Whilst discussions surrounding the licensing of 3G services in China show no sign of abating, those relating to the deployment of WiMax are also gaining momentum.
WiMax (or Worldwide Interoperability for Microwave Access) has been hailed as a viable substitute for existing fixed infrastructures, enabling the provision of wireless data services over long distances in a variety of different ways - from point to point links, to full mobile cellular type access. Rolling out WiMax networks is not as capital intensive as building other fixed infrastructures, so WiMax could, for example, be used in rural areas where there is little existing infrastructure, or in urban areas where the existing infrastructures cannot cope with increasing bandwidth demands.
Some estimate that the number of WiMax users in China will reach 8.39 million in 20111. This appears to be encouraging news for the legions of equipment vendors, operators, and investors who continue to see China as one of the most important markets for communications. Similar to many other countries, the legal and regulatory regime in China will be one of the key factors in determining whether current growth expectations are fulfilled and there are a number of hurdles which will need to be overcome.
As will be seen below, these include issues relating to spectrum allocation, technical specifications, licensing and foreign investment rules. The good news is that there are signs that at least some of these issues are being addressed, though timing is an issue and who will be the main beneficiaries remains to be seen.
What is WiMax? Why deploy it?
Technically, WiMax refers to the IEEE 802.16-2004 (fixed WiMax) and 802.16e-2005 (mobile WiMax) wireless broadband standards. Fixed WiMax is the standard design for indoor customer premises equipment that affords no or limited mobility. Mobile WiMax on the other hand is an extension or amendment to Fixed WiMax and is intended for mobile terminals.
WiMax is not the only wireless broadband access standard in the industry. In addition to the various proprietary standards developed by equipment vendors, most of which are not interoperable, other wireless broadband access standards do exist. These include the HiperMAN standard developed by the European Telecommunications Standards Institute (ETSI) and the WiBro standard developed and deployed in South Korea.
Whilst WiMax can operate across a wide range of frequencies (2 - 66GHz), the frequencies currently used are, generally, around the 2 - 6GHz ranges, where the service is believed to be of better quality and cheaper to provide. For example, Pipex Wireless in the UK operates its WiMax networks in the 3.6GHz band. The WiMax networks rolled out in 6 cities and four rural areas by BSNL in India operate in the 3.3GHz band.
The most significant technical advantage of WiMax compared to existing wireless broadband access technologies is the range. WiMax has a communication range of up to 50km (as compared to Wifi at 90m). It can cover 7,850 square kms, enough to blanket a city. In addition, in the lower frequency ranges, it does not require line of sight. It can also provide shared data rates of up to 70 Mb/s-enough bandwidth to support more than 60 businesses at once with T1-type connectivity and can support over a thousand homes at 1 Mb/s DSL-level connectivity. These characteristics make it well suited for a wide range of applications.
Fixed WiMax is seen as providing a wireless solution for “last mile” broadband access as an alternative to cable, DSL or fibre to the home. A range of players are closely examining WiMax to enable them to provide home and business customers with cheap last mile connectivity at high data rates. In areas without pre-existing physical cable or telephone networks, WiMax appears to provide a viable alternative to broadband access which would otherwise be too costly to provide. It can also be used in network infrastructure to provide, for example, backhaul between cellular base stations, for connecting Wi-Fi hotspots to each other and to other parts of the internet.
Mobile WiMax is capable of downlink speeds of 10.2Mbit/sec, even whilst travelling at speeds of as much as 120 km/h per hour. Mobile WiMax is increasingly being seen as an alternative (or perhaps complementary standard) to existing 3G cellular technologies. Indeed the WiMax industry body, the WiMax Forum (an industry organisation formed to promote and certify the compatibility and interoperability of broadband wireless access equipment that conforms to the IEEE 802.16 and ETSI HiperMAN standard), has even proposed that the ITU recognise it as a formal “4G” standard2.
The key attraction of WiMax though is cost. Analysts estimate that the CAPEX for rolling out a base station infrastructure based on the fixed WiMax standard is about 1% that of a DSL network. Further estimates put the cost per home passed at only US$8 for WiMax as compared to US$50 for DSL3. There is, therefore, a compelling case for both existing operators looking to expand their networks and new entrants to adopt WiMax.
