Ringing the changes

China Mobile is looking to profit from its 4G headstart

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By December China Mobile’s 4G network will cover 500 million people

Last week South Korea’s Science Ministry announced a bold $1.49 trillion plan to launch a 5G wireless network. The ministry says users will be able to download an 800 megabyte movie in a single second. Samsung has already had some success testing the technology, although Bloomberg says that the ministry’s roadmap doesn’t envisage nationwide trials beginning till 2017. The promise: a full commercial service by 2020.

“We helped fuel national growth with 2G services in the 1990s, 3G in the 2000s and 4G around 2010. Now it is time to take preemptive action to develop 5G,” the ministry proclaimed.

Over in China the talk is less about 5G, than the arrival of a 4G service at last. The government finally dished out licences last month. After readying for their issue for some time, China Mobile was first to launch the new product.

While it might not be first to 4G, China promises to be the biggest market for it. According to TechWeb, China Mobile will install 400,000 base stations this year, giving it coverage in 100 cities. The company’s vice president Li Zhengmao says that means the network will be usable by 500 million people, becoming the world’s largest by December.

China Mobile has been in the doldrums for several years owing to the lacklustre performance by its domestically-developed 3G technology. So management can be forgiven for treating the 4G launch as a seminal event and making a great deal of noise about its plans.

Practically every day there is some new announcement about the product. For example, last Saturday the carrier unveiled a new offer to lure subscribers from their existing 2G and 3G contracts, promising to slash internet roaming charges for 4G users by an average of 82%. Covering 80 countries the measure will be attractive to many of its customers, as ever more Chinese travel overseas and do so more frequently. Many are heavy consumers of data, given their usage of services like WeChat and Sina Weibo.

The service has been priced aggressively (the cheapest package costs Rmb138 per month, or $22.80) and unlike with 3G, China Mobile is offering a decent array of handsets. But none of the packages announced so far has a higher profile than China Mobile’s deal with Apple to offer the iPhone. Without labouring the point (we have mentioned it many times), China Mobile’s 3G network wasn’t compatible with the iPhone. But the new 4G network – which runs on the LTE system – is.

Both companies are hoping that the new chance to collaborate will deliver a genuine commercial boost. Apple recently announced that its fourth quarter sales in Greater China accounted for 15% of its total revenues – up from 8% a year earlier. As Tim Cook told analysts: “You can’t be in the business we’re in and not have a reasonable China business, and you can see how we did last quarter and we’ve now followed up with a deal with China Mobile. We’ve been selling with China Mobile for about a week. And last week we had the best week for activations we’ve ever had in China.”

Cook added that it will take time for the full impact of the deal to become clear because China Mobile’s 4G service is currently active in just 16 cities.

But the combined attraction of faster mobile service, access to the much-coveted iPhone and China Mobile’s colossal sales network ought to boost the 4G user base substantially. It could be a genuine ‘win-win’ for both firms’ revenues.

Then again, the Wall Street Journal points out one potential hurdle: “the apparent unpopularity of the iPhone 5C”. Ironically, this ‘cheaper’ handset was launched with the China market in mind, where it was felt that a lower-cost version of the phone would appeal to less affluent customers. But the strategy doesn’t seem to have been a success, because the phone is known to be a less glamorous version of the Apple handset family. As a salesman at a China Mobile branch in Beijing told the US newspaper: “My customers think Apple’s operating system is smoother than Android, but I can hardly sell the iPhone 5C to them. The look of the 5C is not pretty for Chinese people.”

As we pointed out in WiC217, the preference among many phone buyers is the gold version of the 5S (which appeals to the current tuhao mood). The Wall Street Journal agrees, surmising that sales are likely to depend on demand for the iPhone 5S “despite its high price”.

(For an idea of the potential market in China, Techweb says there are about 42 million people currently using the iPhone on China Mobile’s 2G network. They will be targeted to switch to the newer 5S and use 4G instead.)

China Mobile has about 760 million subscribers in total and investors are already trying to work out how many it will be able to convert to 4G – with or without the iPhone. China Securities Journal is optimistic that there is a substantial pent up demand for the service, for instance. It interviewed a Beijing taxi driver, the type of customer not usually deemed as an easy sell. But he seemed keen enough. “I have an urgent need for a 4G phone,” he agreed, especially as he uses taxi apps to tell him where to pick up clients. “To grab good orders, you need a faster speed network than others,” the man said.

For the moment, the 4G focus is on China Mobile because China Unicom and China Telecom are awaiting licences of their own to launch foreign-developed versions of LTE. China Securities Journal reckons that testing of those LTE networks could take a few months and then more time will be needed to roll out the base stations. Meanwhile China Mobile began selling its service on December 18, which gives it an important head start.

Indeed, it may be able to lure customers from its rivals. China Telecom looks particularly vulnerable, after releasing data earlier this month showing its net increase in subscribers had collapsed 95% in December versus November. This is suggestive: many customers may have been swayed by the 4G launch in the same month.

China Mobile and its domestically-developed version of 4G has another advantage too. For the first time, the regulatory authorities are allowing it to sell fixed-line broadband too. Bundling a similar service previously gave China Telecom a major advantage in the 3G landscape. But TechWeb and the China Securities Journal both believe that the competitive landscape is now moving in China Mobile’s favour. That’s the inverse of the 3G period, when the biggest carrier was forced to compete with a series of policy-driven disadvantages, in a situation akin to having one arm tied behind its back. Now it seems ready to come out swinging once more. And though the 3G era was a dull time for China Mobile’s shares, growth from 4G may make the coming years much more interesting.

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