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Chinese operators converge on mid-range and low-end 3G handsets

Jane Wang | July 23, 2010
Customers, rather than the operators or handset vendors, will be the main beneficiaries of this handset subsidy war.

3G competition continues to grow among the three Chinese mobile operators. Recently, all three domestic operators have adjusted their handset strategies to increase their subsidy levels, particularly for mid-range and low-end 3G mobile phones. This will grow the market, but will impose a financial burden on the operators. Handset competition will also maintain pressure on vendors margins, and customers will be the main beneficiaries.

In May this year, China Mobiles CEO Wang Jianzhou announced that China Mobile will increase its handset subsidy in 2010 to grow its 3G subscriber base. Total subsidies will reach CNY15 billion, most of which will be for 3G handsets. This subsidy level is significantly higher than in previous years.

Meanwhile, China Telecom has begun to implement a new handset subsidy policy in some provinces for its CDMA handsets, and China Unicom, which had always avoided implementing 3G handset subsidies, recently announced that it will follow suit. Despite their different technology and segment strategies, the three big operators are all focusing on mid-range and low-end 3G handsets to enlarge their subscriber bases.

3G handset subsidies to be raised

Substantial subsidies have been the main 3G customer acquisition strategy among Chinas three mobile operators since 2009, when 3G services were first launched.

China Mobiles annual handset subsidies were around CNY8 billion in the 2G era, but this rose to CNY12 billion in the first year of 3G. Following China Mobile's recent 3G network investment, its next priority is to grow its user base. Higher direct handset subsidies, along with some tariff subsidies, will be implemented this year.

China Telecom said at the beginning of 2010 that it would spend the same or more on handset subsidies for its 3G mobile service as it did in 2009 (CNY10 billion). For example, subsidiary Beijing Telecom launched handset vouchers for mobile customers to buy CDMA EV-DO mobile phones.

China Unicom has been forced to change its handset subsidy strategy due to its low 3G market share. In March 2010, China Telecom had 5.57 million 3G subscribers and China Mobile had 7.69 million. In comparison, China Unicom only had 4.82 million WCDMA subscribers. This was mainly due to China Unicoms high-end 3G positioning and its low level of subsidies compared with the other two operators.

Stronger emphasis on mid-range and low-end 3G handsets

This new convergence on the middle and low end of the 3G market is also reflected in the operators handset sourcing strategies.

China Telecom moved first, announcing in early 2010 that it would focus on the development of mid-priced 3G phones, and would target the development of a CNY1,000 3G smartphone. China Telecom plans to work with handset vendors to achieve prices of CNY7002,000 for a mid-range 3G handset.


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