How deliberately crippling its 4G rollout will help China bust a global monopoly and make billions

China Mobile is the world’s largest mobile telco by user-base with 787 million subscribers and the fifth-biggest company in China. Near the end of last year, it was the first telco in the country to receive a 4G license from China’s Ministry of Internet and Information Technology (MIIT), and the number of LTE subscribers on its network has grown strongly ever since.

China Unicom and China Telecom, the other two major telcos in China, were put at a disadvantage because they use the international 4G protocol, FDD-LTE. Despite applying for a license far in advance, China Unicom wasn’t allowed to offer 4G until almost four months after China Mobile, and China Telecom followed even later. To make matters worse, the MIIT only issued licenses for TD-LTE – the standard of 4G used by China Mobile – which is incompatible with the phones used by most of Unicom and Telecom’s 3G subscribers.

To this day, Unicom and Telecom still haven’t received their licenses for the 4G protocol that they want to use, so their FDD-LTE languish in an extended “testing” phase. FDD-LTE is the 4G standard used by the majority of phones and carriers in the rest of the world. Meanwhile, the two smaller telcos’ 3G subscribers have started migrating to China Mobile, seeking better coverage and higher speeds. China Unicom reported fewer new subscribers in Q1 2014 compared to the same period last year, and China Telecom reported it actually lost over four million subscribers in that period.

Now all this might sound deeply unfair to Unicom and Telecom, but remember: all three telcos are state-owned enterprises. Ultimately, they all play for the same team. In fact, the Chinese government through MIIT has orchestrated a scheme so elaborate and on such a grand scale that it would make Bond villains blush.

But to what purpose? Put simply, China makes oodles of money by pushing the TD-LTE protocol.

Boosting China patents

First of all, China claims to have a major stake in TD-LTE patents, so pushing the local standard is a method of reducing patent fees and lowering dependence on foreign IT firms – something the government is moving toward on a much broader scale than just telecommunications. Like other western technologies in the wake of Snowden/NSA, the Chinese government has raised questions over the security of FDD-LTE to discourage its use.

Furthermore, China’s domestic companies are leading manufacturers of the telecommunications equipment – towers, masts, signal boosters, etc – that work with TD-LTE. Companies like Huawei, Datang, and ZTE profit immensely, because they essentially monopolize the local market. Not only do these companies make money from equipment sales, they also receive royalties for the networks that use them.

If FDD-LTE is allowed in before TD-LTE gets a strong enough foothold, telcos could abandon TD-LTE to get better deals on equipment from companies like Lucent and Ericsson. They would no longer be restricted to Huawei, ZTE, and other domestic providers. In fact, all three telcos have applied for FDD-LTE licenses, but none have been granted by MIIT so far.

See: Huawei is quietly taking over the world, minus the US

As a result of all of this, hundreds of millions of mobile data subscribers in China are left without 4G unless they choose to switch to China Mobile. Even though the technical difference between the two 4G protocols is minor – they operate on different frequency bandwidths – the large majority of smartphones can only use one or the other. China Mobile customers also have a much narrower range of devices to choose from.

Last year, China Mobile finally scored a long-awaited deal with Apple to sell a TD-LTE-compatible version of the iPhone on its network. Even though China Mobile’s iPhone came out several months later than Unicom’s and Telecom’s, China Mobile later reported the majority of its 4G subscribers are using iPhones as of March.

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