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China Mobile Growing Faster Than GDP

In the past five years, as one of the country’s ‘pillar industry’, China’s telecom service industry has grown at a faster rate than the country’s GDP. Revenue from basic telecom service contributes approximately 2.1% of the country’s GDP, while value added telecom services contribute a further 3.2% to total GDP. China continues to extend its lead as the single largest mobile market in the world. The vast majority of services are GSM—China is the largest GSM market in the world—though China Telecom’s CDMA service is the second largest in the world.

By mid-2009, the number of mobile phone users reached over 670 million and mobile penetration was at 50.6%. The robust growth was due to an expanding rural market and the increasing number of people who have acquired more than one mobile phone. With many of the more prosperous eastern Chinese cities saturated, rural areas are the new target. However, this massive push into China’s rural areas has meant that ARPU is being squeezed. Both China Mobile and China Unicom have been grappling with a steady decline in the average revenue earned from new users. As in other markets around the world, this trend has been fuelled by the growing popularity of prepaid cards instead of the more lucrative postpaid subscriber contracts.

Consumers in China increasingly view fixed-line service as impractical, opting instead to use only mobile phones. China Mobile succeeded in attracting new customers away from fixed line operators China Telecom and China Netcom after a calling-party-pays system was implemented nationwide in 2007. The company also ramped up new service offerings such as mobile newspapers. The one-way charging also accelerated the substitution of fixed-line services by mobile networks.

In 2008 China added nearly 25 million subscribers per quarter with China Mobile accounting for over 70% share of the market. Although the 3G licenses had still not been issued, this did not stop the uptake of the Internet on mobile phones which, by end-2008, accounted for 73 million of China’s 298 million web users.

The long awaited 3G licences were finally awarded in late 2008 and by mid-2009 all three operators were aggressively building out their networks in over 340 cities across China. China Mobile was saddled with TD-SCDMA technology and already subscriber forecasts have been reduced as the operator struggles to sign up 3G users. China Unicom with its WCDMA licence and China Telecom with its CDMA2000 licence are expected to the fierce competitors in the bid to boost falling ARPU figures.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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