3G migration means different evolution path to China’s operators

MELBOURNE, AUSTRALIA: According to a new report from Ovum, the global analyst and consulting company, in order to continue the strong mobile revenue growth seen in China, operators are driving 2G to 3G migrations in saturating urban markets. In the medium term, 3G mobile data and value-added services are the path to urban revenue growth.

In its “3G migration strategies in China” report, Ovum predicts 3G connections will increase to 69 million in 2010, due to ambitious 3G subsidy plans by the three mobile operators. 3G connections will then grow at a CAGR of 160 percent from 2010 to 2014. “We expect 3G connections to make up around 40 percent of overall mobile connections by 2014”, explains Tracey Chen, Senior Analyst at Ovum.

In particular, the report predicts that connections will move to 3G faster in urban regions, leaving a higher proportion of 2G users in rural areas. Ovum expects overall 2G connections to continue to grow over the next three years, reaching 768 million in 2011. After that, 2G will decline gradually due to migration to 3G, as seen in Figure 1 attached (based on connections).

“Operators will need to rethink their 3G data pricing to achieve their ambitions. The three mobile operators should differentiate their migration strategies by leveraging their respective capabilities”, said Tracey Chen, based in Beijing.

China Mobile’s primary imperatives are retaining lucrative 2G users, capturing enterprise users through simple and low-priced mobile services, and accelerating the maturity of the TD-SCDMA ecosystem.

For China Telecom, it is necessary to capture new mobile users by offering fixed/mobile service bundling in both residential and enterprise segments, and to pay more attention on launching low to medium prices for CDMA2000 handsets to appeal to low-spending users.

China Unicom is aiming to attract high-end users by offering popular handsets, favorable price packages and appealing loyalty plans, as well as using WCDMA’s scale to drive its handsets into the medium to low-end market.

In the medium term, new business models and revenue sources will also emerge to aid 3G growth. Relevant value-added services include application stores, mobile advertising, and mobile-payment services.

Although operators are launching application stores of their own, the application stores offered by handset providers will change the ecosystem for mobile content and threaten the leadership of operators in this area. However, we believe it is in the interests of participating parties, including content providers, ISPs, operators, and handset providers, to form partnerships to improve growth prospects.