While handset customization isn't new to China, it's playing an expanding role in operators' efforts to increase subscribers and expand revenue from data services for different customer segments.
China Mobile and China Unicom have been making more direct purchases of customized models from handset makers in an attempt to differentiate their products, cut costs and reduce churn.
'Handset customization is now an unavoidable trend, and operators will continue to increase the level and scale of procurement and customization,' says Ma Daolin, VP of Unicom Vsens, a subsidiary of China Unicom responsible for the procurement of CDMA phones.
According to Ma, China Unicom has purchased more than 20 million customized CDMA handsets in the last two years. In the first nine months of 2007 alone, China Unicom purchased 10 million customized CDMA phones.
One of the key drivers for handset customization is cost. Ma says the average selling price of China Unicom's CDMA handsets has been reduced to 900 yuan ($120) last year from 1,400 yuan in 2005. He expects the price to fall to 800 yuan this year.
Segmented approach
Another driver is the need to differentiate its products and cater to needs of different customer segments. By working closely with handset manufacturers, China Unicom has been expanded its handset portfolio covering all the segments, he said. One strategy this year is to promote low-end branded handsets while expanding the mid-range music-centric phones and high-end dual-mode GSM/CDMA handsets. 'Handset terminals are now important for displaying an operator's services, and bundling these services with the handsets will be a growing trend in the years to come,' he said.
Meanwhile, China Mobile is increasing the scale of handset customization in a bid to 'empower' its value-added services development capability. According to China Mobile, the operator last year launched nearly 150 models of GSM/GPRS customized handsets from a wide range of handset makers. By end of 2006, one-third of the GSM/GPRS handsets sold in China were customized.
Going forward analyst predicts mobile operators worldwide will increasingly choose customized handset, especially private-branded models.
According to ABI Research, mobile operators will make as much as $10.7 billion worldwide through the sales of private-branded handsets in 2007, almost 23% more than the $8.7 billion earned in 2006.
By 2011 the market for operator private-branded handsets will grow to over 127 million handsets, ABI Research predicts.