Right on the heels of receiving official licenses to launch commercial 5G networks in June, China Telecom and China Unicom have struck an agreement to build and share network infrastructure to execute this vision. A shared network infrastructure would help circumvent the obstacles of 5G deployment by leveraging the synergies of their combined resources.
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Right on the heels of receiving official licenses to launch commercial 5G networks in June, China Telecom and China Unicom have struck an agreement to build and share network infrastructure to execute this vision. A shared network infrastructure would help circumvent the obstacles of 5G deployment by leveraging the synergies of their combined resources:
The two companies would be sharing 5G frequency bands to ensure their users’ accessibility to either of their 5G networks.
Despite having complementary bands—200 MHz of contiguous spectrum in the 3.5 GHz band—their brands and businesses will remain independent.
China Unicom will build 5G infrastructure in 8 provinces in northern China while China Telecom will oversee 17 provinces in the south.
China Unicom and China Telecom will also share the responsibilities in building 5G networks in 15 major cities (Beijing, Shanghai, etc.). The construction responsibilities of 5G base stations will be based on the current number of 4G base stations the companies control in each city.
China Telecom and China Unicom are no strangers, having had a previous strategic alliance in 2016 for enhanced quality in delivering 3G/4G products and services. This previous partnership saw them working on “expanding network coverage; developing 6-mode phones; improving network service quality; encouraging innovative business models and pursuing cooperation with international carriers.”
China Unicom and China Telecom have expressed their receptiveness to China Mobile’s inclusion in this sharing agreement as well. China Unicom has also opened discussions with China Mobile about roaming cooperation in rural areas. These three companies had their own previous infrastructure sharing agreement (albeit on a smaller scale) in 2014, contracting China Tower Corporation to provide the construction, maintenance, and operations of their towers collectively.
The increasingly complex interconnected relationships between Chinese Mobile Service Providers (MSPs) does not stop there. China Mobile and China Broadcasting Network are separately considering a partnership in developing 5G networks and services as well. Originally set up as a cable television company, China Broadcasting was granted a license to operate as an MSP and a 5G license.
An Exercise of Rationality
The challenge of the large Capital Expenditure (CAPEX) required to implement fully functioning, expansive 5G network coverage is directly addressed with this network infrastructure sharing agreement. 5G is distinct from its predecessors due to the shorter wavelengths that it uses; the Chinese government has already identified millimeter wave bands of 24.75-27.5 GHz and 37-42.5 GHz. The nature of this high frequency band only permits a limited area of coverage, requiring a cost-intensive proliferation of small cell base stations for network densification. The issue of cost is not so much in the capabilities of small cells per se. A single MSP deploying a 5G network would argue that innovations such as Multiple Input, Multiple Output (MIMO) and Coordinated Multipoint (CoMP) can serve as cost-effective solutions for filling gaps in coverage and increasing bandwidth. The crux of the matter here is that independent small cell installations by an MSP working in isolation would result in redundancies of equipment deployed, inefficient utilization of physical space, and increases in site rent/acquisition, not to mention urban disruption and negative visual impact.
This agreement is also a remedy for the lagging revenue growth of the major Chinese telecommunications companies. The combined revenue of the top three Chinese telecom carriers (China Telecom and China Unicom being in the second and third spots, respectively) for the first six months of 2019 was RMB¥725 billion (US$101.4 billion), down by 1.2% on the year. This dip in revenue occurred despite a 5% increase of users, totaling 1.6 billion—a figure that exceeds China’s population. Network infrastructure sharing is the rational solution for coping with growing data consumption, as China’s imminent rollout of comprehensive 5G would not only increase data usage from handset devices but would also be utilized in diverse applications such as manufacturing, healthcare, and autonomous vehicles. China’s MSPs recognize that the growth rate of data consumption should not require an equal rise in infrastructure costs.
The main advantage that these two carriers have is their favorable spectrum holdings. Back in December 2018, the Ministry of Industry and Information Technology (MIIT) allocated 100 MHz of spectrum in the 3.4-3.5GHz bands to China Telecom and 100 MHz of spectrum in the 3.5-3.6GHz bands to China Unicom. From an engineering perspective, the contiguous nature of their spectrum (3.4-3.6 GHz) makes this partnership advantageous compared to a Multi-Operator Core Network (MOCN) partnership in which both parties would have to share non-contiguous spectrum. Wider spectrum channels enable increased data throughput, lessen engineering complexity in implementation, and improve spectral efficiency (bps/Hz).
China Telecom and China Unicom are focusing on substantial convergence while still preserving competitiveness in the consumer and enterprise market. These two Chinese MSPs are going for an “active tethered approach”—i.e., an active infrastructure sharing relationship that involves physical and electronic elements of the network. It seems that this partnership would be leaning towards an eventual MOCNdeployment, the modest form of actively shared network architecture as outlined by the 3rd Generation Partnership Project (3GPP).
Actively shared network architectures come in three types: MOCN, Multi-Operator Radio Access Network (MORAN), and Gateway Core Network (GWCN) sharing. In a MORAN arrangement, operators share network equipment but manage their spectrum and core networks separately, while a GWCN sharing arrangement involves the End-to-End (E2E) sharing of network components, spectrum, and a core network. In this case, China Telecom and China Unicom would only share radio access networks equipment and spectrum in this networkarchitecture but continue to maintain ownership and control of their own respective core networks.
The Bigger Picture
The favorable circumstance of this agreement is mainly attributed to China Telecom and China Unicom’s track record of collaboration and China’s main objective of rapid 5G coverage rollout. It would be a safe presumption that partnerships and collaboration of this nature would continue.
While it is no secret that these two companies’ shared history of cooperation is predicated on closing the competitive gap with China Mobile, it is interesting to note that they are leaving the door open for China Mobile to join in on this latest infrastructure sharing agreement. Logistically speaking, China Mobile’s possible inclusion in the Non-Stand Alone (NSA) 5G infrastructure project with China Telecom and China Unicom would increase economies of scale as they all have similar cell towers (managed by China Tower Corporation).
Telecommunication companies that are venturing into infrastructure sharing would have to have explicit scopes of physical and electronic asset sharing, a clear breakdown of revenue splits, and definite market allocation that extends to third-party Mobile Virtual Network Operators (MVNOs) as well. In conventional infrastructure sharing partnerships, there would be a certain degree of risk due to their complexity. This opens possibilities of delays in decision-making, changes of ownership (which would derail progress on negotiations/agreement itself), and anti-competitive behavior.
These scenarios are still plausible in the context of China Telecom and China Unicom (and by extension, possibly China Mobile and China Broadcasting Network). Market efficiency and oligopoly aside, there is a bigger overarching goal of eventual large-scale Stand Alone (SA) 5G deployment and China is determined to be an early adopter.