Chinese Mobile Market Forecast and Carrier Strategy 2005-2009

The number of mobile subscribers in China was estimated to reach 374.45 million as of the end of December in 2005. Currently, the Chinese mobile market is growing in a rapid manner and mobile operators are being engaged in fierce competition to create new demand. As a result, the annual growth rate is projected to amount to about 9.7% after 2005. Backed by this growth trend, it is expected that 595.46 million Chinese people, 44.18% of the total population, will subscribe to mobile communications service in 2009.

Meanwhile, analysts predict that market shares of China Mobile and China Unicom would hover around 65% and 35% respectively, maintaining the similar level of several years before. In 2005, prepaid service is anticipated to be used by 234.96 million people. As operators are focusing on providing a variety of services to prepaid users, this figure is forecasted to exceed 400 million in 2009.

The number of GSM users will reach 341.72 million in 2005 and after peaking at 380 million in 2008, it is expected to decline gradually from 2009 with rapid evolution into 3G. As for CDMA, the figure of subscribers reached 32.72 million in 2005 and this will go up to 73.7 million in 2009.

In the case of 3G, the service launch is being postponed due to delays in application and issuance of license. Considering the fact that TD-SCDMA test has been completed and operators have established 3G plan and started building network in the end of 2005, 3G license issuance is expected in specific regions in June or July this year regardless of restructuring of the Chinese communications market. The service is projected to secure 33.67 million users in 2006 and 130 million in 2009.

As two major mobile operators are engaged in stiff competition to increase subscriber base, their churn rates are anticipated to slightly increase from 2004 to record 1.82% this year. Churn rates of the mobile market will subject to wide fluctuations with the launch of new services, expansion of the network and the emergence of 3G technology.

The Overall ARPU in 2005 is projected to be 79.0 RMB and those of China Mobile and China Unicom would reach 91 RMB and 56 RMB respectively, showing a decline compared to the previous year. Even though operators' efforts resulted in the increase in call volume, ARPU growth fell short of expectations due to low growth rate compared to the increase in the number of subscribers. Therefore, mobile service providers will be committed to raising the Overall ARPU by enhancing data service quality and releasing various rate plans, which is predicted to lead to 83.6 RMB of Overall ARPU in 2009. The annual growth rate of Data Subscriber is expected to go up to 13.9%, which will result in about 73.4% of subscribers to use Data service in 2009 (as of the end of 2005, about 60.9% of subscribers use Data service).

In 2005, the total sales of the Chinese mobile market are forecast to amount to 317.1 billion RMB. With the annual growth rate of 9.4%, it is anticipated to reach 497.5 billion RMB in 2009.

The Capex of the Chinese mobile communications market is forecast to reach 120.6 billion RMB in 2005 and 108.2 billion RMB in 2009.