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Chinese telecom groups shift focus to ‘east-west’ data project

Written by Nikkei Asia Published on   3 mins read

Spending to support new government strategy to offset decline of 5G investment.

After pouring billions of dollars into Beijing’s drive to wire China for 5G applications to support the country’s technological advance, state-owned telecommunications companies are now signaling financial backing for the government’s latest strategic initiative: building infrastructure to send data from developed coastal cities westward to inland computing centers for processing.

“This is one of the hottest topics,” said China Telecom chairman Ke Ruiwen during the company’s results call two weeks ago.

“We attach high importance to a significant project like this and proactively participate in utilizing our edge over cloud data and network fusion capabilities to pursue the company’s development,” he added.

While Ke did not quantify China Telecom’s financial commitment to the initiative, his company is raising its annual capital works budget by 7% to RMB 93 billion (USD 14.59 billion), a more aggressive move than its peers. The company’s spending for what it calls industrial digitalization is set to rise 62%, while its budget for 5G infrastructure will fall 11% to RMB 34 billion.

Various state media reports and company announcements use different English formulations to refer to the new initiative.

China Telecom, for example, calls it the “east-to-west computing resource transfer,” while rival China Unicom labels it “eastern data and western computing.”

But from what state officials have said, the project would involve 10 data center clusters linking western provinces to eastern population hubs.

The notion is to free up eastern computing resources for nascent real-time applications like connected cars, telemedicine, and smart manufacturing, while data centers in western provinces, where electricity and land are cheaper, handle less time-sensitive tasks like offline analysis and storage, according to Jefferies analyst Edison Lee.

He sees the project involving the construction of internet backbone exchanges and direct optical fiber networks to connect advanced routers in western computing clusters to eastern metropolises, estimating that spending on the initiative will be “much lower” than the RMB 200 billion invested in building renewable power networks for sending electricity eastward.

He projects the country’s three biggest state-owned network operators and infrastructure group China Tower will together spend about RMB 22 billion (USD 3.46 billion) on the initiative this year.

“We should give full play to the advantage of the country’s system and mechanism to make integrated arrangements at the national level,” said Sun Wei, deputy director of high tech at the National Development and Reform Commission, last month in an article posted on the agency’s website.

“The implementation of the project is conducive to promoting green development and utilizing green energy in western regions, and continuously optimizing the energy efficiency of data centers,” Sun added.

Jefferies sees the project as a positive for private data center operators like GDS Holdings, Chindata Group Holdings, and VNET Group, as well as suppliers for network systems like ZTE and Shanghai Baosight Software.

Taking advantage of the buzz around the project, Chindata this month disclosed that it has been investing heavily to build capacity in one of the locations identified in the government strategy as well as to secure land to build data centers in another designated hub, Lee noted.

China Mobile, the country’s largest network operator, this year is allocating RMB 48 billion (USD 7.54 billion) for “CFN,” or computing force network, which includes infrastructure for the east-west project.

“From now on, investment in computing force networks will gradually increase,” said chairman Yang Jie last week.

While that spending is due to rise, Yang emphasized that capital spending is set to cool off to reassure investors concerned that, as with 5G investments, returns from backing the new state initiative may not be substantial for operators. He said China Mobile’s overall capital budget is on course to increase just 1% this year, while the allocation for 5G networks will fall 4% to RMB 110 billion.

“Starting next year, unless there are special and significant items, the company’s capital expenditures will not increase,” Yang said. “It will be on a gradually decreasing trend.”

Rivals China Telecom and China Unicom are saving money by continuing to collaborate on 5G infrastructure, a move that has already enabled them to avoid RMB 210 billion in expenses.

“Overall capital expenditures for the next few years will be stable,” Unicom senior vice president Mai Yanzhou said earlier this month.

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.


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