Bottom line: China’s telcos won’t slide their 5G network towers plane if licenses are issued older than expected this year, though foreign equipment suppliers could goody if Huawei is hobbled by the US-China trade wars.
5G coming to China sooner than expected?
What a difference a decade makes. That’s well-nigh how long has passed between China’s issuing of 3G wireless licenses and the upcoming issue of 5G licenses two generations later. I remember in the 3G era how China dragged its feet forever, and finally issued licenses several years without the rest of the world. This time virtually it appears to be moving increasingly quickly, driven by what towards to be political and economic factors.
The topic has popped into the headlines then this week with word that China’s telecoms regulator will “soon” issue 5G licenses. The signals coming from the Ministry of Industry and Information Technology (MIIT) have been pointing to a release of licenses this year all along. But this could midpoint that will happen sooner rather than later, since many were previously expecting licenses toward the end of the year.
We’ll take a squint shortly at how this will stupefy China’s big three telcos, which will now be charged with towers 5G networks that will forfeit tens of billions of dollars. We’ll moreover squint at the likeliest beneficiaries, which would mostly be the big telecom equipment suppliers including hometown giants Huawei and ZTE (HKEx: 0763; Shenzhen: 000063), as well as global giants Ericsson (Stockholm: ERICb), Nokia (Helsinki: NOKIA) and Samsung (Seoul: 0005935).
But first let’s delve into the geopolitics that’s pushing this topic higher and higher onto China’s priority list, as well as the country’s previous track record in 3G and 4G. As I’ve said above, China was a bit of a foot dragger on 3G well-nigh a decade ago, rolling out its system several years without the rest of the world.
Part of the delays were due to an industry restructuring that reduced the number of carriers from 4 to 3 at that time. But flipside part was simply that China wanted to wait for the technology to mature in other parts of the world surpassing spending billions of dollars on it at home. The 4G era was similar in terms of timing for license issuing, as China was dickering virtually with its own homegrown standard tabbed WCDMA, which ultimately ended up getting left by the wayside.
Front of the Herd
That brings us to 5G, where China is really jostling to be at the front of the herd, plane though South Korea and the US have once formally rolled out limited service. China’s big transpiration of heart owes to two reasons, including its wanting to support homegrown players like Huawei and ZTE. That desire has only wilt stronger in the current US-China trade war, since the US has vetoed Huawei and ZTE equipment from its networks.
The other reason for China’s enthusiasm is the growing importance of wireless high-speed data transmission to a wide variety of cutting-edge applications that will power many services of the future. Those include the likes of self-driving cars, tele-medicine and many Internet-of-things applications. All of those and many others are targeted for strong state support in China, which sees such areas as hair-trigger in the transition from a manufacturing to services economy.
China’s three telcos, China Mobile (HKEx: 941; NYSE: CHL), China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA), have once begun towers trial 5G networks, and have mostly spoken their capex plans for this year. That ways they’re unlikely to yo-yo those plans just considering the regulator moves up the issue of licenses by a few months, since unexpected heavier spending would cut into their 2018 profits.
From the equipment supplier point of view, all the names I mentioned whilom squint to be big beneficiaries of the move. In the past I would have said Huawei would be the biggest beneficiary, though the visitor could get tripped up this time by US sanctions versus it that towards to be at least partly politically motivated. That could spell some new opportunity for global players Ericsson, Nokia and Samsung. But that said, I do suspect that Huawei will get when into the picture when the US and China settle their trade difference, perhaps by the end of the year.