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3G's Chinese Puzzle

LR Mobile Column
LR Mobile Column
LR Mobile Column

As the world’s largest nation, China cannot help but attract interest in its vast market potential. This is particularly true for in the mobile market, which has the potential to be a huge high-growth sector for years to come. But capitalizing on that potential is far from a simple matter.

The 3G service market that is now rapidly emerging in China is a prime example of promise and peril, as detailed in the latest Heavy Reading Mobile Networks Insider report, "3G Handsets in China: Identifying the Market Leaders." The promise is easy to see: As of the second quarter of 2010, China had some 750 million mobile subscribers, and only about 2 percent of that base was using 3G service. Ramp-up for 3G will be incredibly rapid. Heavy Reading estimates that by the end of 2010, the number of 3G users will more than double, to about 40 million. The growth curve will remain strong for the foreseeable future.

Those growth prospects have attracted a wide range of 3G handset suppliers to the Chinese market. While some of those companies are already succeeding in establishing profitable operations, others are struggling to find the right business model.

One of the big challenges that 3G handset vendors face in China is, ironically, the lack of customers – specifically, 3G network operators. China has only three licensed mobile network operators – China Mobile Ltd. (NYSE: CHL), China Telecom Corp. Ltd. (NYSE: CHA), and China Unicom Ltd. (NYSE: CHU) – and each operator uses a different 3G technology. That means any handset vendor entering the Chinese market has to purpose-build products that can be sold to only one operator and its customers.

The lack of device portability is only one of the issues that 3G handset vendors face. Each operator has its own approach to handset sales channels. Device cost is another big issue in a nation with a huge population but a very low per-capita income.

Despite the challenges, there is plenty of room for optimism, as detailed in the new report. Nokia Corp. (NYSE: NOK) is having big success in selling its smartphones in China and has a huge early lead in market share. In September, China Unicom sold out its allotment of 200,000 Apple Inc. (Nasdaq: AAPL) iPhone 4 handsets in less than a week.

All of the pieces of China’s 3G puzzle are on the table. Now it is up to handset suppliers to put them together.

— Xuefei Peng, Contributing Analyst, Heavy Reading Mobile Networks Insider

The report, 3G Handsets in China: Identifying the Market Leaders, is available as part of an annual single-user subscription (six issues) to Mobile Networks Insider, priced at $1,595. Individual reports are available for $900. To subscribe, please visit: www.heavyreading.com/mobile-networks.

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