China's still offering steady opportunities

China's capital expenditures for both fixed-line and new mobile infrastructure will climb from about USD14bn in 2002 to around USD16bn this year, according to Mark Winther, Group VP of Worldwide Telecommunications at International Data Group. Speaking at IDC's annual New Directions technology conference, Winther predicted that China's telecom CapEx total will reach USD19bn by 2004, roughly on a par with spending levels in 2001, before local deregulation temporarily slowed the acquisition of capital equipment for China's telecom infrastucture build-out.

The three biggest Chinese telecom carriers — China Telecom, China Unicom and China Mobile.— are currently spending 30–40% of their revenues on new plant and equipment to meet both fixed-line and wireless demand. And the capital efficiency rate for Chinese carriers is up to four times higher than that of comparable Western carriers.

The CapEx telecom expansion in China is running counter-cyclical to global industry trends, John Gantz, IDC's chief research officer and senior VP, noted. Over the next two years, as China's CapEx rate surges nearly 20%, capital spending by worldwide carriers for fixed-line and wireless will decline by 5% from USD127bn this year to USD121bn in 2004, the fourth consecutive year that global carrier CapEx will have declined since its 2000 high of USD195bn.

In the telecom services sector, China will grow 16% this year, compared to 11% in 2002 when China's telecom services revenues topped USD70bn — or about 8% of the total USD870bn global telecom services market.

Other, no-less-positive takes on this market were voiced at last month's China Forum event in Atlanta, organised by Lightwave and the Optical Society of America. Tom Hausken, director of Optical Communications.Components at market research company Strategies Unlimited, said, "By the end of 2003 China will have more wireless subscribers than wireline customers — both currently stand at about 200 million each. There is great potential in the market considering that the country's population is 1.3bn."

The Chinese government is developing and liberalising the country's economy and business environment with its rolling series of five-year plans. The latest of these for 2001–2005 has a special focus on telecoms development (see analysis p10). Legislation about requirements for foreign companies to JV before selling is also relaxing, although you will still need a partnership to offer telecoms services..Aside from the inward opportunities, Hausken also drew attention to the global growth of Chinese-based companies such as Hua Wei, whose international sales have grown over 100% per year for the past three years, and ZTE Communications.

ZTE's Dallas-based general manager neatly illustrated his vision of the current business potential in China. "In 1998–2000 it was gold, by 2002, that had been mined through to rock, but now we have dug through that to reach coal. That is still worth a profit margin of 10%."

Considering the rocky state of most Western optical markets at the moment, a "coal-style" market sounds pretty cosy. But the conditions for entry aren't any easier. Helmets on!

Matthew Peach Editor in Chief, Lightwave Europe
matthewp@pennwell.com

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