As China seeks speedy rollout of 5G mobile networks, state-owned telecom operators are faced with the challenge of meeting the government targets while also ensuring that the additional expenditure does not throw the firms’ balance sheets out of kilter.
With the network deployment costing tens of billions of dollars, operators are trying to reduce the financial burden by sharing resources and costs with one another. The aim is to prevent the capital expenditure from eating into their bottom lines.
China Unicom, one of the country’s Big 3 telcos, confirmed last week that it was in discussions with the other major carriers over a network sharing deal that can help the firms avoid spending money on duplicate network coverage, especially in the rural areas.
Wang Xiaochu, Unicom’s chairman and CEO, told reporters that his firm is exploring the possibility of teaming up with at least one other operator in the run up to next year’s 5G launch.
“China Unicom will definitely work with one or more companies,” Wang said in Hong Kong while presenting the carrier’s first-half 2019 results.
If Unicom reaches a deal with China Mobile, the former can focus on network rollout in the urban cities while rural area coverage can be provided by China Mobile due to its much larger operational scale, it was suggested.
Such an arrangement can lead to huge savings on capital expenditure for Unicom.
Unicom kicked off 5G network deployment this year, leading to a spurt in its capex. In the first half of the 2019, the firm saw its capex nearly double over the same period last year to 22 billion yuan. The carrier plans to spend 58 billion yuan in total this year, up from 44.9 billion yuan in 2018.
Of the 58 billion yuan, about 8 billion is expected to go to 5G network build-out.
Unicom now has 17,000 5G base stations deployed in 40 cities, with a target to expand that number to more than 40,000 by the end of the year. But that would still mark only a tiny fraction compared to the 4G base stations the company currently operates in China.
Unicom and the other two big state-owned Chinese telcos — China Mobile and China Telecom — plan to launch 5G on a very huge scale during the first quarter of 2020. “The scope and scale of China’s 5G deployment is set to be the largest in the world,” telecom industry news platform Total Telecom noted last week.
It is estimated that the Big 3 Chinese carriers will deploy close to a million 5G base station units across the nation during the first 18 months of the rollout.
In addition to Big 3 operators, Chinese authorities have also granted a 5G commercial license to China Broadcast Network Corp, an entity that was formed in 2014 by combining many regional cable TV operators in the country.
For Unicom, the smallest of the Big 3 carriers, it becomes imperative to seek a new operational model to reduce its capital expenditure to avoid over-investment in the 5G network.
Striking a partnership with one or more of the other players is necessary, given that Unicom lags far behind China Mobile and China Telecom in terms of business scale even though it was the only state-owned operator that has had private investment from internet giants like Tencent, Alibaba and Baidu.
During its interim results presentation, Unicom said a “co-build, co-share” strategy can deliver material cost saving for the operator if it can reach a network sharing deal with rival carriers.
“If we had a deal with China Mobile, we can put our resources on our network rollout in major cities. We can lease China Mobile’s rural network coverage so our users can roam to China Mobile’s network when our network is not available,” Chairman Wang said at a news conference.
He promised to “timely disclose” any deal “once a cooperation agreement is reached.”
Network quality used to be a key differentiator for telecom carriers in the market. But as mobile technology evolves to support device-to-device communications, it could prove difficult for a single operator to have full coverage across all regions in a vast country such as China, especially as the 5G network will be comprised of high frequency and mid-frequency bands to serve different usage.
Leveraging different partners for better network coverage does seem a good idea, if not the only way out.
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