Many of China's key industries are booming, and the telecom sector is no exception. The country's three mobile operators continue to attract new customers at an enviable rate - the three added another 61.7 million mobile subscribers in the first half of this year.
The county's 920 million mobile subscribers is certainly a huge figure but equates to only 68% penetration. With millions of individuals still waiting to have a mobile phone, the level of competition among the top three players is nowhere near the intensity of markets like Indonesia and India, with each having more than ten mobile operators.
The world's largest mobile operator by subscriber volume, China Mobile, added 32.9 million new subscribers in the first six months of this year to reach a total of 616.8 million, effectively controlling the market with 67% share. China Unicom now has a total of 181.6 subs and China Telecom is third with 108.4 million.
China's economic growth has been driving the need for more sophisticated services as subscribers get increasingly hungry for mobile content. Operators have responded to this insatiable need by pumping in RMB 289 billion ($44.6 billion) in developing 3G networks. Having gotten off to a slow start in the early years, the three operators are finally reaping reward for their efforts. According to the latest figures by China's Ministry of Industry and Information Technology (MIIT), growth in 3G subscribers has jumped 56.7% since last December to reach 73.8 million subscribers through June, pushing 3G penetration to 8%.
The growth is further fueled an affordable range of smartphones. Mid-range handsets now cost between RMB700 and RMB900 ($108 and $140). And China Telecom has announced that it will subsidize 42% of the price of selected 3G smartphones. Frost & Sullivan expects the 3G penetration rate to reach 11.2% before the year's ends.
As 3G adoption gains momentum, the world's second largest economy is getting ready for the next technology leap. China Mobile has been the center of attention as it takes the market on a global scale with the advanced version of TD-SCDMA, TD-LTE. Clearly, the operator is keen to ensure that history does not repeat itself and so far, it has been making all the right moves.
On the devices side, the operator has worked with more than ten major semiconductor and equipment manufacturers, including Apple, to place their bets on TD-LTE. Their warm reception toward the 4G technology is not surprising since populous markets like Japan and India will be jumping onto the same bandwagon.
Moreover, in view that large-scale trials of TD-LTE will easily span over another year across key cities in China, it will provide sufficient time for handset manufacturers to roll out multi-mode dual-standby TD-LTE devices in 2012.
A key question is: when will TD-LTE hit the China market? A few weeks ago, Zhang Feng, director of the Telecommunications Development Department of the MIIT, pointed out that the issuance of the licenses will depend on when the technology will mature. This sends a clear signal that the Chinese government is in no hurry to launch TD-LTE.
A possible reason is that 3G is just starting to gain steam in China and the government may wants telcos to maximize their huge investments - China Mobile spent RMB 141.9 billion ($21.9 billion) developing TD-SCDMA. Even though the Chinese government clearly supports TD-LTE, it would not be surprising if the regulator holds off the 4G spectrum allocation until TD-SCDMA generates a higher yield.
However, if China wants to promote TD-LTE to the world, it has to showcase its success back home as quickly as possible. With this in mind coupled with phases of the trial testing due for partial completion by next year, we can expect TD-LTE to be deployed in selected cities by late 2012. Despite the technological superiority of 4G, 3G will continue to enjoy a healthy growth rate in China. We are confident that 3G subscribers will take up 32.5% of the market share by 2016.
As TD-LTE matures over the next three to five years, the MIIT may well mandate the use of its home grown 4G standard among all China mobile operators so that domestic companies will no longer need to pay foreign patent owners millions of dollars for international standard licenses.
Serene Chan is an industry analyst for Frost & Sullivan's ICT practice, Asia Pacific.For more info contact: djeremiah@frost.com or Jessie.loh@frost.com
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