China will hit the 1 billion mobile connections milestone in May 2012, according to the latest Wireless Intelligence forecasts. China is already the world's largest mobile market, surpassing 900 million connections last quarter, which means the country is forecast to add a further 100 million subscribers over the next 12 months, surpassing 1 billion during Q2 2012.
By the time the 1 billion milestone is reached we estimate that Chinese mobile penetration will stand at 74 percent, up from 67 percent in Q2 2011, suggesting that the market will still have plenty of room for future growth.
We expect the market shares of the three Chinese mobile operators to remain largely unchanged from today. Market-leader China Mobile will see its share slip slightly from 68 percent to 66 percent, while third-placed China Telecom will increase two percentage points to 14 percent. China Unicom - the second-largest player - will see its market share unchanged at 20 percent, according to our estimates.
The number of Chinese subscribers connected to 3G networks is expected to account for a quarter of the country's total at the 1 billion point, up from 18 percent in Q2 2011. All three operators are rolling-out different versions of 3G technology: TD-SCDMA at China Mobile; WCDMA at Unicom; and CDMA EV-DO Rev. A at China Telecom (both China Telecom's CDMA2000 1X and CDMA EV-DO Rev. A networks are classed as 3G). China's Ministry of Industry and Information Technology (MIIT) reported that 714,000 3G towers have been built in the past year - 214,000 for China Mobile, 274,000 for Unicom and 226,000 for China Telecom.
The relatively slow migration to higher-speed networks in China to date reflects the fact that smartphone penetration is still low - but rising fast. Smartphones are thought to account for around 10 percent of China's total base, but the exact figure is hard to calculate due to the large number of 'grey market' smart devices in the market. China Mobile, for example, says it already has 5.6 million iPhone users on its network, even though the devices can only currently access the operator's 2G (GSM) network and the device is not retailed by the operator.
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China Mobile has its own Android-based proprietary smartphone platform called OPhone, while Unicom has a similar platform known as the Wophone. Both tie-in with their respective 3G brands and application stores. Unicom is also the exclusive (official) distributor of the Apple iPhone in the country. After somewhat sluggish early sales, the operator this year slashed iPhone tariffs in a bid to sign-up new customers in advance of the iconic device being offered by rivals. The market number-two has also diversified into Android-based smartphones recently, which accounted for 35 percent of its 3G device sales in Q1. The ZTE Blade V880, launched in June, has quickly become its second-most popular model (after the iPhone) and is currently recording sales of 4,500 per day.
China Telecom - which has a larger fixed-line business - has focused on bundling 3G with its existing fixed-line and enterprise customer base. At the end of 2010, the number of mobile subscribers using its so-called "integrated service packages" accounted for 53 percent of its total. The operator offers over 300 3G terminals that work on its EV-DO network, including the ZTE N600, Huawei C8500, Motorola XT800 and Samsung W799 and i909.
There are signs that Chinese regulators are postponing the launch of next-generation 4G/LTE networks while they wait for 3G to reach maturity. China Mobile has been extensively testing TD-LTE and is eyeing commercial launch next year, but recent signals from MIIT suggest the market leader may need to delay launch until 2014. Unicom and China Telecom are expected to use the more common FDD variant of the technology (LTE-FDD) but are also considered unlikely to commercially launch prior to 2014. A recent Wireless Intelligence study forecast that only around 5 percent of the Chinese mobile user base will have migrated to LTE networks by 2015, though the sheer size of the market means it will still account for almost half of the Asia Pacific region's LTE connections by this point.
Matt Ablott, Analyst, Wireless Intelligence:
As China approaches the 1 billion mobile connections milestone there are signs that 3G is finally becoming a key battleground for operators following a slow start. One reason - highlighted by China Mobile in its most recent earnings - has been that recent 2G growth has mainly concerned lower-value, lower-use customers, typically in rural areas, which have dragged down ARPUs. Multiple SIM ownership has also been a factor. Meanwhile, the market shares between the three operators are much more even in the 3G space, and Unicom is beginning to exploit its advantage in deploying the more common WCDMA technology standard, which allows it to offer a greater choice of 3G devices. Alongside the iPhone (which both China Mobile and China Telecom hope to offer official versions of soon), the number-two player launched 100 customised WCDMA devices in 2010 and switched its focus to Android this year, discovering a hit with the ZTE Blade. Its new Wophone range should help Unicom target the cheaper end of the market, though 3G subsidy costs will weigh on the operator's profits this year. All three operators are benefiting from the influx of cheaper smart devices from vendors such as ZTE and Huawei, offering an increasing number of devices below the key CNY1,000 (US$154) price point.
China mobile connections, Q2 2012 (forecast)
Source: Wireless Intelligence