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Publication Overview

The China market still has low penetration rates and this is an excellent indicator for future growth. The report covers trends and developments in telecommunications, mobile, Internet, broadband, digital TV and IPTV developments. Subjects include:

• Market and industry analyses, trends and developments;
• Facts, figures and statistics;
• Industry and regulatory issues;
• Infrastructure;
• Major players, revenues, net profit, EBITDA, subscribers, ARPU;
• Internet, VoIP, IPTV;
• Mobile voice and data markets;
• Broadband (FttH, DSL, cable TV, mobile);
• Convergence and digital media;
• Forecasts for fixed-line, mobile, 3G, broadband and cable subscribers to 2015.

Researcher:- Lisa Hulme-Jones
Current publication date:- July 2010 (16th Edition)
Next publication date:- May 2011

Executive Summary

China is committed to keep the economy growing in the midst of the global financial crisis. The State Council initiated a massive infrastructure spending program as part of an active fiscal stimulus plan aimed at boosting the country’s slowing economy. Targeting GDP growth of around 6%, China attained actual growth levels of 8.7% and was one of the first country’s to lead the global economy out of a recession. This was driven by massive infrastructure developments and the propensity of the current generation to spend on ‘necessities’ that were seen as luxuries not so long ago. In addition, China is actively expanding its political and economic ties with major emerging markets, such as Latin America, Africa and the Middle East. According to the International Monetary Fund, China’s share of worldwide GDP is to grow from 1.7% in 1991 to an expected 11.1% in 2014. This highlights the massive change underway in China. Telecommunications is an important vehicle to drive through this radical shift in economic prosperity and culture.

China’s entire telecommunications market will generate around US$130 billion in 2010, making it the second largest telecoms services market in Asia Pacific after Japan. The market is expected to increase at a compound annual growth rate of 8.8% between 2009 and 2014, reaching US$187 billion by 2014, surpassing Japan as the largest telecommunications services market in Asia.

In the past five years, as one of the country’s ‘pillar industry’, China’s telecom service industry has grown at a faster rate than the Country’s GDP. According to official statistics from the Ministry of Industry and Information Technology (MIIT), telecommunications business contributed approximately 4.3% of the country’s GDP in 2009.

The industry restructure was finalised in 2008 resulting in a more level playing field and the market was seeing significant competition between the newly formed full-services operators. Due to the continued massive take-up of mobile services, the total number of telephone subscribers broke through the one billion subscriber mark in 2009 and the number of mobile subscribers alone was on track to reach 800 million by mid 2010. Use of the Internet in China has also grown at a phenomenal pace reaching 400 million users into 2010 after already passing the US in 2008 to become the world leader. Another noticeable element is that of users accessing the internet via mobile phones.

The newly formed China Mobile, China Telecom and China Unicom competed fiercely in 2009 in establishing the companies as full-service operators. The mobile sector was still expanding at over 15% per annum going into 2010, with the roll-out of 3G services well underway. Entering 2010, with far more handsets on the market and pricing coming down to more realistic levels, the take-up of 3G was accelerating, but was still far below the level required to meet the MIIT target of 150 million subscribers by 2011. In fact, with numbers still short of 20 million by end Q1 2010, the prospects of reaching 100 million by end 2011 were looking decidedly optimistic. However, with such aggressive government support and the world watching, particularly the TD-SCDMA roll-outs, it is certain that the three operators will be scrambling to meet this stretch target.

China’s spiralling online population has turned the Internet into a forum for citizens to express their opinions in a way rarely seen in a country where the traditional media is under strict government control. The internet has had a subtle unifying effect on China. The diversity of Chinese dialects, often an obstacle to comprehension of the spoken word, does not limit written comprehension.

However, Internet development and application in China is imbalanced regionally, and between urban and rural areas. In 2009 China Mobile continued to pursue the rural market development strategy. The company took advantage of State policies to reduce development costs for the rural market and took a first-mover advantage in rural markets. While urbanisation progresses in rural areas, this market presents significant potential and as such the rural market continues to be a key growth driver.

The three full-service operators are expected to compete aggressively in 2010 and into 2011. Value-added services will continue to grow as revenue from traditional voice services continues to decline. The convergence across telecommunications, internet, and radio and TV broadcasting networks will form a new market beyond the traditional telecommunications industry. The huge popularity of the internet will continue to pervade all aspects of society as China strives to establish its innovation credentials.