Wireless broadband in China
According to reports, China will overtake the US to become the world’s biggest broadband market in less than a year, with subscribers expected to reach 139 million by 20104. However, this is largely due to DSL deployment.
Although a number of frequency bands (such as 3.5GHz, 5.8GHz and 26GHz) have been allocated for the provision of broadband wireless access in China, wireless broadband is very much in its infancy. Large-scale commercial deployment has been slower than might have been expected, due to a number of factors, including regulatory constraints.
As with most countries, the deployment of a new standard in the telecommunications sector is rarely straightforward. Even across the relatively developed OECD countries, the legal and regulatory position governing the deployment of WiMax still leaves questions to be answered5.
In China, whilst a regulatory environment for wireless broadband providers has been established by the regulator and policy maker, the Ministry of Information Industry (MII), this mostly pre-dates WiMax. The regulatory position in China’s telecom industry tends to be technology-specific (as opposed to technology-neutral) and this has led to the regime governing the possible deployment of WiMax being, at best, unclear.
The government’s main efforts have been focussed on the development of a proprietary 3G standard (TDSCDMA). As a result, WiMax has possibly not received the attention it might have. A lack of clarity over spectrum allocation and assignment, technical specifications and licensing, together with China’s foreign investment restrictions, has left WiMax in an unfavourable position.
Spectrum allocation and technical
There is at present no standard global licensed spectrum for WiMax, whether for fixed or mobile. In China, the PRC Radio Frequency Allocation Table sets out very broadly what services can be provided in a specified frequency band. A number of regulations further restrict the systems which can be used within the relevant bands.
On the basis of the most up-to-date Radio Frequency Allocation Table, published by the MII in October 2006, it would appear equipment using the WiMax standards/specifications could be deployed within the 3.5GHz or the 5.8GHz bands. There is, however, uncertainty as to whether WiMax could be deployed in the 2.5GHz band since this band has been allocated for MMDS (Multichannel Multipoint Distribution Service). It is also believed that the band has been reserved for future expansion of 3G services by the MII.
Communications systems must also comply with applicable technical specifications published by the MII.
The technical specifications for 3.5GHz fixed wireless access systems, however, make no reference to the fixed WiMax standard. This is, perhaps, understandable given that the technical specifications were approved in 2001, when the WiMax standards were only in their infancy. As far as the 5.8GHz band is concerned, it is generally believed that any specific technical specifications for broadband wireless access systems have not made references to the WiMax standards.
Accordingly, as the policies and regulations on radio frequency currently stand, it remains uncertain whether the WiMax standards can be used at all in any of the 2.5GHz, 3.5GHz or the 5.8 GHz bands.
The absence of formal recognition of the WiMax standards in China also means that equipment vendors are currently unable to obtain the necessary network access permits and related import permits for WiMax equipment in China.
Operators rolling out WiMax networks require spectrum authorisation (ie, rights to use certain radio frequency ranges), permits to establish and maintain the relevant base stations and telecoms licences (ie, right(s) to operate the telecoms network or provide the telecoms service). Obtaining these is likely to constitute a major regulatory hurdle.
Most of the frequencies within the 3.5GHz band have already been assigned to the winning bidders of the first auctions held in China. They include the five main domestic operators (China Telecom, China Netcom, China Mobile, China Unicom and China Tietong). Frequency spectrum is not freely transferable in China, so, unless the MII decides to re-farm and reassign these frequencies, it is unlikely that any will be available to new entrants looking to deploy WiMax in the 3.5Ghz band.
The 2.5GHz is generally believed not to be open for application at present. The only frequency band available appears to be 5.8GHz. While operators may, in theory, submit applications for assignment of spectrum in those bands, in practice it is unlikely these licences will be granted, particularly given the uncertainty surrounding WiMax standards.
Even if a spectrum licence were granted, one or more telecoms licences would still be required.
The type of telecom licence(s) which an operator requires depend on the applications to be deployed and the services it intends to provide. Facilities-based telecoms businesses generally require a Basic Telecom Business (BTB) licence, Type I or II. Value added service providers require a Value-Added Telecom Business (VATB) licence, Type I or II. Thus, a 3G mobile telecom business, for example, is classified as a Type I BTB whereas Internet Content Provider (ICP) business is classified as a Type II VATB.
