May 25, 2005

Currently at around 25 percent, China's wireless communications growth rate is expected to grow significantly.

"China appears to be the low-hanging fruit", says Noah Elkin, eMarketer Senior Analyst and author of a just-published China Wireless report.

"In just a few years, China has become a leading wireless market and the opportunities there remain very exciting.

However, with considerable cultural, administrative and economic hurdles to overcome, China presents companies with a difficult operating environment."

Recent growth in China has been spectacular, but the rate of growth is expected to decline.

China has a vast population of low-revenue subscribers, and even if the country's economy manages to grow at the torrid pace of the past several years, which most economists believe is unlikely, it will take some time before income rises to what could be considered middle-class levels.

The "two Chinas" model — wealthy urban vs. undeveloped rural — represents a challenge to not only the government-controlled carriers but also privately held or publicly traded service providers and any foreign companies looking for ways to gain access to China's more than 330 million wireless subscribers.

"China's subscriber growth figures are undeniably impressive," says Dr. Elkin. "Still, it is worth putting that growth in context. China's wireless users tend to spend very little per month.

Developing countries with large pre-paid user populations generally tend to produce low ARPU, and in this regard, China is no exception."

But wireless usage in China fits no exact model. "Because PC penetration rates are lower than those for wireless phones, Chinese consumers do not necessarily have the wired Internet as a reference point," says Dr. Elkin. "So the wireless application protocol (WAP) market is flourishing in China, unlike more developed economies with advanced wireless user populations."

According to government statistics, wireless users overtook fixed-line subscribers in October 2003. China has rapidly become the world's largest wireless subscriber market and growth continues to be strong, although it has slowed from the beginning of the decade.

Still, growth rates of 10%-15% per year translate into significant jumps in both the number of subscribers and in the overall penetration rate. By contrast, in Hong Kong, where penetration now has topped 100% since 2003, growth has slowed to a trickle. Major changes in Hong Kong's subscriber population are unlikely at this point, as it is one of the world's most mature markets.

Source: eMarketer