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April 11, 2012

China Passes the One Billion Mark for Mobile Phone Subscriptions

Amazon phoneAnalyst Insight by An Hodgson, Technology, Communications and Media Manager

The number of mobile phone subscriptions in China exceeded the one billion landmark in March 2012, the first country to do so in the world.  Click to tweet! Growth in household incomes, infrastructure development and a boom in smartphones have driven subscription rates, providing telecom businesses with opportunities. However, state control, income inequality and still-low per capita mobile penetration holds back sector growth, although consumers are benefitting from increasingly lower prices.

Mobile Telephone Subscriptions in China: 2006-2020

ScreenHunter_01 Apr. 11 13.10

Source: Euromonitor International from International Telecommunications Union/national statistics

Note: 2012-2020 is forecast data.

  • A 106% hike in China's mobile phone subscriptions over 2006-2011 put the country's total on course to surpass the one billion mark, which it did in March 2012, according to the country's Ministry of Industry and IT. Behind the surge are increasing living standards, customers upgrading to smartphones as the market becomes more sophisticated, and operators moving into rural and inland areas;
  • However, competition is becoming intense in this heavily government-controlled sector, where household possession of a mobile telephone reached 91.2% in 2011. Widespread rural poverty is likely to impede the march of higher-margin smartphones, while India is expected to overtake China in terms of total mobile subscriptions by 2020. Click to tweet!

Implications

Rising consumer demand for telecom goods and a flourishing smartphone market have powered China's mobile sector, although there is room for growth in mobile subscription penetration levels:

  • China's mobile phone market has developed apace on the back of soaring economic advancement – real average annual GDP growth over 2006-2011 was at 10.9% – and a concomitant rise in living standards, as well as extended network coverage and increasingly cheaper deals offered by operators;
  • Chinese household possession of a mobile phone has risen from 73.8% to 91.2% over 2006-2011. Click to tweet! The engine behind this growth has been increasing access among lower-income groups, boosted by Chinese vendors ZTE and Huawei releasing budget models to compete with higher-priced foreign brands. There remain strong opportunities in the low-cost sector for wireless handheld devices, especially in rural and inland markets;
  • Chinese consumers are also making more use of their phones. The number of time spent on mobile calls per subscriber rose from 1,831 minutes in 2006 to 2,469 in 2011, a 34.9% period increase. Click to tweet!  The mobile phone's more prominent place in daily Chinese life allows companies to leverage more opportunities in mobile-commerce services such as banking, marketing and retail;
  • Nonetheless, although China leads the global market in terms of total mobile phone subscriptions, penetration only stood at 70.9% of the population in 2011, much lower than in neighbouring Japan or South Korea. Click to tweet! Tight government regulations also limit mobile Internet capabilities such as IPTV services, restricting growth in the mobile data transfer segment;
  • China continues to have a high level of income inequality that leaves a substantial proportion of its citizens on low earnings, which restricts the sales of higher-end models such as smartphones. Though the country's internal market is rapidly strengthening, China also remains reliant on exports and the domestic telecom sector is thus vulnerable to international turmoil such as the eurozone sovereign debt crisis.

Household Possession of Mobile Telephone and Mobile Telephone Calls per Subscriber in China: 2012-2020

ScreenHunter_02 Apr. 11 13.11

Source: Euromonitor International from International Telecommunications Union/national statistics

Note: 2012-2020 is forecast data.

Prospects

  • The number of households in possession of a mobile phone is expected to continue to climb, from 92.2% in 2012 to 95.1% in 2020.  Click to tweet! This expansion will be driven by greater take-up of telecom services by consumers in rural and inland regions. Vendors ZTE and Huawei, meanwhile, are using the large Chinese market as a springboard for their expansion into other regions, looking to compete with wireless handheld brands such as the iPhone on a global level;
  • While the number of Chinese mobile phone subscribers will continue to post healthy gains over 2012-2020, rising by 30.8%, India is expected to overtake China in terms of total mobile phone subscriptions by 2020, edging ahead with 1.4 billion. Nonetheless, with the Chinese market not expected to reach market oversaturation over the forecast period, untapped potential remains for handset manufacturers, operators and mobile accessory companies;
  • Strategic alliances between Chinese telcos and mobile phone manufacturers are expected to become a popular business model going forward, although industry convergence, fierce competition and state control (the three major wireless operators are all entirely or predominantly state-owned as of early 2012) could erode margins and make entry difficult for new players.

 


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