China’s rural telecom sector hit by slowdown

China may be one of the fastest growing markets for telecommunication services, but large parts of the country saw a precipitous drop in the number of new users as well as lower revenue and widening losses during the first quarter, according to China’s Ministry of Information Industry (MII).

While demand for telecommunication services remained strong in China’s urban areas, the number of rural telephone subscribers grew by just 2.8 million, a decline of 41 per cent compared to the same period last year, MII said, calling the decline a “new situation.”

During the first quarter, rural telecommunication revenue totalled nearly 4.8 billion renminbi (US$579 million), a decline of 6.4 per cent compared to the same period last year, MII said. First-quarter losses from rural telecommunication services totalled 150 million renminbi, an increase of 15.4 per cent over the year-ago period, it said.

In a statement, MII called on telecom officials to take measures to reverse slowing rural demand for telecom services but did not offer an explanation for why growth had slowed or what steps could be taken.

Part of the reason for slowing rural telecom growth is that the potential market is smaller and less affluent than in China’s urban areas. “It may mean that the addressable (rural telecom) market has become saturated in terms of who can afford these services,” said Ted Dean, managing director at research firm BDA China Ltd.

This reflects the sharp economic disparities that exist between the country’s prosperous urban areas and its impoverished countryside, which is home to the majority of China’s population.

China’s urban areas, particularly those located along the country’s eastern coast, have seen household incomes swell and living standards rise over the past two decades. At the same time, however, economic growth in China’s vast rural areas has remained stagnant following initial gains in the 1980s and late 1970s, when the country first began to initiate economic reforms.

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