Abstract

New Subscriber Growth Mainly in Less-Developed Regions

With the rate of growth in the number of mobile phone users in the developed regions of East China and in the major metropolitan areas starting to slow down, in the future, China Mobile will need to look to Central China and West China which have high population density, but where mobile phone penetration rates are currently low for new subscriber growth. The steadily improving economic environment in Central and West China offers the potential for strong growth in these regional markets.

However, given the pronounced disparities in income levels that still exist between China's urban and rural areas, China Mobile will need to think carefully about how best to balance subscriber growth in the Central and West China region and the fall in ARPU that will accompany it.

Growth of Data Services Picking Up Speed

In the short term, traditional voice service will continue to account for the largest share of China Mobile's total revenue. Nevertheless, data services will be growing much faster than voice service. As the number of medium- and low-ARPU subscribers increases while charge rates continue to fall, voice service ARPU has been in steady decline, but at the same time the ARPU for new business areas has been rising. Looking ahead to the future, given that China Mobile is constantly working to develop new business areas, and has also started to strengthen its control over the previously chaotic service provider market, it can be anticipated that the number of subscribers making use of data services will grow rapidly.

China Mobile is already beginning to upgrade its networks to EDGE technology, which makes it possible to provide more data service content, and is getting ready for the rollout of 3G services. These technologies will provide the support needed to develop an even wider range of data services.

Cautious Development of Handset Purchasing Activities

2002 saw China Mobile moving back into the mobile phone sales business. Since then, China Mobile has implemented several large-scale handset purchasing projects. However, the company has remained cautious in its handset purchasing activities. The main reason for this caution is that the he company does not have many high-end users. Demand for mobile communication services is still largely confined to demand for traditional voice services and for the exchange of SMS messages between consumers. China Mobile is also concerned about the need to subsidize handsets for subscribers. Given the intensity of the competition in the Chinese mobile phone market, there is a risk that subsidizing handset sales could have a serious negative impact on China Mobile's profitability. The failure of China Unicom's CDMA handset subsidy strategy has already demonstrated that, in the Chinese market, promoting sales of customized handsets does not necessarily work.