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Date: July 2, 2021
 5G in China: Alpha Position, Key Players and Opportunities from Energy Perspective
 
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[Summary]
  1. China has embraced the 5G-equipped society and stood out from the global competition by the widespread 5G cell towers.
  2. Four domestic network operators – China Mobile, China Unicom, China Telecom and CBN, have been deploying 5G cell towers strategically according to their respective advantages.
  3. 5G cell towers potentially stimulate the market of backup power batteries, specifically the Lithium-Ion Phosphate battery and the battery reuse (known as Echelon Utilization) businesses. 
 

 
As 5G applications show up in our daily life more frequently, it is no longer a buzzword. Some may still wonder what is exactly ‘5G’ since it has referred to a concept more than technology.
 
The Fifth Generation (5G) telecommunication technology is universally defined as a combination of three characteristics: eMBB (enhanced Mobile Broadband), mMTC (massive Machine Type Communications) and URLLC (Ultra Reliable Low Latency Communications). 
 
Metaphorically speaking, think of 5G as a water pipe. The eMBB is like the volume in the water pipe, mMTC represents the number of output the pipe connects, and URLLC can be in analogy to the steady water flows at fast speed. In practices, each application needs different aspects of 5G benefits. E.g., education mostly needs eMBB for remote communications, manufacturing demands mMTC to connect massive devices in IoT, and entertainment mainly relies on URLLC, together with eMBB, for real-time transmission of audio and images.
 
As 5G is transforming the world, China has become one of the vanguard countries that pilot 5G telecommunications and gained reputations for its remarkable performance. So, how is the situation in China? What makes China so progressive in the world? And any opportunities for energy players to look at?
 
This article introduces the status quo of China’s 5G in comparison with other major pilot countries, then focuses on some highlights in driving this tech-industry momentum and last provides insights about energy-related business opportunities out of the unstoppable trend.
 
Leading position: overview and statistics
  • Global position
In the chasing game of 5G, China, together with South Korea, Japan and the US, has been listed in the tier one countries for the 5G commercialization process. In 2025, these four countries are expected to account for over half of global 5G users. Beyond their borderlines, these countries also expand their 5G soft power across the world via major equipment developers in telecommunications, with the top four being Huawei (China), Ericsson (Sweden), Nokia (Finland) and ZTE (China) taking up the most share in the global 5G telecommunications equipment market.
 
In evaluating a country’s competency in 5G development, the number of 5G cell towers (as known as cell towers) is the foremost indicator to look at. In China, more than 718,000 of 5G cell towers are established, according to the Statistics Bureau (as of December 2020).  
 
Figure 1 The comparison of 5G cell towers among major countries
Source: LMTV.GSAM. 2021.03.17. 从全球5G最新进展 看中国5G的真正实力
 
In a projection into 2035, China may continue holding the alpha position in the global 5G industry. During 2020-2035, the US and China are expected to stand out from the 5G R&D investment and capital expenditures, at an amount of USD 1.2 trillion and USD 1.1 trillion respectively. 
 
Figure 2 The 5G-investment share among major countries
Source: HIS Markit. 2019.5.27. 2019年中国5G产业发展现状及趋势分析报告
 
This much input can lay an incredible impact on society, basically created jobs and economic output. In 2035, the 5G industry is expected to create 9,500,000 jobs and USD 984 billion in economic output in China. US may only see 3,400,000 created jobs and USD 719 billion economic output although it's said to devote the most in 5G R&D and capital expenditure, according to HIS Markit.
 
Figure 3 The ranking of 5G industry economic outcome among major countries
Source: HIS Markit. 2019.5.27. 2019年中国5G产业发展现状及趋势分析报告
 
  • 5G cell towers: domestic landscape
On the roadmap to 5G commercialization, the cell tower is the underlying brick to lay on. Compared to 4G cell towers, the same-sized area needs more 5G cell towers to be covered. Theoretically, the number of 5G cell towers should be 1.3x – 1.4x of 4G cell towers. In 2020 (*the ratio can be lowered to 1.0x – 1.2x considering the cooperation of China Telecom and China Unicom), there were 7,160,000 4G cell towers; in 2030, there are estimated to see over 15,000,000 5G cell towers according to CCiD.
 
