3G drives competition in China

Jane Wang/Ovum
17 May 2012

The increasing competitiveness in the Chinese mobile market is evident from the 2011 financial reports of country's three telco giants. Last year was the first time that all three operators aggressively drove their 3G businesses. While China Mobile continues to be the biggest, the race is close in the 3G market.

China Mobile's advantage in the mobile market is being threatened by its competitors', and it has still not received the fixed broadband license that will allow it to offer integrated services. China Telecom's CDMA network not only recorded a profit, it also became the company's largest source of revenue for the first time. China Unicom's 3G business made a significant contribution to its total revenues, and its growth rate was considerably higher than both China Mobile and China Telecom.

On top but slowing

China Mobile is still the largest mobile operator in China, but its revenue and subscriber growth rates have begun to slow due to increasing saturation in the 2G market and competitive pressures in the 3G market.

China Mobile's revenues grew 8.8% to 528 billion yuan ($83.3 billion) last year while its net profit increased by 5.2% to 125.9 billion yuan. Its subscriber market share fell to 66.5% while its share of new mobile subscribers was 49%, the first time that it has fallen below 50%. China Mobile's ARPU continued to decline, falling to 71 yuan ($11).

3G continues to be a small business for China Mobile in comparison to its rivals. Although the operator's 3G subscriber market share was 40% in 2011, 3G subscribers only accounted for 7% of its total subscriber base. In comparison, 3G subscribers accounted for over 20% of the other two operators' customer bases. China Mobile's TD-SCDMA 3G technology, which was adopted under policy pressure, has weakened the operator's ability to develop the 3G market. As a result, we believe that China Mobile will push for the rapid licensing of TD-LTE in China.

Mobile data revenues last year accounted for 26.4% of China Mobile's total revenues. With China Mobile hampered by its inferior 3G network and not having a fixed broadband license, the operator is using WLAN to offload an increasing amount of mobile data traffic to enhance mobile internet experience.

China Mobile's capex is expected to increase to 131.9 billion yuan ($20.8 billion) this year. However, it plans to shift investment away from the mobile network toward the transmission network and WLAN construction. This will help it offload mobile network traffic and prepare to support integrated services once its fixed broadband application has been approved.

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