It seems like 3G’s debut in China has been almost as lacklustre as the technology’s entree into the European market back in 2003. China’s government said there were 25 million of its citizens using 3G at the end of June (compared with 775 million 2G users) – approximately one year after 3G services were launched. At this rate, the mobile operators are going to fall well short of the Chinese government’s target of 150 million 3G users by 2011.

Just as in Europe in the 2003 to 2006 period, a lack of attractive and attractively-priced handsets is probably the biggest reason why more Chinese haven’t embraced 3G. Trends in the global mobile industry have shown time and again that slick, easy-to-use devices sell services – 3G will only go mass-market in China when the most fashionable handsets are 3G models selling at affordable prices. Coverage can’t be the problem – China Unicom, for example, claims to have one of the biggest WCDMA networks in the world, covering 335 cities with approximately 107,000 base stations at the end of 2009.

China also has the iPhone, the handset that first made 3G really desirable in Europe and North America, but it is only available on the China Unicom network and at a price tag (CNY6,999 or US$1,032 for the 3GS version and CNY4,999 for the 3G version, according to the China Post) well beyond the reach of most Chinese. More broadly, 3G handsets still seem to sell at a significant premium to otherwise equivalent 2G handsets and most Chinese clearly haven’t yet seen a good reason to pay that premium.

 

Searching for an affordable icon

China Mobile, the largest mobile operator by far, and China Telecom, the leading fixed-line operator, have the marketing and distribution networks to push 3G hard, but they don’t appear to have yet found an iconic handset to act as the public face of mobile broadband.

The only Chinese mobile operator with a WCDMA network, China Unicom, can tap the global WCDMA handset market and should be the runaway leader in 3G. But its WCDMA network is in the 1900MHz spectrum band, which isn’t as widely supported by 3G handset makers as the 2100MHz band. Also I suspect Unicom’s lack of scale, relative to China Mobile, has prevented it from making as big a marketing splash as it would like. China Mobile claimed 10.46 million 3G users at the end of June, compared with 7.56 million for China Unicom. China Telecom hasn’t released figures, but must account for the remaining 7 million.

Right now, the three mobile operators look evenly matched in the sluggish 3G market. But with each of them using different 3G technologies, one of them could quickly pull away by launching an affordable and exclusive 3G phone that really captures the Chinese imagination. China Mobile has attempted to do that with its Android-based OPhone series and it seems likely that a Linux-based 3G handset will be the one that makes the breakthrough. Open source, easy-to-customise and free, Linux lends itself to the development of a low-cost handset with a radical new user-interface well-suited to the Chinese mindset and language.

In many ways, the conditions in China are more favourable to 3G than they are in Europe – many Chinese are already avid users of picture messaging, music services and other multimedia offerings on the 2G networks and most of them don’t have ready access to a fixed-line broadband connection. The Chinese are also very entrepreneurial and very mobile, so there should be strong demand for advanced wireless handsets that people can use to run a small business while on the move.

For those reasons, China should become a massive 3G market, but prices will first need to be low enough and handsets cool enough to wean people off “good enough” 2G services and phones. Therefore, 3G margins for both handset makers and mobile operators could end up being pretty slim.

 

David Pringle

This article was first published on the GSMA’s Mobile World Live portal. David moderates discussion forums on the site and is a freelance media and investor relations consultant.

The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members