The three years between 2018 and 2020 are the gold time for 5G cell tower development in China. three major operators - China MobileChina Unicom and China Telecom have been widely deploying 5G cell towers and hit a world record. The accumulated number of 5G cell towers grew dramatically, from 0 to 718,000 - a number higher than any other country in the world. 
 
Figure 4 5G cell towers in operation among three major operators
Source: 1) Public materials of China Mobile, China Unicom and China Telecom. 2)ITHome. 2020.12.9. 2020 年度盘点:三大运营商 5G 网络建设超前完成 3)XinhuaNet. 2020.6.6 商用发牌一年 5G发展稳中有进
 
5G Operators in China: partnership and deployment 
In China, network operators play a dominant role in the telecommunications industry. In the industry size of RMB 225 billion, the network operation services take up at around 30.5%. Chinese network operators,including China MobileChina UnicomChina Telecom and China Broadcast Network (CBN), call bids for cell tower equipment, construct cell towers and sell network packages to consumers. All officially authorized with 5G operation licenses on June 6, 2020, they form a four-pivot deployment which is meant to boost healthier 5G market competition.
 
Figure 5 The 5G industry chain in China
Source: 1) Cciding Telecommunications Academy. 2020 White Paper on 5G Industry Development
 
  • Partnership based on 5G resources 
In the 4G times, China Mobile has come top with more market shares in the mobile services and wider-spread cell tower infrastructure. Now stepping into the 5G era, the Chinese government has practiced an anti-monopoly strategy in the telecommunications sector and established a four-pivot network landscape by distinctively allocating the spectrum resources. On Dec. 6th, 2018, the Ministry of Industry and Information Technology completed the distribution of sub-6GHz frequencies under 5G standards. (see the graph below). 
Figure 6 The 5G spectrum allocation in China
Source: 1) Public statements of Ministry of Industry and Information Technology. 2) DVB CN. 2021.01.25. 一图懂中国广电5G 700MHz.
 
5G spectrum includes 700MHz2.6GHz3.6GHz and 4.9GHz, whose coverage radius gets smaller as the bandwidth increases.
  • China Mobile obtained the spectrum band 2515MHz – 2675MHz (160MHz, named n41 frequency) and band 4800MHz – 4900MHz (100MHz, named frequency n79). 
  • China Unicom got the spectrum band 3500MHz-3600MHz (100MHz, n78) and China Telecom spectrum 3400MHz-3500MHz (100MHz, n78). 
  • In January 2020, CBN gained the usage permission of 4.9GHz-4.96GHz (60MHz) and later 700MHz (so-called ‘golden band’) in March 2020.
Meanwhile, China Telecom, China Unicom and CBN also share the usage of indoor 5G spectrum 3300MHz-3400MHz.
 
Based on these resources, China Unicom and China Telecom have formed a strategic league ‘One 5G Access Network’ to share their spectrum resources while building their own 5G core network; on the other side, China Mobile and CBN have been cooperating to share the spectrum resources of 700MHz (from CBN) and 2.6GHz (from China Mobile) based on independent operation and brands.
 
China Unicom and China Telecom: The Co-Build & Co-Share project can achieve faster network speed, expand the 5G network with shared costs (construction, utilities, and maintenance) and improve user experience. Another prominent benefit brought by the project is the improved financial effectiveness: (1) Over RMB 40 billion was saved in capital expenditure for the two carriers combined. (2) Savings in operating expenditure include tower leasing fees, maintenance fees and utility fees. In the future, the two operators will further their cooperation into ‘Co-Build, Co-Share & Co-Maintenance’.
 
