Over the years, I have learned to look for “customer pull” to validate that a technology is going to succeed. In Silicon Valley, the terms “customer pull” and “technology push” are common lingo, used to describe the difference between a successful product and a pipe dream.
The mobile industry is full of tech enthusiasts that look at the world mainly as an evolution of technology. To the pocket-protector gang, 1 Gbps with 1 ms latency is enough to justify an investment in 5G, without any discussion of ROI. But the road from 2G to 5G is littered with the corpses of companies that had a “better mousetrap.” If we pay attention to the history of technology, we see that “technology push” is rarely never successful without a strong element of “customer pull.”
That brings me to the topic of this blog: China. In 2014, China Unicom deployed 100 Tbps of LTE capacity, well before they had that level of demand from end customers. They followed up in 2015 with another 50+ Tbps of capacity, much of it in rural areas. Here’s the interesting part: Nearly every China Mobile base station, urban and rural, has a huge level of LTE capacity, regardless of the demand in that location. Urban sites are used heavily, but rural sites are less than 2% utilized in many cases.
5G investment is coming soon in China as well. The numbers that I’m hearing about are staggering, but after their huge LTE deployment I suspect that they’ll deploy 5G in those rural areas, even if they’re still at 2% utilization for LTE.
NB-IoT is another example. The standard was accelerated by worldwide consensus, and many operators are in trials or early test deployments now. China Telecom jumped ahead by deploying over 300,000 new base stations over the past seven months. China Mobile and China Unicom are also following with massive NB-IoT commitments this year.
The truly amazing fact of the month: China Telecom already has more than 6 million NB-IoT bikes on the road with multiple bike-sharing partners.
Why do we have these massive rapid deployments in China? What is different over there?
Answer #1: The Chinese government is sitting on a mountain of trade-surplus dollars and they have decided to invest it in telecom leadership. China Mobile, China Telecom, and China Unicom are all state-owned enterprises. As a skeptical analyst, I make conclusions about their motivations by watching their decisions. It’s clear to me that China Mobile invested far too much money in excess LTE network capacity. Why? I believe that the government pushed China Mobile to invest more, in order to build up Chinese expertise and Chinese suppliers. The overarching goal is to promote China Inc., not China Mobile.
Answer #2: The three Chinese mobile operators compete with each other, but we should not think that they compete for end users in the same way that Western companies do. Instead, their primary competition is for prominence in Chinese government decision-making. After all, the government tells them how to set their prices and which technology to use. So each company is striving to be noticed as a success at the MIIT and higher echelons of government.
Answer #3: The entire supporting ecosystem of companies in China has learned to trust the top-down investment philosophy. LTE deployment was big and fast. NB-IoT investment is big and fast. Companies like Mobike, Ofo and others have been able to raise over $1.3 billion in venture capital from mostly Chinese sources and have invested the cash in bikes and field operations. Other similar investments are underway for industrial and building automation applications for NB-IoT. Chinese entrepreneurs and Chinese venture money are all lining up to use the NB-IoT network because, within China, the government’s direction is clear.
In my opinion, the bikes are headed for a crash. Each bike costs between $200 to $440 dollars, using figures provided by Mobike and Ofo. Price competition for bike rentals is fierce and has already dropped to less than 10 cents for a half-hour ride. Assuming that each bike is rented for 4 hours per day, (and assuming some reasonable costs for NB-IoT connectivity and overhead) the bike would be paid off in about two to three years. Unfortunately, theft and damage are rampant, so bikes won’t last that long.
What’s the bottom line? Should we think that China is different, and that “technology push” can succeed if the push comes from the top? Or should we conclude that the Laws of Economics are universal, like the Laws of Physics…and conclude that a major realignment is coming?
My opinion: It’ll be somewhere in between. There will be a realignment of expectations, and we’ll use the word “crash” in more bike puns in the future. But the big investments in infrastructure will remain. Now that the network is already lit up, companies with real consumer and enterprise customers will find ways to use it profitably. Device shipments in the millions of units are driving down chipset prices for HiSilicon and other local suppliers. The surge in China will be messy but will result in the world’s most dynamic wide-area IoT environment.
Joe Madden is principal analyst at Mobile Experts LLC, a network of market and technology experts that analyze wireless markets. The team provides detailed research on Small Cell, Base Station, Carrier Wi-Fi, and IoT markets. Mr. Madden currently focuses on trends in 5G, IoT, and Enterprise markets for wireless infrastructure. Over 26 years in mobile communications, he accurately predicted the rise of Digital Predistortion, Remote Radio Heads, Small Cells, and the rise of a Mobile IT market. He validates his ideas with mobile and cable operators, as well as semiconductor suppliers, to find the match between business models and technology. Mr. Madden holds a Physics degree from UCLA. Despite learning about economics at Stanford, he still obeys the laws of physics.