China Telecommunications Report

The major focus in China remains on the development of the 3G market. Operators continue to invest billions of US dollars in deploying 3G infrastructure and securing handsets. However, even before the sector has been able to take off, it appears to be in danger of entering a price war. What has prompted this? The blame may lie with the three different standards - W-CDMA, CDMA2000 and TD-SCDMA - in use in the country.

W-CDMA and CDMA2000 are the more commonly used 3G platforms in the world. China Unicom and China Telecom, which respectively operate these standards, have been able to secure high quality networks and a range of handset models with relative ease. By comparison, China Mobile has faced a number of problems with the home-grown TD-SCDMA standard, which suffers from poor network and service quality, and a limited range of handset models.

China Unicom's CEO, Chang Xiaobing, announced that the operator would 'not initiate a price war in the sector', speaking at a conference in Hong Kong in May 2009. However, just one week later, the operator announced that it would reduce 3G prices by 50% until August 2009, helping to boost its subscriber figures. The operator is playing catch up to China Mobile, which was permitted to launch 3G ahead of the competition and announced that it had over 600,000 3G subscribers as of May 2009. Soon after China Unicom's price reduction announcement, China Mobile revealed it would be heavily subsidising its handsets and services.

In another development to the 3G war, both operators are also set to go head-to-head with regard to smartphones. China Mobile is to launch handset using Google's Android operating system while China Unicom is in the final stages of negotiating an exclusive three-year agreement to supply the Apple iPhone.

3G is being sought to help boost growth in the saturated urban markets and boost revenue spending. This, operators hope, will counter their continuing efforts to expand networks into rural markets. For the first time, BMI is forecasting blended ARPU. During 2008, ARPU rates fell by 9.2% year-on-year (y-o-y) to reach CNY58.43; this was a faster rate of decline than the 5.9% drop recorded in 2007.

This trend is set to continue for some time; BMI forecasts that blended ARPU will fall further to CNY53.06 in 2009. Although the market is set to see the take up of 3G rise in subsequent years, this will remain minor compared with the prepaid-dominant 2G market, and for this reason we continue to expect blended ARPU rates to fall. By 2013, BMI forecasts that ARPU will have dropped to CNY45.01.