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China’s Telecoms Slug it Out Over 3G Technology

|Includes: China Mobile Limited (CHL), CHU

China’s Telecoms Slug it Out

China’s Telecoms Slug it Out


The battle is on in China for dominance in the newest high revenue arena: 3G wireless service. As China’s big three reach deeper into poor rural areas, their subscriptions continue to increase by millions every month. But ARPU (average revenue per user) is declining. That’s why 3G is key.
China Unicom (NYSE:CHU) was first out of the gate in the telecom war of words, boasting of soaring ARPU of 100 yuan ($14.65) service per customer per month from 3G high-speed subscribers, more than double that from its conventional GSM subscriber base. Since introducing the Apple iPhone, China Unicom says it expects a million new subscribers per month.
China Mobile (NYSE:CHL) quickly fired back, saying that 3 million users were likely to subscribe to its third generation service by the end of the year. The company adds that it is still in talks with Apple to sell iPhones in the world's largest mobile phone market.
If China Mobile can hit its target, the company would nearly double the 1.66 million 3G users it had in September. China Unicom had 1.02 million 3G subscribers as of the end of October, an impressive performance from the much-smaller competitor.
China Mobile's 3G network is expected to expand to 238 cities by the end of this year, covering 70 percent of the country's area. For both companies, the 3G competition involves very heavy infrastructure investment and high marketing costs to attract 3G subscribers. China Mobile intends to aggressively promote a low-cost third-generation handset, priced at about 1,000 yuan ($146).
Analysts were unimpressed by China Unicom’s sales results when it first introduced the iPhone. But the company now predicts that the high-priced handset will attract over one tenth of China's 3G users in the next couple of years.
With a mind-boggling 710 million cell phone users currently signed up with one of China’s three telecom companies, the potential revenues from enhanced 3G subscriptions are enormous. Now both companies are talking up their hold on this make-or-break commercial and technical frontier.

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