3G forecast looks rosy in China

Details: James Barton; Category: Trends & Forecasts; 20 January 2012; 11013 views

As one of the largest growth markets in the world, it is unsurprising that forecasts for China’s telecoms sector are being revised upwards...

As one of the largest growth markets in the world, it is unsurprising that forecasts for China’s telecoms sector are being revised upwards, according to BMI. With the number of fixed-line subscribers in 2011 predicted at 286m – up from previous forecasts of 273m – and 3G subscriptions expected to soar from 111m in 2011 to 773m in 2016, it seems that the market is far from saturation point.

The acceleration in fixed-to-mobile migration could be attributed to mobile operators’ heavy emphasis on promoting 3G services, which are significantly more lucrative than conventional 2G services. China Unicom reported that its 3G ARPU in the first nine months of 2011 was three times higher than that of 2G. However, operators have yet to reap the rewards as network expansion and marketing costs weigh heavily on their profitability. Nevertheless, aggressive tactics are necessary to secure market share in the fledgling market, before shifting their attention to improving their profit margins. At the end of September 2011 China Mobile had a 42.4% market share in the 3G segment in September, while China Unicom and China Telecom had 29.7% and 27.9% respectively. By comparison, China Mobile had a dominating 67.4% in the overall Chinese mobile market.

Taiwan’s National Communications Commission announced in September 2011 that it has approved Chunghwa Telecom's submarine cable proposal, which would link Kinmen (an outlying island of Taiwan) and Xiamen (a city in China's south eastern cost). China’s three mobile operators are all involved in the project and they would share 50% of the construction cost, which is expected to reached TWD200mn. The establishment of a direct communication link between China and Taiwan would boost the quality of services while reducing costs as data traffic, currently, is re-routed to a third-party country. This development bodes well for consumers, and businesses in particular, as companies are increasingly embracing high-bandwidth data services such as cloud computing and video conferencing.

On the macroeconomic front, the after-effects of China's credit binge are starting to kick in, with a number of its core macroeconomic and financial market views playing out. With real GDP growth at its lowest level since 2009 in Q311 at 9.1%, the macroeconomic conditions are likely to deteriorate further as there is no easy cure for the credit hangover. Meanwhile, the Communist Party of China's ability to govern could be seriously tested by the myriad economic, social and environmental challenges in future decades. The best case scenario for any eventual political transition would entail an elite-led liberalisation of the authoritarian system, while the worst case scenario would involve a violent change of regime.