China Mobile Dominates Early 4G Adoption

The early returns from the recent 4G launch in China show the world’s largest MNO, China Mobile, leading in this newly introduced service by an even wider margin than that by which it dominates the rest of the market. Earnings reports list China Mobile as now having 30 million 4G subscribers compared to China Unicom’s 995,000. While China Telecom has not released the figures for its 4G subscribers yet, given that it only launched the service in July and that the company has lost over 5 million customers this year, it appears highly unlikely that the operator has a number anywhere close to that of China Mobile.

China Mobile’s 4G launch could be used as a potent example of successful strategies that a leading operator can employ when launching a new service. While the operator has two built-in advantages—its large base of subscribers and resources plus the regulatory holdups encountered by China Telecom and China Unicom’s 4G services, which allowed China Mobile to launch six months early—it leveraged these nearly perfectly. Rather than looking to maximize early returns, it worked to grow the service, in terms of both subscribers and features, as fast as possible. Although China Mobile reports that its 4G customers generate an ARPU nearly three times greater than that of ordinary users—and have more than 10 times the average data consumption—the company’s profitability actually dipped 8 percent compared with last year. This was driven by the large investments made in 4G infrastructure and the significant handset subsidies offered to customers who committed to the new service.

We believe both expenses will prove to be savvy outlays from which China Mobile will likely benefit richly in the long term. The operator now has a near unassailable advantage in terms of 4G infrastructure, with 410,000 base stations compared to 90,000 for China Telecom and 63,400 for China Unicom. Given that users need to actually have 4G coverage in order to experience its advantages, this will likely enable China Mobile to expand its early lead. Similar logic could be applied to the handset subsidies—customers with 3G-only devices will see no improvement when switching to 4G service—which served to lower the barrier to entry. It will be interesting to watch the pace of 4G adoption over the  next six months, as China Mobile plans to drop its handset subsidies to CNY 5.3 billion (US $863 million) for the second half of 2014, from CNY 15.3 billion (US $2.5 billion) over the first half of the year. If the operator’s launch of 4G has been any indication, however, we expect it to handle this reduction deftly and to continue to make strides in the 4G market.

 The above item appeared in a recent issue of The Tarifica Alert, a weekly resource that analyzes noteworthy developments in the telecoms industry from around the world. To access all of the latest articles and issues:  http://www.tarifica.com/TarificaAlert.aspx