3G in China: Backhaul Bonanza

Now that China is on the road to full 3G service deployment, mobile operators are intent on delivering services quickly to meet the pent-up demand. The rush to deliver more robust services is already putting strain on China's backhaul resources, as more users sign on for 3G data offerings.

In China, 2G and 3G networks will coexist for an extended period of time, in part because mobile operators will continue trying to extract value from existing resources. So the emphasis regarding backhaul is on products that accommodate a mix of network and technology types.

But as documented in the latest Unstrung Insider, "Mobile Backhaul in China: Sizing the Market Opportunity," China's backhaul market will also be guided by access technologies. Because the country remains a tightly controlled market, the number of mobile players is limited. The Chinese government has segmented the 3G market into three sectors, each based on a different standard. China Mobile, the de facto dominant operator, uses TD-SCDMA as its 3G standard. The second leading operator, China Unicom, has the license to operate WCDMA networks. And China Telecom, which stands a distant third in the mobile market, has a license to build CDMA networks.

The three-way battle for mobile business is triggering an immediate surge in backhaul expansion, with capital expenditures (capex) on backhaul by the three operators expected to exceed $10 billion in 2009-2010. Where the backhaul sector goes from there depends on how the competing networks shake out. It is likely that two operators will emerge as strong competitors in China, but whether all three current operators can build sustainable businesses remains to be seen. If the field narrows, opportunities for backhaul technology suppliers will become scarcer.

For now, however, all three operators are in expansion mode regarding backhaul. The new Unstrung Insider identifies and analyzes the prospects for the top seven contenders on the technology supplier side: Alcatel-Lucent (NYSE: ALU), Ericsson AB (Nasdaq: ERIC), FiberHome Technologies Group , Huawei Technologies Co. Ltd. , Nokia Siemens Networks , Shenzhen China-Light Electronic Co. Ltd., and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763). The report also evaluates prospects for deployment of Ethernet backhaul solutions in China, as well as the likely progression to LTE.

— Xuefei Peng, Analyst at Large, Unstrung Insider

The report, "Mobile Backhaul in China: Sizing the Market Opportunity," is available as part of an annual subscription (12 monthly issues) to Unstrung Insider, priced at $1,595. Individual reports are available for $900. To subscribe, please visit: www.unstrung.com/insider.