China Mobile bets on 3G services and control over the value chain

Summary

The mobile market in China is reaching maturity. Both China Mobile and China Unicom are looking for solutions to maintain market share and profit levels, which are outlined in the analysis below.

Analysis

The formidable growth of the biggest worldwide mobile operator by users is slowing down due to a combination of factors:
- saturation of the market
- increased competition with new players in the mobile industry and with 3G licences
- economic slowdown

Contrary to European markets, where mobile operators had to face competition from the beginning of their activities, and spend heavily on subscriber acquisition and minimising churn, China Mobile had such a dominant position in the market that customers would come by the millions every month. Device subsidy started a couple of years ago, on the high end models, to entice the higher spenders to join their network.

Now, both China Mobile and China Unicom are developing strategies seen in other markets to maintain revenue and market share, and as the market turned 3G, this is the main focus for all mobile operators. 

In terms of subscriber growth (and revenue share), both have made investments in other markets, in Asia, India, Europe and also in Africa.

3G strategies:

• Network coverage
• Handset exclusivity: China Unicom has struck a deal with Apple, to be the exclusive reseller of the iPhone, but discussions with China Mobile are also on-going.
• Increased handset subsidy
• High-tariffs for high-value customers: China Unicom plans to charge from $18.50 to up to $130 a month for iPhone users, while 3G tariffs for other handsets start from $14.10. 
• Application stores: China Mobile and China telecom both announced online applications stores first, now followed by China Unicom, which is expected to launch in October.

Chinese operators can and do control a lot more of the value chain than in other markets. For instance, China Mobile will integrate various application stores into its application store "mobile market", and take 50% of revenue from sales, which is probably the highest level followed by Apple at 30%.

Wireless services will become very important in the Chinese mobile market, but will develop within the boundaries which operators will give them.
Expect China Mobile to do a number of short-term tactics to maintain subscriber number, but revenues will keep on decreasing and stabilise as a business model is developed for attracting and retaining 3G users using value-added services.