Race for 5G heats up: China's next-generation networks go online for as low as $18

Key Points
  • China turned on its 5G networks ahead of schedule on Friday, after initially targeting a 2020 launch.
  • China Telecom, China Unicom and China Mobile all unveiled 5G tariffs that start at around 128 yuan or $18 per month.
  • Experts warned of a number of challenges to adoption including a lack of 5G capable handsets and tariffs being too expensive.
  • China and the U.S. are locked in an ongoing trade war that has also turned into a battle over technological supremacy. 5G is one of the key battlegrounds.
Stands at the China International Fair for Trade in Services in Beijing on May 30, 2019
Visual China Group | Getty Images

China turned on its 5G networks ahead of schedule on Friday, as the country looks to push ahead with the next-generation technology amid its protracted trade war with the U.S.

5G promises super-fast data speeds that have the ability to support technologies like driverless cars.

China Telecom, China Unicom and China Mobile all unveiled 5G plans that start at around 128 yuan or $18 per month, but experts warned that the price could still be too high to drive wide-scale adoption.

The services offered by the state-owned carriers are all similar and go up to around 599 yuan per month for 300 gigabytes of data and 3,000 minutes of calls.

Initially, Chinese carriers were looking to begin the 5G rollout in 2020, but the time frame moved forward.

China and the U.S. are locked in an ongoing trade war that has also turned into a battle over technological supremacy.

The 5G space is one of the key battlegrounds and has become a politically charged topic. President Donald Trump said earlier this year that "the race to 5G is on and America must win."

The U.S. has also put pressure on Chinese telecommunications equipment-maker Huawei, claiming its equipment poses a national security threat because it could be used by Beijing for espionage. Washington has also been seeking to convince other countries to ban the company from their 5G networks. Huawei has repeatedly denied its equipment could be used for spying.

5G commercial services are now available in 50 Chinese cities, including Beijing, Shanghai, Guangzhou and Shenzhen, state-backed publication Xinhua reported.

Besides China, South Korea is the only other country to have a nationwide rollout of 5G. In the U.S., AT&T, Verizon, T-Mobile and Sprint and have launched 5G networks but only in certain cities.

5G challenges ahead

China is on track to becoming the biggest 5G market in the world.

The country will account for the largest number of 5G connections by 2025, bigger than North America and Europe combined, according to mobile industry body GSMA. China will have 110 million 5G users in 2020, or 7% penetration versus 3% in South Korea now, Jefferies said in a note this week.

While excitement has been building around the 5G rollout, a number of challenges to adoption still remain.

5G services in China have been priced cheaper than 4G on a per gigabyte basis. Despite this, analysts are still concerned that 5G pricing could be too high.

Jefferies analyst Edison Lee said China's 5G services per gigabyte are almost the same as South Korea's despite the country having a lower per-capita income.

"We are amazed China's 5G price plans give an average price per GB (US$0.39) that is almost identical to Korea's (US$0.38)," Lee wrote.

"As China's per-capita income is 69% below that of Korea, similar pricing would likely mean China will have a lower penetration than Korea," he added.

Another challenge is the lack of 5G-capable handsets on the market.

In the premium segment, Huawei has its Mate 20 X 5G and Mate 30 devices which can connect to the next-generation networks while Samsung's Note 10+ is also available. Chinese smartphone-makers Xiaomi, Vivo and ZTE also have 5G-capable handsets.

What is 5G?
What is 5G?

Ultimately, operators will need to convince users of the need to move to 5G. Some Chinese carriers have been offering discounts on certain devices to push consumers to upgrade to 5G.

"The real issue is: What does the consumer really see as the big difference between 4G versus 5G? ... For a lot of what consumers do today: very little, there won't be much difference," Vinod Nair, senior partner at advisory and investment firm Delta Partners, told CNBC. "That is why it is more challenging on the consumer side."

"Right now the launch in the consumer market is on a large scale, the sheer number of cities and amount of 5G sites rolled out is quite massive in terms of this scale. That itself will ensure the initial experience is good," Nair said.

"That, coupled with the pricing, as well as the handset subsidies, should make it easier to upgrade. Having said that, if the upgrades aren't attractive it won't be a fast upgrade cycle," he added.