom to benefit from the international scale of the technology, but warned in a statement that “running two parallel 4G networks concurrently will prove to be inefficient and lead to higher operating expenses and capex over the longer term.”
Fitch also said that high handset subsidies are likely to persist, and competitive pressures are likely to increase over the medium term.
But there are upsides. The rollout of TD-LTE technology will enable China Mobile to improve its position in 3G, which “continues to be hindered by the inferiority of its [TD-SCDMA] technology compared to competitors’ global 3G technologies”. This technology disadvantage has seen it “losing some high-to-middle-end subscribers”.
This will not lead to benefits in the short term though, said Fitch, as it will take time for TD-LTE handsets to become more widely available, and profit margins will be pressured due to higher handset subsidies and competition from other telcos and OTT players.