COMMUNICASIA – China eyes data as mobile growth lags

Slowdown may be a relative term in a mobile market which is adding 5 million subscribers per month, but China’s two main mobile operators China Mobile (Hong Kong) Ltd. and China Unicom Ltd. are actively pursuing the mobile data market to maintain revenue growth, according to Duncan Clark, managing director of research company BDA China Ltd.

“The market is a long way from saturation, but there are questions being raised about finding the next 100 million users,” Clark said at the CommunicAsia show here Friday. “It is effectively becoming two markets-the very developed urban market in places like Shanghai and Beijing, and the rural and regional areas.”

China is now the world’s largest mobile phone market, with an estimated 167 million subscribers. That figure is expected to rise to 200 million by the end of this year. That represents an overall market penetration of 15 per cent, well below the rate in many developed nations.

But usage is concentrated in specific areas, according to Clark. Beijing has a penetration rate of 45 per cent, Shanghai 36 per cent, and Guangdong 27 per cent. At the other end are western inland provinces and Tibet, where penetration is less than 5 per cent.

The operators can grow revenue either by offering low-end services to the under-penetrated provinces, or by pushing high-end users in the urban centres to use more value-added services, Clark said.

“ARPU (average revenue per user) has dropped sharply since 1999 for a number of reasons,” Clark said. “Prepaid has been the big growth story and prepaid subscribers tend to generate a lower ARPU than contract users.”

“And even though the market is a duopoly, there is very intense price competition between China Mobile and China Unicom.

Both operators have made the move towards mobile data services. In May, China Mobile began offering GPRS (General Packet Radio Service) in 164 cities over its GSM (Global System for Mobile communications) network.

“China Mobile is first away with 2.5G, but GPRS demand has yet to be demonstrated,” Clark said. “We need to see some compelling applications.”

China Unicom is taking a different strategy. It is not upgrading its GSM network with GPRS, but offering to move subscribers over to its incompatible CDMA (Code Division Multiple Access) network, which it will upgrade to the data-capable CDMA 1x format soon.

But delays, high handset prices and inferior geographical coverage have dented this strategy, according to Clark.

“It couldn’t get any worse for CDMA,” he said. “There were high expectations, but delays meant that it came out too late, and it is time for some fresh thinking at China Unicom as the brand has become somewhat tarnished. Everything hangs on (CDMA) 1x.”

China Unicom has nearly reached the 1 million subscriber level for its CDMA network, but will fall well short of its year-end target of 7 million, Clark said.

The low-end market may see a renewed assault from the supposedly obsolete PHS (Personal Handyphone Service), which costs around half the price of a GSM subscription, and has won 8 million subscribers for mainly fixed-line operator China Telecom (Hong Kong) Ltd.

“It’s an old technology that has been revamped in China, and it is expanding because it’s low cost and uses calling party pays (CPP) which the GSM networks are not allowed to use,” Clark said.

Whether addressing the low end or the high end, operators need to place more focus on levels of service, which often fall short of users’ expectations, according to Clark.

“To go after those new users, there needs to be a big change of mentality and new management methods,” he said.