Foreign firms could lose out on 3G
in China By Olivia Chung
HONG KONG - While the guessing game of
when China will open its third-generation market
is still under way, foreign mobile-phone vendors
are being warned that they stand to lose out in
China's 3G market, which is expected to unleash
orders worth billions of US dollars.
However, industry experts believe foreign
brands will retain their dominance in the world's
largest handset market by number of users in the
coming years, because of their more frequent
new-product launches and more efficient marketing
strategies than
local firms.
As China
has promised to provide 3G services during next
year's Summer Olympic Games in Beijing, the
country is expected to issue 3G licenses this
year.
The Ministry of Information Industry
has so far provided cellular-phone operators with
three standards for building their 3G networks.
They are home-grown time division-synchronous code
division multiple access (TD-SCDMA), Europe's
wideband code division multiple access (WCDMA) and
the US-backed CDMA 2000.
The TD-SCDMA
standard was introduced to compete with WCDMA and
CDMA 2000, which are already used in the West.
There are reports that the main reason for the
delays in 3G licensing is that TD-SCDMA is still
being tested.
Strong backing from the
Chinese government will give TD-SCDMA an edge over
foreign rivals, said Chen Haofei, secretary
general of the TD-SCDMA Forum. He called for
foreign handset vendors to get more involved in
this locally developed standard or lose out in
China's mobile-phone market.
"Foreign
companies need to get serious about TD-SCDMA, as
they are less likely to get anywhere with WCDMA
and CDMA 2000 in the near future," Chen was quoted
as saying by China Daily.
China Mobile
Communications Corp (CMCC), parent of Hong
Kong-listed China Mobile, which has been leading
the TD-SCDMA trial in mainland Chinese cities, is
estimated to have spent four billion yuan (US$523
million) of a budgeted 30 billion yuan in
purchasing two million TD-SCDMA mobile handsets.
To cash in on the opportunities brought
about by TD-SCDMA, foreign companies need to
establish that they have the right attitude, Chen
said.
Wang Jianping, a research director
at the China Center of Information Industry
Development, expects more than 3 million people to
buy 3G handsets in China this year, and forecast
the number to reach 300 million by 2012.
At present, the top foreign handset makers
in China have yet to give full support to the
development of TD-SCDMA mobile phones. Motorola
has just developed a model based on the Chinese
standard, while Nokia has adopted a wait-and-see
approach.
However, other industry experts
believe foreign handset vendors will retain their
dominance in the mainland's handset market in the
coming years.
As CMCC is expanding its
trial of TD-SCDMA to more and more Chinese cities,
it is in effect giving the handset vendors that
have developed a model based on the Chinese
standard a head start in the 3G market.
"Once cellular operators are [permitted]
to build 3G networks, TD-SCDMA phones mostly
developed by domestic players might be able to tap
the new market first. However, it won't take long
for foreign players, which have been betting on
WCDMA and CDMA 2000, to lure back potential 3G
users because of the brand effect," said an expert
who spoke on condition of anonymity.
"Besides, 3G service performance in other
countries is just so-so; that's why we don't see
leading operators or the authorities very excited
about the launch of 3G services. Therefore, China
will keep its promise to provide 3G services in
some big cities during the 2008 Beijing Olympics,
but it will be difficult to launch the services
across the country by 2010," said the expert.
"Third, I really doubt the prospect of 3G
services in China. Given the high production
costs, the effect of higher prices of 3G handsets
cannot be understated. Although China has more
than 481 million mobile-phone subscribers, 80% of
them have phones priced at less than [$105]. I
wonder how many people here are willing to pay for
a more expensive 3G cell phone," he said.
There is a similar situation in Hong Kong,
where 3G phones have become increasingly popular.
But one reason for this is that many users are
forced to buy 3G handsets because that is all some
telecom operators provide. As a result, many
people use 3G handsets for 2G services, but
decline to use more expensive services offered by
3G service providers.
The expert also said
the lukewarm response to TD-SCDMA from foreign
handset vendors indicates that they do not have
high hopes for 3G services in China.
"Even
if domestic handset vendors are able grab the
small 3G market in China in the beginning, the
dominant status of foreign handset vendors will
not be under threat," he said.
Sandy Shen,
a Shanghai-based telecom analyst at Gartner Inc, a
US-based information-technology consulting firm,
said foreign handset vendors remain dominant in
the domestic market, with combined unit sales of
the top three foreign brands - Nokia, Motorola and
Samsung - accounting for 60% of the total in the
first quarter of 2007.
She attributed the
popularity of foreign brands among mainland phone
users to more frequent new-product launches and
effective marketing strategies.
"Foreign
brands are more fashionable and pack an array of
features including digital camera, color display
and a music player compatible with MP3 format -
doing them earlier than their domestic
counterparts, which still pale in comparison to
foreign brands in terms of technology and design,"
she said.
Nokia sells its products through
20 retail partners, including Gome Electrical
Appliances, China's largest home-appliances chain
retailer. Last month, Motorola and Suning
Appliance Co, China's second-biggest
home-appliance chain retailer, formed a
partnership in Nanjing, under which Motorola will
open counters in 100 select Suning stores in
China.
While foreign brands remain
dominant, there is a growing presence of domestic
brands, with the top three domestic handset brands
being Lenovo, Bird and Amoi.
In the first
quarter of 2007, more than 36 million mobile
phones were sold in China, an increase of 10% over
the same period in 2006.
In terms of unit
sales, the market share of foreign handset brands
was reduced to 63% in the first quarter of this
year from 73% in the last quarter in 2006,
according to Shen.
Shen attributed the
growing presence of domestic brands to a
competitive "price-value ratio" offered and more
price-sensitive users in the rural market.
"Domestic brands, including new entrants,
are able to pack more features into the same price
points, so their models look more attractive to
price-sensitive users," she said, adding that unit
sales of Tianyu accounted for more than 2% of
total sales in the first quarter of this year,
although it only started selling handsets last
year.
As of this March, China had 481
million mobile-phone users, most newly added
subscribers in rural areas, where many consumers
are buying handsets for the first time.
But Shen believes it will take time for
domestic handset brands to increase their presence
in the domestic market.
"There is no
single factor [allowing] any brand to get a bigger
market share [of] the domestic market; for
example: handset vendors need to develop and carry
out marketing campaigns and introduce new products
to cater to diverse customer needs," she said.
However, given that domestic handset
vendors are much smaller than well-established
foreign vendors, which can inject lots of money
into marketing to increase brand penetration, it
takes time for domestic counterparts to build up
their market share, Shen noted.
Olivia Chung is a senior Asia
Times Online reporter.
(Copyright 2007
Asia Times Online Ltd. All rights reserved. Please
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