Chinese tower industry dwarfs rest of the world, migrates to towerco business model

The Chinese telecom tower industry dwarfs that of every other country on the planet. With an estimated 900,000 towers in the country today, and another 900,000 towers needed as China migrates from the current blend of 2G and 3G to 4G, you can see why the Chinese market is attractive to tower entrepreneurs and passive infrastructure vendors. With the launch of joint venture China Tower Company, are there opportunities in China?

There are almost 1.3bn mobile subscribers in China. However, while the US wireless market generates US$200bn per annum China generates a little over US$1.5bn on a customer base four times the size, which illustrates the gulf in ARPU.

 

The Chinese mobile market is currently led by China Mobile, the world’s largest MNO, with market share of 62.4%, derived from a customer base of 780mn users, of which 228mn were high speed users (3G and 4G) in Q3 2013 (data courtesy of www.trefis.com). China Mobile has not engaged in significant infrastructure sharing to date, although China Unicom (23.2% market share) and China Telecom (14.4% market share) have shared infrastructure on a case by case basis.

The wireless data revolution is only just beginning in China, with many users still on 2G and just 29% of China Mobile’s subscribers on 3G and 4G. China Mobile uses the TD-LTE 4G standard while Unicom and Telecom were both awarded licenses on the FDD-LTE standard.

At the turn of 2014, 19 MVNO licenses were awarded in China. The MVNOs time to market will doubtless be accelerated by the launch of China Tower Company in July 2014, which has the potential to open access to China’s vast mobile network. Variously referred to as China Tower Company (which is the name TowerXchange will use), National Tower Company, or China Communications Facilities Services Corporation Limited, this unique shared entity was created as a joint venture owned by China Mobile (40%), China Unicom (30.1%) and China Telecom (29.9%). China Tower Company has registered capital of RMB10bn (US$1.6bn), and has started to announce the opening of regional offices.

In phase one, China Tower Company will focus on build to suit, with an initial project to build 120,000 towers over the next three years already announced, although the majority of those 900,000 towers needed for 4G in theory will ultimately be built by the new towerco. Phase two, which may be completed as soon as mid-2016, may involve the injection of most, or perhaps all, of China’s telecom towers into China Tower Company. The structure of such a transaction has yet to be agreed, and whether it actually happens remains to be seen. The final stage would bring private capital into the company with an IPO in due course.

TowerXchange is aware of one other independent tower company operating in China, with a tower count currently under 1,000 but growing fast.

There’s plenty of room for growth in China, with penetration around 90% and growing at 14% CAGR compared to 6% in the US. Much of the growth potential in the Chinese telecom and tower markets is to be found in rural areas where high speed services are not widely deployed. China already accounts for more than half the world’s green powered base stations (22,763 compared to 20,188 in the rest of the world, according to the GSMA Green Power for Mobile Deployment Tracker), with more green power deployments expected as rural network extensions continue.