All Eyes, and Ears, on China: Telecom Opportunities in this Olympic-Sized Country

The opening ceremonies at the Beijing Olympics featured a curious combination of human and digital elements.  Thousands of drummers, dancers, Tai Chi-ers, and calligraphers twirled and whirled for a dumb-struck audience. 

And if Chinese telecom vendor ZTE (wwwen.zte.com.cn) and Olympic sponsor China Mobile (CHL) succeeded in their marketing efforts, some of those watching the show used new ZTE smartphones to snap photos, text friends, and call home.  If they wanted to see it all on a small screen, they’d also be able to watch the Olympics using the phone’s advanced TV and video capabilities.

As part of a major promotion, ZTE distributed 40,000 dual-mode GSM handsets, which also link into China’s developing multimedia-capable telecom network, to Olympic athletes, coaches, volunteers, special guests, and other officials.

When holders of the phones are in one of six main Olympic host cities, where China Mobile has built TD-SCDMA networks, they will be able to link into signals from the base stations serving those cities.  And when they get out of range of those stations, the phones’ dual-mode GSM capability will link into satellite signals.

China Mobile is using the Olympics as a telecom proving ground, eager to show the world, and the world’s visitors, that China has world-class telecommunications capabilities.  It’s been a long road to this point, and there are still many glitches to be worked out, both in terms of the technology and the commercialization of that technology. 

Licensing for the established 3G standards have been kept on hold by China’s governmental regulators, who intend to wait until the success of China’s own network has been proven before going ahead with 3G licensing later this year.

The Olympics are a chance for the Chinese network to prove itself, not just to the holders of those free handsets and to the Chinese government, but also to other international telecom vendors.  You can bet that companies like Nortel (NT), Alcatel-Lucent (ALU), and Qualcomm (QCOM) are watching closely to see if they’ll be able to move in for a piece of the large and potentially highly-profitable Chinese telecom market, once regulators give the licensing go-ahead.

ZTE’s phones themselves face tough competition, since most Chinese consumers own handsets from Nokia (NOK) and other companies.  It’s not the handsets, however, that are at the heart of this transitional moment; it’s the network behind them.  And the success or failure of China Mobile’s play to develop this country’s network will have long-term effects on China’s – and the world’s – telecom marketplace.

Vivian Wagner
Analyst, Bourbon & Bayonets