China has only 3 Major Operators – China Mobile, Telecom and Unicom. Across the board, all the three operators are witnessing decline in plain vanilla 2G users. The continued decline in smartphone prices and recent reduction in data price from China Unicom will further accelerate the migration of mid and low-end subs from 2G to 3G.
The competitive environment will intensify further as China Mobile aims to re-balance 3G market share on an improving TD-SCDMA value chain for SmartPhones. China Mobile may end up adding 40% of the 3G nets Adds in 2013. However, the network performance of TD-SCDMA, especially for heavy data users, remains inferior to that of the China Unicom [CU] and China Telecom [CT] networks; hence we believe China Mobile’s 3G ARPU will remain below CU’s and CT’s for now.
SmartPhone Handset Subsidy to Decline In the past three years, subsidies from the three operators combined have grown at a faster pace than revenue growth. Now with mid-end smartphones available in abundance and the focus shifting to “tariff” rather than “handset quality” to address the next tier of the market, handset subsidies will decline.
SmartPhone Data Usage in China is well below other Developed Markets and similar to that in market such as India with much lower smartphone penetration and low Internet usage. Indeed, when compared with other Asian Markets such as Malaysia and Thailand, we estimate data usage per 3G sub in China is actually lower. While trends have improved in past few quarters, it will still take 4-6 quarters before data usage reaches critical mass.
Despite the improving 3G share, we believe CM’s overall mobile share will continue to decline at 150-200bps every year for the next 2-3 years due to the faster decline in the 2G business, which is dominated by CM. Stay tuned on how 4G is Playing out in China 🙂