Chinese Mobile Usage And Equipment Sales Set To Go Through The Roof This Year Bringing Down Prices Globally With Multinationals Desperate For A Piece Of The Action

Philip Stone January 9, 2007

The mobile telecom numbers coming out of China are already staggering and they’re about to get a whole lot bigger. Cell phone users grew to 455 million last year, they sent 12 billion text messages during the 2006 seven-day Lunar New Year Holiday and on December 31 Shanghai Mobile alone handled 194 million text messages. China Mobile alone added some 50 million new users to reach 300 million subscribers. And they haven’t even started 3G yet!

So it’s little wonder that multinational deals continue to be done to be a part of that business. Google, for instance, has announced a partnership with China Mobile, the country’s largest telecommunications carrier, to provide mobile phone online search services. Google has not had a happy time in China trying to catch up with Baidu.com, the country’s top search engine so the mobile deal is that much more important. 

Success is not guaranteed  – there is plenty of research out there saying users are not willing to pay a lot of money to do Internet searching on their mobiles and pricing will be key, but there are more than three times as many mobile users as there are Internet subscribers. Internet usage rose 30% last year to 132 million.

And global equipment suppliers can hardly wait until the government very shortly starts announcing licenses for 3G mobile technology using its own domestically produced TD-SCDMA/GSM standard. The government has promised 3G networks would be up and running for the 2008 Beijing Olympic Games, but it is cutting things very close because of quality problems experienced with producing its domestic standard.

According to Xinhua, the Chinese news agency, China’s major telecom operators will be going to domestic financial markets very soon to raise around 100 billion yuan ($12.8 billion, €10 billion). The multinational equipment suppliers are salivating over getting some of that business the money will provide.

And globally the world’s mobile users are going to benefit from far lower prices for their mobile handsets. As Wang Jianzhou, chairman and ceo of China Mobile, said last year, “”We want to make 3G handsets cheaper. After China’s participation prices will come down.”

And given the numbers involved, that’s one prediction that could safely be taken to the bank. Consider this: The government says China currently has 455 million mobile users and that figure is increasing by some five million a month. And according to a survey by the China Center For Information Industry Development (CCIS) fully 77% of Chinese mobile users say they plan to upgrade to 3G when it becomes available. Another 17% said they might buy 3G, and only 6% said they wouldn’t spend the money.

Doing the math that 77% means today, let alone later growth, there’s a waiting Chinese 3G handset market of some 350 million users.

And there will be a lot of focus on keeping those handset costs down because the CCID said that price would be a major decider in 3G’s success. According to its survey, 76% say they expect to pay less than 2,500 yuan ($320, €250) for a handset and only around 24% said they would go for very high-end phones costing more. Since 3G phones will cost more than the current 2G phones, the report believes the uptake might be slow at first until the volume kicks in lower prices.

That pricing fits in, however, with what such companies as Dopod China is producing. Dopod concentrates on high-end phones that allow users to check e-mail, listen to music, and transmit pictures and they are priced from 2,000 yuan.

China is already well into the handset export market, according to research by BDA, an independent company that studies China's telecom and technology sectors.  BDA says some 32 million handsets were exported in 2006 – about 9% of total Chinese handset output -- up from 20 million in 2005.  Many of those phones are produced for foreign branded vendors and operators including, Sagem, Vodaphone, Orange, and Alcatel. According to International Data Corporation, around 1 billion handsets will be sold globally this year and about 40% of that volume will be Chinese.

During the first 10 months of 2006 China produced 376 million handsets, an increase of 63.8% over the year before, according to the Ministry of Information Industry. Spurring sales, and turning most domestic handset makers profitable, was that around 25% of the user base tossed away their old phones last year to buy newer models. With the increase in sales came a decrease in pricing, and that in turn brought even more new customers, especially from rural areas. And the big cities profited, too.  In Shanghai, for instance, some mobile package rate fees were slashed by around 75% in 2006.

And the retailers are beginning to get their act together. One such retailer, EBT Mobile China, this week raised £7.7 million ($15 million, €11.25 million) on the London markets to expand its shops and kiosks. The company currently has 190 outlets in 18 Chinese cities and plans to increase this to 250 outlets by the end of the year.

All of this adds to why Chinese mobile growth figures are set to increase by even bigger percentages this year. It had been predicted that after a growth of 58.6 million subscribers in 2005 that 2006 would see a slowdown to about a 48 million growth, but by the end of November the figure for 2006 had already exceeded 61 million. China Mobile alone said it added 4.67 million subscribers in November.

Mobile subscribers now easily outrank subscribers to fixed lines and that differentiation is increasing.  According to the Ministry of Information Industry, about 33.9% of people in China now own a mobile phone compared with 28.3% with fixed lines. And take a thought that the current 455 million total mobile users only equals one-third of the population! .

The main question to operators is how they can make money from that mass of mobile humanity. Text messages are already popular – there were 389.1 million sent up to November, 2006, an 42% increase over the year before and China Mobile is now said to make about 20% of its revenue from non-voice products. According to the CCID it’s mobile TV, video calls, and high-speed Internet as top tier “wants” with music downloads and multimedia transmission further down the list.

And there is more than one way for a vendor to make a tidy profit.  Hong Kong’s South China Morning Post reported that the Jiangxi branch of China Mobile put up for auction a phone number with eight consecutive 8s – the number 8 is considered a particularly lucky number for the superstitious Chinese.  Winning bid – some 350,000 yuan ($45,000, €34,500)!