Figure 7 The Co-Build & Co-Share Project between China Unicom and China Telecom
Sources: China Telecom and China Unicom’s websites. 2020.08
 
China Mobile and CBN: the collaborative framework agreement was initiated in January 2021. Unlike the veteran China Mobile, CBN has just become a telecom operator since October 2020.  Under the agreement, the two operators will jointly determine network construction plans, invest in a 700MHz wireless network at a ratio of 1:1 and explore model innovations in products and operations while maintaining respective independent brandings and operations. 
 
Figure 8 the cooperative framework between China Mobile and CBN
Sources: China Mobile’s website. 2021.01.26. 與中國廣播電視網絡有限公司訂立之有關5G共建共享的具體合作協議
 
In this way, China Telecom and China Unicom’s league can suppress the monopoly trend of China Mobile; meanwhile, China Mobile still has a new growth pole by the alliance with the newly established CBN.
 
  • Deployment strategy: SA or NSA? 
In China, around half of 5G cell towers are established by China Mobile. How can the single operator accomplish so many construction projects in such a short time? After all, the other two operators are not standing by and waiting. The key lies in the mode of 5G cell towers they choose. The choice of 5G mode will impact the deployment speed, market coverage and potential profitability.
 
The international telecom standards institution 3GPP introduced Non-standalone (NSA) mode in December 2017 and later Stand-alone (SA) mode in June 2018 for the roadmap from 4G to 5G. Generally, the NSA network can be built on top of existing cell towers, e.g., 5G NSA can be built on 4G cell tower; while 5G SA mode is independent of 4G network infrastructure and takes more time to deploy. SA (Standalone) provides significantly better performance than NSA (Non-standalone) in terms of eMBB, mMTC and URLLC. But it is economic and efficient to deploy NSA at the early stage and later upgrade to SA network. In the long-term, SA architecture is more economically feasible and requires early investment.
 
Globally, there are two paths to reach the ideal 5G SA mode: one-step path and gradual evolvement path. The one-step Path 1 requires heavy capital investment and a longer construction period but delivers a higher-quality network for users and carriers. Path 2 is more complicated but more quickly to make fast roll-out and easier to transform step by step. Generally, Chinese operators tend to prefer Path 1 in comparison with foreign companies like Samsung or DoCoMo.
 
Figure 9 Two paths from NSA to SA (not all options)
Source: Zhihu. 2018.12.15. 看懂5G NSA和SA
 
Three major Chinese telecom operators all strategize to ultimately shift to SA 5G NR (New radio) from NSA or NSA+SA dual mode. To realize full coverage of the 5G SA network, the three operators have developed their evolution paths considering: (1) the tradeoff between construction speed and marketing roll-out, (2) the cost-effectiveness of new SA 5G deployment and existing 4G infrastructure.
 
China’s two telecom leagues are playing different strategies based on their infrastructure foundations and spectrum resources. China Mobile chose the combination of Path 1 and Path 2. Via Path 2, the operator can rapidly expand 5G service nationwide, though its quality is not so good as path 1. To keep the leading position in the industry, China Mobile may prioritize speedy deployment before improving the quality.
 
China Telecom and China Unicom primarily take Path 1, the one-stop path to SA mode. Since SA mode gives higher quality, it becomes the priority choice for China Unicom who is the only selected 5G network service provider for Winter Olympics 2022. 
Figure 10 The deployment strategy of major cell tower constructor
Source: Integral analysis
We also checked the package price for consumer network services of these three operators and found out their prices are generally similar. Thus, if consumers want higher 5G quality, you can try China Unicom’s network services. For some consumers out of the coverage of China Unicom, it is also reasonable to choose China Mobile’s services. After all, all three operators are ambitious to deliver 5G services of homogeneous quality throughout China in the future. 
 
Recommendation: business opportunities for energy companies
5G cell towers mainly include macro cell (‘宏基站’) and small cells (‘小基站’). The latter can be further categorized into Femtocell (‘飞基站’), Picocell (‘皮基站’) and Microcell (‘微基站’). A macro cell is required to install backup power batteries in case of emergencies such as blackout, regardless of 4G and 5G. As stepping into the 5G era, the widespread construction of 5G cell towers demands more backup power capacities. By theend of 2020, there are over 718,000 5G cell towers across China and around 8 million 5G cell towers are still needed to cover the same size as 4G towers (*according to the 1.0x – 1.2 ratio mentioned earlier). (*Note: in this article, the cell tower is a macro cell.)
 
