Subsidies return to bite big three
The mainland's three giant telecommunications operators face increased competition in luring more third-generation (3G) subscribers and in boosting their average revenue per user (arpu) in the second half of this year.
But in the past, it has been a dilemma of their own making because of the huge subsidies they paid to attract 3G subscribers, which has slowed the growth of profitability.
China Mobile, the world's biggest wireless network operator, reported interim revenue of 250 billion yuan (HK$305 billion), up 8.8 per cent year on year, while net profit rose 6.3 per cent to 61.3 billion yuan.
China Unicom (Hong Kong), the country's second-largest mobile phone operator, saw its revenue rise 23 per cent to 101.4 billion yuan from a year earlier. But net profit fell 9 per cent to 2.65 billion yuan due to heavy spending on subsidies.
China Telecom's first-half profit rose 8 per cent to 9.81 billion yuan and revenues rose 11.5 per cent to 120.2 billion yuan.
Unicom is the only operator whose revenue increased but whose profit dropped. The carrier is so far Apple's sole carrier-partner for the iPhone handset in the potentially huge mainland market, where the number of mobile users topped 930 million by July, larger than the total population of Europe.
'The most important reason for the operators seeing a rise in revenue, but not correspondingly in profit, was the subsidies they gave to 3G users,' said Yang Changlong, industry analyst at Beijing's Bayes Consulting.
Unicom's 3G business lost 3 billion yuan in the first half, though the company said monthly profit might come in the second half.
Yang said the popular iPhone had helped Unicom attract high-quality customers and build its 3G brand, Wo, as a high-end product. 'But it has been hard for Unicom to find a balance between increasing 3G users and realising profit,' Yang said.
Speculation has been rife that China Mobile and China Telecom will soon become the next carrier-partners for Apple's hot smartphone on the mainland. China Mobile alone had 621.85 million mobile users as of July; however, the iPhone does not work on their TD-SCDMA networks.
Yang said Apple would introduce a new iPhone model for China Mobile's 3G networks, which would work only in China. 'The huge user base is the weight China Mobile has in the negotiations with a company as strong as Apple,' Yang said.
China Telecom is operating a 3G network based on CDMA standard and the company already said that if it could add iPhone to its portfolio it would increase handset subsidies.
Among the three carriers, only China Unicom operates a 3G network of WCDMA standard, which is relatively universal around the world and which the popular iPhone supports. 'This is part of the reason for Unicom to become the first carrier-partner for Apple in China,' Yang said.
There were 87.2 million mobile 3G subscribers by July, according to statistics from the Ministry of Industry and Information Technology, accounting for 9.4 per cent of total mobile subscribers in China. 'It is expected that 3G users will top 100 million this year, and penetration rate will reach 10 per cent,' Yang said.
According to past experience in other markets, he added, when the number of 3G users made up 10 per cent of all mobile users, the industry will enter a phase of robust development.
A Hong Kong-based analyst who asked not to be named said: 'In the second half, we should continue to focus on 3G subscriber growth, and handset subsidy expenses - these items will influence industry profitability.'