As the world moves towards the era of 5G, Chinese carriers are the forefront of mobile communication evolution for the first time. Since the issue of new 5G test frequencies in November 2018, operators have sped up the construction of the 5G trial network aiming to commercialize 5G services in H2 2019, ahead of the original schedule.

Back in 2013, China Mobile launched China’s first commercial 4G network. The high traffic introduced by 4G paved a path for the prosperity of the mobile internet. Six years later, Chinese operators are taking a leading role in 5G development globally. They are attaching a greater than ever importance to 5G which will bring in unprecedented experience in terms of ultra-fast speed, massive connection, higher reliability, and lower latency.

Exhibit 1: 5G Performance KPIs

Forthcoming 5G commercialization in major cities and nationwide network deployment progress

Right from the beginning, China has been active in 5G commercial preparation. The Ministry of Industry and Information Technology (MIIT) reserved 500MHz spectrum among 3.3GHz~3.6GHz, and 4.8GHz~5.0GHz, for 5G as early as June 2017. At the end of 2018, operators officially received 5G test bands. China Telecom and China Unicom, both received 100MHz spectrum in the mature C-band. Seen as a way to balance the market, China Mobile, holding over 931 million mobile users, was granted a less popular spectrum. It means extra efforts will be required to foster the supply chain for 2.6GHz and 4.9GHz. With the readiness of spectrum and the upcoming issue of 5G licenses (expectations are that on World Telecommunications Day, May 17, operators will get temporary 5G licenses), operators have accelerated the commercial process from all aspects.

There are 18 pilot cities embracing 5G trial networks in 2018. But already operators are planning to improve 5G coverage in major cities and extend the 5G network to a larger section of the population. For instance, China Unicom just unveiled its 5G new brand “5Gⁿ” and “7+33+N” network deployment plan in April,  aiming to carry out 5G contiguous coverage in seven key cities (i.e., Beijing, Shanghai, Guangzhou, Shenzhen, Nanjing, Hangzhou, Xiongan), hotspot coverage in 33 second-tier cities, and experiment service-oriented 5G private networks nationwide. This 5G rollout scheme reflects the unified approach taken by operators when it comes to the early deployment of 5G commercial networks. The focus of operators is on optimizing the eMBB experience in major cities and progressive exploration of industry applications.

Given the huge investment involved in 5G network construction, expected to cross RMB 1.3 trillion (roughly US$192 billion), there have been calls for co-building and co-sharing 5G network. Operators tend to improve investment returns and reduce the total cost of ownership (TCO) instead of blind expansion. Moreover, the demand for 5G is unlikely to explode in the short-term, partly due to the absence of core network capability for uRLLC and mMTC. At Counterpoint, we expect that 5G network in China will grow gradually, presenting a relatively slower growth curve compared to that of 4G, even though operators are racing for the title of being a 5G commercial pioneer.

Exhibit 2: 5G Developing Timetable in China

Between SA (Standalone) and NSA (Non-standalone) architecture, Chinese operators have set SA as their goal and direction for the long run. But they will take NSA as an interim solution to make 5G a reality in 2019.

Commercial 5G smartphone readiness

Smartphones with 5G capability will be critical to stimulate the early adoption of 5G networks among users. Fortunately, operators, smartphone makers, and chipset vendors have been in close collaboration and will launch commercial models from H2 2019. Huawei plans to launch at least three models – Mate 20X 5G in Q2, Mate X in July, and a new 5G flagship in Q4 – utilizing its in-house Balong 5000 modem which supports both SA and NSA. Other models, such as OPPO Reno(5G), Vivo NEX(5G), Xiaomi MIX3(5G), and ZTE Axon 10 Pro(5G), are based on Qualcomm X50, which only supports NSA.

Exhibit 3: 5G Smartphone Sales will Significantly Grow with Price Down

Given the high price of the first generation of 5G smartphones using a standalone modem system, the shipments are projected to be less than five million through 2019. However, sales will increase notably over time driven by hardware cost reduction, attractive tariff plans by operators, and the entry of Apple

Diversified use scenarios driven by 5G

Unlike its predecessors, the 5G use case is far beyond just the smartphone. In the near future, a majority or 80% of cellular connections will come from the communication between machines or machine to human. To fully exploit the potential of 5G, operators are investing heavily in service and application innovation across domains. These include initiating alliances, building open labs, and platforms. By providing a differentiated service in various scenarios such as cloud gaming, cloud VR, 4K/8K video streaming, home and industry automation, autonomous driving, and healthcare, 5G enables new business models with diversified revenue streams for operators.

Exhibit 4: The Real Value of 5G Relies on Differentiated Applications

In the 5G era, Chinese operators will redesign their network architecture leveraging SDN (Software Defined Network) and NFV (Network Function Virtualization) technologies. Through the cloudification of the core network and integrating 5G with AI, big data, IoT, cloud computing, and edge computing, operators along with industry partners will foster a broad and inclusive ecosystem. This will not only lay the foundation of telecommunication in the next decade but also shape the future of industrial internet.