China Mobile Sees Surge in Data Traffic, Need for More Capacity
06/20/2012| 06:07am US/Eastern
-- China Mobile chairman sees 150% surge in data traffic this year
-- Sharp rise expected to continue in coming years, Xi Guohua says
-- Expansion of data traffic is pushing company to boost investment in its network
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By Paul Mozur and Juro Osawa
SHANGHAI--China Mobile Ltd.'s (CHL) chairman said Wednesday he expects data traffic on the company's mobile network to surge more than 150% this year, and that robust growth looks set to continue over the coming years.
While growing data traffic helps generate revenue, it also creates challenges, as the company will have to ramp up investment in its network to accommodate the growing volume of activity, Chairman Xi Guohua said in a speech at the Mobile Asia Expo, a mobile industry trade show.
Meanwhile, increased data traffic often comes at the expense of traditionally more profitable telecommunications services such as voice and text messaging, as mobile devices give users access to software-based forms of communication that don't generate revenue for telecom service providers.
For example, a service offered by Tencent Holdings Ltd. called Weixin allows users to chat and leave voice messages for each other without charge. Since its launch last year, Weixin has attracted about 100 million users, according to the company.
The trend in data traffic cannibalizing conventional communication methods, in combination with increasing saturation of China's mobile market, has led to a dramatic slowdown in China Mobile's earnings momentum in recent years.
China Mobile also faces tough competition from rivals China Unicom (Hong Kong) Ltd. and China Telecom Corp. to attract users of its third-generation services, which offer faster data speeds and more revenue per user than the more widely used second-generation services.
China Mobile has the disadvantage of using an internationally unpopular third generation standard, though it was developed and is favored by Chinese authorities. That means China Mobile is unable to offer the same variety of smartphones that its rivals can. For example, both China Telecom and China Unicom offer Apple Inc.'s iPhone, while China Mobile does not.
As a result, China Mobile has pushed for a quicker adoption of a fourth generation standard known as TD-LTE, which would help it better handle rising data traffic and attract more of China's high-end customers. It is testing services using this standard in a number of cities, including Beijing, Shanghai, Hangzhou, and Guangzhou.
Mr. Xi said the company's TD-LTE testing has proceeded smoothly and is attracting investment from local governments, as well as the central government. He added the company would "very likely" add to the 20,000 TD-LTE base stations it has already built this year.
However, he also acknowledged that the number of handsets using the new standard is limited, which has made it difficult to develop TD-LTE services.
"Now the device front is the bottle neck. [TD-LTE] is no problem from the technology side as long as we have enough devices. We can build the base stations within a very short period of time," he said.
Still, he said, this is only a short-term problem, as the standard is gradually being adopted around the world.
"Device manufacturers look at the market demand to decide how they allocate resources...I believe we [will] have a huge market in the future, so we will see more and more devices that use our standard. This is not a big problem for us at all. I think TD-LTE has a promising future," he said.
China Mobile hasn't announced when it will commercially launch its fourth-generation network, but analysts expect it to happen in the next two years.
Mr. Xi said the company is also looking at offering other business opportunities.
For example, he said that in the next two years, 2.5 billion industrial products enabled with mobile communications technology--such as cars, toys and entertainment devices--will be released in China.
He also said the company is talking with banks about providing financial services to customers.
Write to Paul Mozur at Paul.Mozur@dowjones.com and Juro Osawa at email@example.com.