An In-Depth Analysis of China’s Mobile Phone Market

By Tech Wire Asia | 16 April, 2012

A big number of China-specific mobile industry news has been cropping up of late. When it comes to the players — wireless carriers, handset manufacturers, device makers — obviously both local and foreign parties will find the market tremendously attractive. We won’t be surprised reading major headlines telling that the executives of tech world’s biggest firms – Apple’s Tim Cook, Facebook’s Mark Zuckerberg, Nokia’s Stephen Elop and even Cisco’s John Chambers — visiting the country last month.

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Let us explore the most populous country’s mobile market size, service providers, architectures, handset manufacturers and retail stores.

Market Size

China is the world’s biggest mobile telephone market. With more than 1 billion mobile phone subscribers — or around 74% of its total population — it’s a relatively huge market, compared to other regions. About 14% of this market uses a 3G-supported device. Mobile phones have become an indispensable tool for modern communication in the country. Mobile is the most profitable sub-sector of the telecommunications industry.

The 1 billion figure actually includes both analog and digital handsets. The predominance of cellular phones over fixed telephones is due to the lack of landline density at the time cellular systems began maturing. And as digital cellular technology superseded older analog cellular systems, existing wireless carriers have been able to pack more subscribers onto existing networks, without additional spectrum allocations needed (such as via code division instead of time-division access). In addition to that, 38% of internet users access online services solely from their mobile devices, in lieu of wireline internet connectivity or broadband. 45% of them live in rural areas compared to 29% that reside in urban metropolises.

2011 has been the glorious year of the smartphone in China, where iPhones, iPads, Android devices and other tablet computers became hot topics on search engines and in people’s daily lives. Looking back on that year, it seems like everyone in China has already started holding a big screen phone or tablet on the subway, at restaurants, even while waiting for red lights.

Carriers

The market is led by three domestic companies, China Mobile (GSM and TD-SCDMA), China Unicom (GSM and WCDMA) and China Telecom (GSM and WCDMA). At this point, their market share is 65.5 percent, 20.1 percent and 12.6 percent, respectively, competing for a US$ 90 billion industry annually. Other, smaller, carriers are China Satcom and China Voice Holdings Corp. Yes, you read it right. All carriers are exclusively China-based companies and the government has the majority ownership of all of them. Of course, they do.

Last year, China Mobile and Clearwire announced plans to roll out a TD-LTE network. The company will have more than 20,000 TD-LTE base stations going live this year, and 200,000 up and running by the end of 2013. Hangzhou and Shenzhen are two cities expected to have full TD-LTE coverage of their urban areas at its early stage.

Network Architectures

Back in 2006, the Ministry of Information Industry announced that Time Division-Synchronous Code Division Multiple Access (TD-SCDMA) would be the country’s 3G standard. The ministry is the primary regulator of communications not merely telecommunications but radio, film and television too. A year after, they approved European WCDMA and American CDMA2000 standards for use in 3G networks and set the target to deploy it before 2008 Beijing Olympics.

In 2009, the ministry gave its regulatory nod by assigning TD-SCDMA licenses to China Mobile, W-CDMA and CDMA2000 1xEV-DO to China Unicom and China Telecom respectively.

Alcatel-Lucent, Cisco, Ericsson, Nortel and Siemens are acknowledged as the leading international suppliers of their network equipment.

Mobile Phone Brands

The story starts after joining WTO, during which China signed the Information Technology Agreement (ITA) seven years ago. This eliminated tariffs on all information technology products, including wireless handsets. One of the consequences is that foreign handset makers have no tariff barriers limiting their sales in China. Nokia, Motorola, Samsung, Sony-Ericsson were the top brands that dominated at that time.

The country itself has been a place where mobile phone manufacturers source most of their production. Almost all of mobile manufacturing contracts are in China. You can name it: Nokia, Samsung, LG, Motorola, Philips, BlackBerry, Apple — all are made in China. In 2011 alone, 550 million handsets, using either GSM or CDMA technology, were produced in China. 404 million units were exported. It accounted for 52% of the production across the globe that year.

BBK, Haier, Kejian, Konka, Lenovo, Meizu, Ningbo Bird, TCL, Xiaomi, TCE and Huawei are the nation local players. As a side note for Huawei, they have been recently selected as the most admired companies in Asia-Pacific by Fortune Magazine. As of writing, Samsung, Nokia, HTC, Motorola and Apple are the leading smartphone brands ranked by attention rate.

Apple has yet to tap the market, although China Mobile has stated that it has over 10 million unofficial iPhone users on its network. Again, the announcement of TD-LTE implementation will be significant, as the iPhone is not currently available on this 4G standard due to incompatibilities. Other principals — like ZTE, which recently announced two Android 4.0 phones — are reportedly waiting for more efficient LTE chipsets to become available, as well as for LTE networks to mature before launching LTE-equipped devices.

According to ZDC, last year’s mobile phone price trends in the China are as follow.

Mobile Phone Price Trends in the Chinese Market 2011

According to the same source, 3.3 inch to 4.0 inch mobile phone screen sizes are the first choice among the users, accounting for 41.3%, followed by 2.9 inch to 3.2 inch with 25.1%.

Retail Outlets

Mobile phones are sold via stand-alone cellular stores, department stores and home appliance chain stores. Only few of them are sold online. There are about 90,000 dedicated retail phone stores, which are rapidly expanding from the cities to the more rural regions to reach more consumers.

Wrap Up

The market will continue to grow, driven by increasing purchases of high-end smartphones with advanced features in urban coast areas, combined with increasing penetration of lower-cost handsets in rural regions.

Moreover, the forthcoming launch of the 4G LTE standard in 2014 is very well anticipated, as operators are keen to move beyond their existing networks to cope with the upsurge in data and voice load. This is likely to trigger another wave of handset purchases, as existing users upgrade to phones that leverage the broadband network’s ability to provide better quality of service in mobile audio, video, games, and data.