Abstract

To operators, customized mobile phones can expand brand impact, retain subscribers, and can be used to promote new services. In China, due to fierce competition and the fact that new subscribers are mostly mid-range to low-end subscribers, the ARPU (Average Revenue Per User) in mobile telecommunications services is gradually declining. In order to win subscribers and develop high-potential value-added services, China Mobile and China Unicom have both since 2004 begun to actively expand customized mobile phone operations. The extent of customization is still relatively low at present. However, as the market develops the two operators are both beginning to focus on specific market demand for customized mobile phones, such as China Mobile's music phones and China Unicom's dual-mode models. The customization of these mobile phones involves both hardware and software levels. Chinese 3G networks will soon be in operation and in the preliminary stage of 3G services development China Mobile and China Unicom will both opt for the customization route in order to increase the number of subscribers rapidly, promote mobile phones, and attract subscribers to use new services.

The "Xinji" phones launched by China Mobile all come with convenient interfaces for functions and services to simplify use for subscribers. This allows subscribers to experience value-added services long term. In 2006, China Mobile stepped up promotions of its music phones, customizing music phones with high-end specifications for this market segment. This allowed subscribers to obtain a mobile phone at a lower price and use related services. Besides releasing customized mobile phones aimed at high-end subscribers, China Mobile has also stepped up its efforts towards the mid-range to low-end subscriber market. Starting in 2005, its customized mobile phones have gradually covered the high-end, mid-range, and low-end market segments.

Early on, China Unicom targeted high-end subscribers with regard to its CDMA positioning, launching its high-priced Worldwind dual-mode mobile phone. As the market develops, China Unicom has become conscious of the fact that merely relying on high-end subscribers will not bring significant growth in the number of subscribers. Therefore, it no longer locks onto just high-end subscribers, and in 2005 introduced the "Xuanji" phones which it actively developed for mid-range to low-end subscribers. After some comparatively light customization, China Unicom began customizing some special function mobile phones such as the dual-mode dual-standby handset launched in 2005 and the IM mobile phone launched in 2006. Reforms in sales distribution channels resulted in the reduction of CDMA mobile phone subsidies, customization and other strategies. China Unicom, since the third quarter of 2005, has begun to realize profits on its CDMA networks. Subsequently, China Unicom's GSM network was upgraded to GPRS (General Packet Radio Service), enabling the company to provide more value-added services. Customized mobile phones are now not limited only to the CDMA system technology.

Whether for China Mobile or China Unicom, customized mobile phones are only a means, while the real end goal is to get subscribers to use even more services, especially value-added services. Although SMS (Short Message Service) and ring tones have already brought operators significant revenues, the scale of higher value-added services is not yet large. Reasons for this are that multimedia services require higher-end mobile phones, the service fees are more expensive, and subscribers are still not too familiar with them. Customization on the other hand can lower the price at which consumers purchase mobile phones. Customized hotkeys or software let subscribers use new services with extreme ease, and therefore customized mobile phones are important in this process.

Regarding manufacturers, international mobile phone manufactures can obtain more orders through stronger technology R&D capabilities. For Chinese mobile phone companies, customization by operators can directly spur the development of some companies, such as China Unicom CDMA mobile phone suppliers ZTE, Hisense, and Daxian. Customization is beneficial to Chinese mobile phone companies in getting a steady foothold in the domestic market.

For traditional distributors, the customized mobile phones of operators are eroding parts of the market, further flattening out distribution networks. Some weaker distributors could lose their means of survival, but at present Chinese operators have not yet become major channel players. Under these conditions, operators are still cooperating with mobile phone distributors, 3C retail chains and so on. Besides complementing the distribution networks of operators, operators also have more direct contact with consumers in product sales.

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