Abstract

In 2004, approximately 80 million mobile phone handsets were sold in China. This huge market is the scene of intense competition between international and Chinese handset vendors. Recently, the main focus of demand in the major metropolitan areas and the larger regional cities has been shifting towards the handset replacement market, although first-time buyer demand remains strong in the medium-sized and smaller regional cities. Fake brands and grey market handsets are a serious problem, and have tended to push prices down. The distribution channels that individual handset vendors have built up in China vary significantly, depending on the resources available to them; the main players in handset distribution in the China market include handset agents, mobile phone operators, specialist handset retailing chains and other retail chains.

Previously, handset distribution in China was dominated by the handset agents. However, the handset vendors have since made efforts to simplify their distribution structure, and the role of retail chains has become more significant; the handset agents have found themselves under increasingly heavy pressure. As the big retailing chains' networks generally do not include China's medium-sized and smaller regional cities, the handset agents are focusing on building up their market coverage in these areas, while at the same time working to improve the overall quality of their management.

In the past, the specialist handset retailing chains normally handled only one brand, making it difficult for them to achieve significant growth. Recently, these chains have been seeking to leverage their specialist expertise and their extensive networks of retail outlets by handling multiple handset brands, and by focusing on achieving dominance in particular regions.

As for the mobile phone operators, with the rollout of 3G service fast approaching, demand for customized handsets that support the operators' multimedia services can be expected to grow. Sales to mobile operators will come to account for an increasingly large share of mobile phone vendors' total handset sales.

Given the operators' control over mobile phone services and over the subscriber base, it can be anticipated that the increased integration of handsets and services will cause the main focus of mobile phone handset distribution to shift away from the handset vendors and towards the operators. In the past, the distribution structure was based on the vendors selling handsets to consumers. With the dawning of the 3G era, mobile phone operators in China will be relying on their multimedia services to differentiate themselves from their competitors, rather than relying on price as they did when voice service was the main source of revenue. To achieve differentiation in this way, the operators will need customized handsets. In the future, therefore, it will be the mobile operators that will be undertaking direct handset sales - packaged with mobile phone services - to the consumer, leading to a major transformation in the handset distribution structure as a whole.

Appendix

Research Scope

This report focuses on mobile phone handset distribution in China, examining the roles played by handset vendors, handset agents, mobile phone operators, specialist handset retailing chains and other retail distributors.