Figure 11 The visual components of a 5G macro cell tower
 
The current popular backup battery for 5G cell tower is Lithium-Iron Phosphate (LFP) battery, which has charging-cycle times of over 3,000 and longevity of over 10 years. The normal lead-acid power battery can only be used for 3-5 years with 500-600 times of charging-discharging.  
 
A 4G cell tower needs a backup power capacity of around 11.2KWh and the backup power capacity needed for 5G can reach approximately 21.2KWh, the almost double capacity of 4G backup power. (Source: Orient Securities. 2020.3.14. 磷酸铁锂产业链系列报告(二):5G 布局提速,基站电池有望全面铁锂化)
 
The number of 5G cell towers is expected to reach 3,110,000 in 2022 and increase by 1,500,000 every year as of 2025. Based on that, the LFP annual capacity will reach 31.8 GWh in 2023 and maintain until 2025.
 
Figure 12 The needed backup battery capacity for 5G cell towers
Source: Orient Securities. 2020.3.14. 磷酸铁锂产业链系列报告(二):5G 布局提速,基站电池有望全面铁锂化
 
Indeed, the LFP market has come into the spotlight, especially by the uptake of 5G cell towers nationwide.China Tower, the state-owned major telecom cell tower constructor, purchased LFP at an amount of 2GWh for both 4G and 5G towers. In 2021, China Mobile also purchased LFP batteries of 923 million Ah at 3.2 V, the equivalent capacity of 2.954 GWh. ( Source: 163.com. 2021.5.8. 投标限价23.67亿元!中国移动开启又一轮磷酸铁锂电池采购!)
 
Another niche battery business benefiting from the 5G wave is battery reuse, also known as echelon utilization which can serve as a backup battery solution for cell towers. As the increasing number of used power batteries is becoming a prominent issue in the EV industry, a new battery resource emerges for less energy-demanding applications, e.g., low-speed NEVs, communication cell towers, and power storage equipment. (see [Sparking a Second Life of Power Battery – PART 1. An Overview of Battery Reuse in China])
 
By 2023, the total retired power battery in China would amount to 84.17 GWh (nearly half of the production of Lithium-Ion batteries the world produced in 2019). In China, three types of market players are eyeing recycled batteries, including battery makers, EV makers and comprehensive utilization enterprises (综合利用企业). (see [Sparking a Second Life of Power Battery – PART 5. Business Model and Key Players])
 
Recycled batteries can be used for 5G cell towers. As the major constructor, China Tower has chosen a high-efficient and economic solution. Up to 2019, China Tower has used an echelon utilization battery capacity of about 4GWh in the backup power field of about 300,000 towers nationwide, equivalent to the retired battery capacity of 100,000 electric passenger cars. 
 
As for geographical focus, the map shown below indicates the potential growth of 5G cell towers. In this unbalanced map, provinces that have released 5G construction plans are centered in East and Middle China. South-western provinces, such as Guangdong, Henan, Sichuan, Yunnan and Chongqing are also embracing a boom of 5G cell tower construction, as well as tremendous demand for LFP batteries or echelon utilization market.
 
Figure 13 The provincial construction plans for 5G cell towers in China
Source: 1) Public statements of Ministry of Industry and Information Technology. 2020.1.21/2020.12.24/2021.01.31. 2) CCiD. 2020.12.17 .5G发展2020展望白皮书.
 
As the 5G becomes ubiquitous in daily life, the 6G time comes near sight. To realize 6G times, it needs times of the amount of 5G cell towers for the same-sized area. Besides, a 6G cell tower will consume more energy, indicating a larger amount of backup power battery capacity in need. (To be tuned for our next article about China’s 6G).
 
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