Speedier downloads on your iPhone? Not so fast in Asia

Speedier downloads on your iPhone? Not so fast in Asia

Hong Kong: As telecom equipment makers jostle to sell and promote their next-generation wireless technology, one question is left unanswered: are they building too much capacity at a time when demand doesn’t exist?

Companies such as Huawei , ZTE and Alcatel Lucent aggressively promoted their wares at the Mobile Congress Asia trade show in Hong Kong last week, touting speeds some 50 times faster than existing 3G networks.

On the surface, the numbers are compelling. Research firm Wireless Intelligence expects the number of LTE connections in Asia to total 120 million users by 2015 from virtually zero now, with China accounting for half of that number.

The LTE market is expected to be worth $6 billion by 2014, industry research firm Dell’Oro said, making it a lucrative growth area for telecom equipment makers such as Huawei, Motorola Inc and Nokia Siemens Networks .

However, investors of telecom equipment makers such as Alcatel Lucent and ZTE could be in for some pain before arriving at the promised land of high-margin data services, with both companies reporting weaker-than-expected results about two weeks ago.

“What customers want right now in India is good quality voice calls and basic data services that do not require a 3G network yet," said Sigve Brekke, Asia head of Telenor , which sat out of India’s recently completed 3G licence auction.

“What is a farmer working on the fields in India going to do with high-speed Internet access? He is more likely to need information about crop prices, which we can easily send over existing networks."

India, the world’s fastest growing wireless market with more than 500 million users, is still waiting for operators such as Reliance Industries and Bharti Airtel to roll out their third-generation networks, with a 4G network unlikely for the next few years as operators try to recoup the cost of building the infrastructure.

In China, the world’s biggest mobile market with more than 700 million users, only China Mobile has shown interest in looking at the fourth-generation Long Term Evolution (LTE) technology, with smaller rivals China Telecom and China Unicom staying quiet so far.

Huawei and ZTE’s reliance on emerging markets such as those in Africa and Asia could further dampen the outlook for their 4G business, as many operators there are unwilling to spend on an expensive network costing billions that may take years to recoup.

Even in developed markets such as Britain, the cost of upgrading the current network to 4G will not be economically viable until 2015 at the earliest as current networks are wide enough to meet demand, according to research firm Informa.

“In Asia, I don’t see there being much demand for high-end data services outside of Japan, Singapore, Korea and Hong Kong," said Wilson Chai, an analyst at Mirae Asset Management.

“There isn’t an ecosystem of cheap smartphones, plenty of software and a cheap data plan in countries such as China to help grow demand there."

Opportunity for smaller players

The lack of smartphones and supporting software will further impede the growth of LTE, just as the use of existing 3G networks only really took off following Apple’s launch of its iPhone and Research in Motion’s Blackberry.

Apple’s usual reluctance to jump at any new technology could also keep 4G from gaining widespread use among its users. The iPhone alone now accounts for nearly a fifth of all smartphone shipments, according to research firm IDC.

This presents an opportunity for smaller smartphone players such as HTC and South Korea’s Samsung Electronics to catch up with the likes of Nokia in the smartphone space together with its fatter profit margins.

“HTC is really leading the market in 4G technology so far," said RBS analyst Steven Tseng. “Their tie-ups with carriers such as Verizon means other operators are most likely to approach them when they want to launch their own 4G service."

HTC shares have risen about 150% so far this year, far outpacing a flat benchmark TAIEX index and higher than the median target price of T$830 set by analysts polled by Thomson Reuters.

One thing that does seem certain is that all consumers should start getting used to having to dig deeper into their pockets as carriers are eager to move away from the unlimited data plans commonplace earlier in the smartphone age.

Verizon Communications is considering charging customers based on the speed of their mobile data service, while other operators have also moved towards charging based on the amount of data downloaded.

“That’s where it helps not being a leader in the data space," said Telenor’s Brekke. “There is an increasing understanding that maybe unlimited data plans was not such a good idea after all."

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