China – Internet, broadband, IP telephony and telecoms statistics – 2004; 2009, 2010

(Source: BuddeComm based on MIIT, ITU and CNNIC data)

Market highlights:

• China had close to 1,100 million phone users by mid-2010, including mobile phones, fixed-line phones and PHS handsets. Mobile subscribers comprised over 70% of the total.
• 3G deployments started but take-up was slower than expected. China Mobile’ s TD-SCDMA network was the most popular into 2010 but not as significantly as was anticipated. China Telecom had made astonishing progress with the CDMA network while China Unicom’s WCDMA network had the least number of subscribers. China can expect significant growth in mobile Internet use as 3G take-up increases. Going into 2010 the number of mobile Internet users reached 233 million, accounting for 60.8% of the total number of internet users.
• The total number of broadband subscribers continued to grow from over 120 million by mid-2010, representing the largest number of broadband subscribers worldwide and accounting for 45% of net-adds worldwide in Q1 2010.
• China’s FttX roll-outs gathered momentum and reached over 15 million subscribers by end 2009 and expected to gain another 10 million subscribers during 2010. China Telecom captured 80% of the market and China Unicom the remainder. China Mobile was still to start any major roll-outs. The industry restructure has caused operators to evaluate their spending patterns, with a large amount going to broadband infrastructure.
• The contribution from value-added business increased substantially. China Mobile’s value-added business contributed nearly 30% to the Group’s total operating revenue due to the continued expansion of the major service offerings such as SMS, Color Ring, MMS, Handset Internet Access, Mobile Music, Mobile Paper and the instant messaging service.
• In 2010, China Mobile, signed a deal to buy a 20% stake in the Shanghai Pudong Development (SPD) Bank, partly owned by Citigroup. This deal is significant due to the huge potential for mobile payments in the short-term and securing the digital assets of subscribers in the long-term.
• China’s three telecom operators were accelerating plans to roll out mobile TV services in order to gain market share for 3G services. All three operators planned to rely mainly on the China-developed China Multimedia Mobile Broadcasting (CMMB) mobile TV standard to deliver their mobile TV services to both their 2G and 3G customers.
• The Internet population had reached over 400 million users by May 2010. The government aims to make the net available to 50% of its 1.3 billion population in the coming five years which would take the total to over 650 million by 2015 and reaching almost 40% of the vast rural population.
• In early 2010 the Chinese government revealed a plan to speed up the merging of the country’s telecom, broadcast television and internet networks, as part of its efforts to advance its information and cultural sectors. In a cabinet meeting presided over by premier Wen Jiabao, China mapped out the merger plans as follows: to work on the merger of broadcast TV and telecom networks in 2010-2012 on a trial basis; to include internet networks into its merger efforts in 2013-2015.
• The top three countries in terms of total cable TV subscribers in 2009 were China, the United States and India, with China leading the pack with 175 million subscribers.

Drivers China Telecom Modems Compatible

For those needing high level strategic analysis and objective analysis on China, this report is essential reading and gives further information on:

• Orders by the MIIT in 2009 for China Telecom and China Unicom to close their Xiaolingtong (Little Smart) wireless service by end-2011.
• Aims by the government to broadcast all TV programs in digital format by 2010 and complete cable TV digitisation by 2015.
• Explosive growth in Chinese Internet use, which is driving a sharp rise in profits at online companies such as Taobao; Alibaba; Tencent and Baidu. Online gamers, online music use, online video use, internet shopping and social networking continues to rise together with online advertising spend.
• The launch of a mobile TV service in 2010 by China Mobile and state-backed China Broadcast Corporation (CBC) using the locally-developed CMMB standard. The network offered access to six channels at an initial price of RMB 6 (US$0.88) per month.
• China’s increasing investment in its worldwide connectivity through submarine and terrestrial cable links and a massive satellite deployment operation covering not only telecommunications but also GPS and research activities.
• China Unicom putting the finishing touch on the tests on its HSPA+ networks in Guangzhou, Shenzhen, and Zhuhai, which were kicked off in October 2009.
• Apple’s iPhone being offered by China Unicom in October 2009 and China Mobile selling its own version of the iPhone in 2010, dubbed the OPhone.
• The State Grid Corporation of China starting a FttH trial in Shenyang, The entry of the state-backed electric company alters the competitive landscape with a new player that has massive resources and ready access to homes via the grid.
• China’s expected investment of US$7.32 billion in the Smart Grid sector in 2010. China is predicted to be one of the hottest Smart Grid markets in the coming years given that its energy needs are expected to double in 10 years, and the country’s dominant power distribution company, State Grid Corporation has a goal of building out a Smart Grid by 2020.
• The launch of the Compass GPS satellite in 2009, one of the 35 that China planned to put into orbit by 2015. The satellites will form the Beidou Navigation System (BNS), a global positioning system completely developed by Chinese technology. The system will provide services for transportation, meteorology, petroleum prospecting, disaster forecasting, telecommunications and public security. China plans to launch 10 satellites by the end of 2010.

Drivers China Telecom Modems Service Providers

Data in this report is the latest available at the time of preparation and may not be for the current year.