The past week saw quite a few developments in the telecom sector. Sprint (NYSE:S) announced that it is planning to shut down iDEN’s network completely by the summer next year after it received approval from the FCC last week to use the spectrum to offer LTE services instead. Meanwhile, China’s second largest wireless carrier, China Unicom’s (NYSE:CHU) maintained its 3G lead by adding more number of 3G subscribers than rivals China Mobile (NYSE:CHL) and China Telecom (NYSE:CHA) in April. It also expects its 3G business to surpass its 2G revenues and become profitable this year despite the high cost of 3G smartphone subsidies.
Sprint Bolsters LTE Plans
The FCC approved the use of 800 MHz spectrum to provide advanced 3G and 4G services last week. This paved the way for Sprint to offer LTE services on the same spectrum that houses its iDEN network currently. Before the FCC voted to remove the restrictions on the 800 MHz band, the spectrum could be used only for operating 2G services such as iDEN. Sprint has been gradually phasing out iDEN to make room for LTE as part of its Network Vision Plans. It has now decided to expedite the process and shut down the iDEN network completely by June 30, 2013.
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The FCC approval comes at a time when the wireless industry is spectrum crunched and will therefore go a long way in meeting Sprint’s LTE needs as it aggressively builds its 4G network to make up for the huge gap in LTE coverage between itself and rivals Verizon and AT&T. Also, Sprint’s LTE plans will be boosted by the use of a frequency that is lower than the 1900 MHz band it is currently using to roll out LTE. The low band has better penetration through walls and can cover greater distances, so fewer cell sites need to be deployed. This will help Sprint control its burgeoning capital expenses while being able to offer a nation-wide LTE coverage at the same time. (see Sprint To Build LTE Over iDEN’s Grave)
China Unicom Rides 3G Boom
China Unicom’s focus on 3G in general and its early bet on the iPhone in particular is starting to pay off. The nation’s second largest wireless carrier said at its annual shareholder meeting Wednesday that it is poised to see 3G revenues exceed 2G for the first time this year.  The prediction could very well come true since 3G’s contribution is inching towards the 50% mark having accounted for about 43% of service revenues last quarter, up from 24.4% during Q1 2011. It also expects its 3G business to turn a profit this year as service revenues start to offset subsidy pressures.
3G penetration in China stands at a low but steadily growing 17%. This is giving smaller wireless carriers such as China Unicom ample opportunity to compete on an even ground with the otherwise dominant China Mobile. With more than 670 million subscribers, China Mobile is the largest wireless carrier in the world and has twice as many subscribers as China Unicom. But when it comes to 3G, the difference is not nearly as wide. As of April 2012, China Mobile had around 62 million 3G subscribers, only about 20% ahead of 52 million that subscribe to China Unicom’s 3G network.
Moreover, China Unicom has been closing the 3G gap with China Mobile by adding at least an equal number of 3G subscribers every month. In February, it added more than 2.8 million 3G subscribers compared to China Mobile’s 2.65 million. In March, however, both added almost the same number of 3G subscribers. And in April, it added about 26% more 3G subscribers than China Mobile and contributed more than 40% of the total 3G net adds in the country.
Apart from the incompatibility issues of smartphones with China Mobile’s homegrown 3G network, China Unicom’s new found 3G dominance is also due to its decision to promote 1000 RMB smartphones last year. It plans to accelerate 3G adoption further by promoting 700 RMB smartphones this year. The proliferation of affordable 3G smartphones has helped China Unicom take the upper hand in the 3G race with China poised to become the biggest smartphone market by the year-end. Its newly launched higher speed HSPA+ network should also help it lure more users into adopting 3G and increasing its ARPU levels. (see China Unicom Speeds Ahead In Smartphone Race With HPSA+ Rollout)Notes:
- China Unicom Says 3G Sales To Pass 2G As Largest Revenue Source, Bloomberg, May 29th, 2012 [↩]