China’s Ministry of Industry and Information Technology (MIIT) has officially reserved 3.3-3.6 GHz and 4.8-5 GHz for 5G service, and it will likely free up 3.6-4.2 GHz for future 5G allocation, according to Jefferies analysts.
While this marks the first time the MIIT has ever mentioned making more spectrum available at low frequencies (below 3 GHz) for 5G, the analysts believe the biggest piece of spectrum available in that range is at 700 MHz.
The MIIT previously issued a request for opinions for high frequencies, so the issue of more spectrum at superhigh frequencies is not a surprise. “We always believed that China will eventually adopt mmWave for 5G as a supplement,” analysts Edison Lee and Timothy Chau wrote in a note to investors.
The analysts say they think China Unicom will end up with a significant cost advantage to compete effectively as a smaller 5G operator. “We continue to believe that the most sensible, and the most likely, solution is for SAPPRFT to take a stake in Unicom and in return allow Unicom to use the 700 MHz spectrum,” they said.
Even if the 700 MHz spectrum is not available to China Unicom, they still believe there are alternatives. For example, the MIIT might make available spectrum at 1 GHz or 2.5 GHz to Unicom for 5G services.
“Assuming Unicom will obtain allocation at 2.5 GHz, and China Mobile will be given 4.8 GHz-5.0 GHz for 5G services, the much lower frequencies for Unicom will still give it a significant cost advantage to allow it to achieve a healthy ROIC at a much smaller scale (e.g., 20%-25% market share),” they said. “We expect the government will continue to offer asymmetric regulations to boost the competitive position of Unicom in 5G.”
China Mobile is by far the largest operator in China based on subscriber numbers, followed by China Unicom and China Telecom; each of them are state-owned enterprises.
According to the Dell’Oro Group, China may be the largest 5G infrastructure market by 2021. Expectations call for capex of $280 billion between 2020 and 2030.