Which Country’s Entry Into the 3G Mobile World Will Reduce Handset Costs Globally? Which Country in 2005 Added 59 Million Mobile Customers? Which Country Expects to Have 440 Million Mobile Users This Year? One Answer Fits All: China

Philip Stone March 9, 2006

The statistics coming out of China recently has staggered the mobile telephone world. China expects to add 48 million mobile subscribers in 2006, which actually means things are slowing down a bit –it added 58,604 million new mobile subscribers last year. And according to the Information Industry Ministry that means a third of China’s population will have a mobile phone by the end of the year. Is it any wonder that you mention China to content and equipment providers and their eyes glaze over?

And it’s not just mobile phones. Almost on a daily basis there are headlines from the Chinese media such as “Guandong Telecom Accelerates ADSL speed” or “China Telecom Upgrades ADSL in 26 Provinces.”

China TechNews.com reports, for instance, that an online survey conducted of Chinese “netizens” by Sina.com says that 72.93% want the updated ADSL. And that China Telecom is going to launch an IPTV service that it calls a “gold mine”.

With the 2008 Olympic Games in Beijing in mind, China will probably award its first 3G licenses this year – it delayed doing so two years ago -- and it is estimated the network will cost some $12 billion to be ready in time for 3G television reception of those games. Many of the world’s telecom equipment providers  -- already having made local alliances -- are looking to get some cut of that pie.

Wang Jianzhou, chairman and chief executive of China Mobile (Hong Kong) Ltd, -- Asia’s most valuable telecom company and with 250 million subscribers on the Mainland it has the world’s largest number of subscribers in one country  -- says that with his subscriber base his company should be able to persuade vendors to bring down the prices of handsets and other equipment, bringing benefits to the 3G universe as a whole.

“We want to make 3G handsets cheaper. After China’s participation, prices will come down”, Chairman Wang said.

China Mobile, in which Vodaphone has a 3.28% stake, says it added customers at the rate of 3.9 million a month in the last quarter. All told, the Industry Information Industry estimates there will be 440 million mobile phone subscribers in China by the end of the year. Impressive when one considers the global mobile community is around 2 billion.

One reason that China Mobile is doing so well is that it is having some success selling content, whereas in Europe this has been a mixed bag at best.

Chairman Wang, who attended the Barcelona 3GSM conference in February, told delegates that mobile telephone music downloads are now a bigger business in China than CD sales. On recent song scored a staggering 15 million downloads, he said.

And showing their marketing savvy, the Chinese are stepping in where the likes of Nokia and Sony-Ericsson have refused to tread. Vodaphone, for instance has wanted to produce its own branded 3G phones, but none of the existing European or American brands were interested in producing handsets that did not carry their name.  So in steps Huawei Technologies Co. that has now signed a deal to provide Vodaphone-branded 3G phones in 21 countries where Vodaphone operates.  Vodaphone, the world’s largest multi-country mobile operator, plans a September launch.

And while handset talk usually involves the big five – Nokia, Motorola, Samsung, Sony-Ericsson, and  LG  whom together produce about three of every four mobile phones  – the fact is the Chinese have a very nice export business going with their own produced mobile phones.  The Commerce Ministry says China produced 303 million mobile handsets in 2005, exporting 228 million -- a 56% increase over the year before. The business was worth some $20.635 billion with all save a $1 billion showing a favorable balance of trade, and the Ministry of Information says China will produce 340 million mobile handset units this year, exporting 250 million.

And the future looks even brighter for makers of low-cost mobile phones.  In 2005, 816.6 million mobile phones were sold globally, according to Gartner, with the global market breaking down into two main categories – the emerging markets that want the lowest priced phones available and the mature markets that look for higher-priced technological innovation. The fastest growing market in 2005 was Latin America (low price phones) while a mature market like Japan, heavy on technological improvements, saw growth of only 3%.

That probably fits in nicely with Chairman Wang’s hope that China Mobile will continue its expansion not just in China but also within emerging markets that need all that telecom equipment and expertise. Indeed Rich Templeton, CEO and President of Texas Instruments, said recently he expected the next 1 billion handset buyers would come mostly from mobile emerging countries such as Brazil, India, Africa and Russia.

But the problem still remains for the mobile operator – even given the content they can make available, will people pay for the privilege? The Chinese have shown success with music downloads, but the fact is the very vast majority of people use their mobile phones just to correspond with one another – either by voice or data.

Mobile operators are increasingly taking the view they do not want to be in content production. They want their money solely from their share of the data download revenue to the handset.

But even the most recent research – from M:Metric’s in the UK for last December, shows that less than 10% of UK mobile users  purchased a ring tone, a game, or even sent or received personal email.

That in turn could mean a return to basics, according to Arun Sarun, head of Vodaphone.  He points out that mobile networks today account for only about 25% of the world’s voice communications. As more mobile subscribers come on line the costs of calls will continue to go down – they are decreasing at about 10% annually.

For such leading-edge technology, the marketing strategy is really old-fashioned: get the number of subscribers up, the cost per customer declines, encouraging more subscribers to come on line meaning the costs continue to go down …