China is the world’s largest mobile telephone market. By the end of 2006, China boasted 461 million cellular telephone users, representing a 35.3% penetration of the overall population. By comparison, China had only 376 million landline telephone users at the time. The Chinese Ministry of Information Industry estimated that the number of Chinese mobile users would reach 520 million by 2007. Within China, mobile communication is the most profitable sub-sector of the telecommunications market. The 2005 Annual Report by the Ministry of Information Industries showed that, of the total telecommunications industry revenue of $70 billion in 2005, over 45% was generated from mobile communication sales.
One reason for the predominance of cellular telephones over landlines is the lack of teledensity in China at the time cellular systems began maturing. Rather than running telephone wires to every house, it became cheaper to connect individuals by installing a single cellular base station in a quadrant of town. And as digital cellular technology superseded older analog cellular technology, existing Chinese cellular carriers have been able to pack more subscribers onto existing networks, without an additional spectrum allocation required.
China Mobile and China Unicom are the leading mobile telephony service providers in China. China Mobile operates the largest GSM network in the world and China Unicom operates both a GSM and a CDMA network.
Text messaging has been far more popular in Asia than in the United States, although it is rapidly gaining ground in the U.S. among youth. After a period of allowing text message and other mobile content providers to proliferate, in 2006 the Chinese mobile operators re-asserted control over content on their users’ handsets due to complaints about spam and unwanted mobile content. Now Chinese mobile content providers are restricted to taking, rather than pushing, orders – and only doing so after receiving a double confirmation from the user.
In 2006, Chinese mobile operators reported approximately $9.2 billion in data revenues, due largely to text messaging usage. For China Unicom, this represented nearly 20% of revenues, while it represented about 18% of revenues for China Mobile, which reported SMS usage volume of 353.38 billion text messages. On average, data services contributed about $2 of revenue per month per user.
In 2006, more than 17 million Chinese used their mobile phone to connect to the Internet. Internet usage in China. 86% of the mobile Internet users are in urban areas, while slightly more than 17% are in rural areas.
The Chinese government seems inclined to play a more prominent role in international standard setting for wireless networks. It has proposed one of the 3G standards adopted by the International Telecommunications Union (ITU), called Time Division-Synchronous Code Division Multiple Access (TD-SCDMA). In January 2006, the Chinese Ministry of Information Industry announced that TD-SCDMA would be the country's 3G standard, with trials of the technology beginning in mid-2006. However, as of mid-2007, only Motorola and Samsung had committed to making TD-SCDMA handsets. Meanwhile, in May 2007, the Chinese government confirmed that European WCDMA and American CDMA2000 standards would also be approved for use in 3G networks and that a 3G network would be deployed before the 2008 Beijing Olympics.
While not immediate competitors in the mobile telephony space, the fixed line (China Telecom, China Netcom, and China Tietong) and satellite (China Satellite) telephony service providers in China are competing with China Mobile and China Unicom [CHU.N] in a bid to build out and run a Third Generation (3G) wireless network, which would operate at a higher speed than existing cellular networks, and thus allow more data applications. The Chinese government has not yet made the decision on when it will issue 3G licenses or how many licensed it will offer, however China Netcom, China Telecom, China Mobile and China Unicom have all said they are investing in 3G and Beijing has committed to the launch of 3G before the 2008 Summer Olympics. South Korea’s SK Telecom has already made a $1 billion investment in China Unicom Ltd. to offer 3G services in China. The U.S. Department of Commerce estimates that China’s 3G carriers will spend $72 billion in the coming six years to build up 3G networks with nationwide coverage.
China is already the second largest market for consumer electronics, behind the United States, in the world. Mobile handset sales are a major contributor to this market. In 2006, over 110 million mobile telephone handsets were sold in China. This market continues to expand, driven by increasing purchases of high-end smart phones with advanced features in urban coast areas, combined with increasing penetration of lower-cost handsets in rural areas. The expected launch of 3G wireless service in 2007 or 2008 should trigger another wave of handset purchases as existing users upgrade to phones that leverage the 3G network’s ability to provide mobile video, audio, games, and data. Additionally, dedicated data devices that run on the 3G network may also proliferate. According to a recent market research survey, over 80 million Chinese cellular phone customers would like to switch to 3G. One Asian market research firm has predicted that interest in the Beijing Olympics will drive mobile video sales to more than 32 million in 2008.
Upon joining the WTO, China signed the Information Technology Agreement (ITA), which eliminated tariffs on all information technology products, including wireless handsets, by 2005. Accordingly, foreign companies have no tariff barriers limiting their sales in China. At present, Nokia and Motorola dominate the handset market; with over Nokia holding over 30% of the market and the two companies together representing nearly 50% of the market. The remaining competitors command between four and ten percent of the market. According to the China Electronics News Daily, at the end of 2006, the top seven mobile handset suppliers in China were:
Mobile phones are sold through both standalone cellular stores, as well as department and home appliance chain stores. As of mid-2006, there were about 47,000 dedicated retail phone stores, which are rapidly expanding from the cities to the more rural regions. China is also starting to mimic the U.S. sales methodology of bundling handset sales with subscription service. By 2006, the U.S. Commercial Service estimated that fifteen percent of all GSM handsets were sold in conjunction with a service sale. At present, the near-monopoly provider of CDMA handsets is China Unicom, the only CDMA mobile network operator in China. In 2006, China Unicom sold 95% of all CDMA handsets.
China is the largest manufacturer of mobile phone handsets in the world. In 2005, 303 million handsets, using either GSM or CDMA technology, were produced in China – representing 36% of the worldwide production that year. The leading manufacturers in China are the usual suspects: Motorola, Nokia, Siemens and Samsung. According to the China Electronics Journal, China will likely manufacture 340 million mobile phone handsets in 2006 and export 250 million of them.