Several Western network infrastructure companies are targeting Chinese mobile operators.
China has a population of 1.2 billion. In the summer its mobile penetration rate was 1.4%, which represents 17 million subscribers. The undeveloped nature of the market means that operators’ priorities in terms of rollout are very different from operators in developed markets. While European operators start to build 3G networks, and US operators start to establish 2.5G EDGE and GPRS services, the two major Chinese operators are still focusing on establishing their 2G networks. Lucent, Marconi, Motorola, Nokia, and Texas Instruments have all this week agreed to supply Chinese operators with equipment.
The potential of the Chinese market is obviously enormous. Even at the current low penetration rates, the number of subscribers in China is close to that in some of the larger European markets. In the short to medium term, the inefficiency of landline telecoms will further drive mobile growth. Fixed line penetration is currently only 8%, and its growth is much slower than that of mobile services. Many consumers may well bypass landlines entirely, moving straight to mobiles. In a society urbanizing as rapidly as China, providing new city-dwellers with mobiles may well be more cost-effective than building fixed-line infrastructure.
Japan provides an example of how the Chinese market may look in the long term. Both countries are culturally unsuited to PC use due to their complex alphabets and low number of English speakers. In Japan, the number of people accessing the Internet through iMode handsets is already greater than the number of people using PCs, and this trend should continue as faster, more impressive services come online. As the price drops, such systems could prove ideally suited to China’s needs.
But this does not necessarily mean large profits for Western companies. China is not yet a WTO member, and in the past has been known to summarily order foreign companies to pull out of joint ventures. And the huge majority of the population is still too poor to even contemplate owning a mobile phone, never mind an EDGE-enabled PDA.