The distinction between the licences is important. Despite China’s WTO commitments, at present, it appears unwilling to open up its BTB market (in particular Type I BTB). To date, only a handful of operators in China hold BTB licences, all of them stateowned. On the other hand, China is encouraging domestic enterprises to develop value-added services. Hence, it is relatively easy for domestic enterprises to obtain a telecom licence to operate an Internet Service Provider (ISP) or an ICP business, which are Type II VATBs.
WiMax can be used for a wide range of applications and therefore it is not possible to identify all the telecom licences which might be required. However, any facilities-based WiMax application is likely to require a BTB licence. The rolling out of a fixed wireless access network deploying the WiMax standard will therefore require a Type II BTB telecom licence for “network access service”. An operator that wishes to deploy WiMax to provide domestic dedicated circuits will also be required to obtain a Type II BTB telecom licence for “leasing and sale of domestic communication facilities service business”.
The practical difficulties of obtaining BTB licences are, therefore, likely to substantially limit large-scale commercial deployment of WiMax in China by new entrants. Existing BTB operators (who may still be required to obtain additional BTB licence to undertake WiMax based business) may also be reluctant to make substantial investments in WiMax networks until the regulatory position concerning spectrum is clarified.
Foreign investment and other related restrictions
A foreign investor interested in investing in a WiMax operator in China also needs to address China’s stringent foreign investment/ownership restrictions.
Not only are there caps on foreign investment (currently set at 50% for a VATB and 35% for BTB - to be relaxed in 2008 to 49%), but foreign investors are also required to obtain foreign investment approval from the Ministry of Commerce and the MII before they can invest in Chinese telecoms operators. To date, only a handful of these foreign investment approvals have been granted and they mostly relate to VATBs.
Other restrictions also apply in relation to BTBs. They include:
- foreign investors are only permitted to invest in telecom companies operating in 17 designated cities although this geographical limit will be lifted in 2008
- at least 51% of the equity/share interest in a telecoms operator that operates a BTB in China needs to be “state-owned”
- the foreign investor whose investment/ownership exceeds 30% of the total foreign investment/ownership in a BTB operator must already be a BTB operator in its home jurisdiction
As WiMax is more likely to be deployed as BTBs rather than VATBs, these regulatory and legal requirements will have a significant impact on the choice of JV partners and co-investors in any WiMax operator.
The current regulatory regime does not, however, completely preclude the use of new telecommunications standards or technologies. As a result, despite the restrictions which exist, China is seeing small-scale deployment of WiMax, particularly on a trial basis.
Recent press reports suggest all the main operators are conducting various fixed WiMax-related trials, although most deny they are preparing for large scale deployment of the standard. It has also been widely reported that the City of Beijing is planning to roll out 150 mobile WiMax base stations before the 2008 Olympics. These base stations will make use of the 2.4GHz band, which is an unlicensed band for purpose of spectrum authorisations and in relation to which wireless access is one of the permitted uses. The Government of the City of Tianjin is also reported to have concluded an agreement with the MII to develop and construct a network based on the mobile WiMax standard in the Tanggu area in the City of Tianjin.
Whilst there are, at present, a number of regulatory uncertainties and difficulties affecting the deployment of the WiMax standards in China, recent policy and regulatory developments may help to clarify the position for WiMax in China.
The Chinese government’s eleventh Five Year Plan and the 2020 Medium to Long Term Plan both recognise the importance of expanding the coverage of wireless broadband networks and developing wireless broadband technologies, in particular, China’s own technologies and standards. They also recognise the need for new laws on spectrum management, the need to review the administrative regulations and the need to allot and assign appropriate frequency bands for broadband wireless access.
Substantial progress has also been made on the development of industry standards based on fixed WiMax and mobile WiMax. China Communications Standards Association together with a number of equipment vendors and government-related R&D academies are currently working on such industry standards. It is believed that once these industry standards are completed, they will be submitted to the MII for formal approval.
It will be interesting to see what action is taken by MII on WiMax in light of these developments and whether it will act as a catalyst for large-scale deployment of WiMax in China. Financial as well as regulatory issues will, of course, play a large part in this.