Wireless Penetration In China Slows Raising Concerns For The Big Three

China Unicom (NYSE:CHU) and China Mobile (NYSE:CHL) recently released its operational data for December. China Unicom announced net additions of 3.12 million 3G users for Dec 2012 to end the year at 76.456 million users while China Mobile added a staggering 5.5 million 3G users in Dec for a total of 87.9 million. Interestingly net addition of 2G users has turned negative for both carriers with China Unicom losing nearly 33 thousand 2G users and China Mobile losing 2.47  million 2G users. We feel going forward this would continue as existing 2G subscribers upgrade to 3G and new subscribers preferring the 3G.

See our full analysis for China Unicom’s stock here

China Unicom Declining 3G User Addition

While we were expecting net additions of 2G users to decline and eventually turn negative, it is a matter of concern that net 3G additions for China Unicom have plateaued. The inconclusive talks between the head honchos of China Mobile and Apple (NASDAQ:AAPL) CEO Tim Cook, regarding iPhone 5 was considered a huge boon for China Unicom and China Telecom. At present these two carriers have exclusive access to iPhone users in China.

We expected China Unicom to benefit from this at the expense of China Mobile. However, the December numbers show that China Mobile was not that affected by lacking the iPhone on its network and thus disrupting market expectations of China Mobile to lag the other carriers in 3G additions. We will be watching January subscriber numbers closely to determine if the jump in 3G additions for China Mobile is an anomaly, and if not, it indicates declining prowess of Apple, China Unicom and China Telecom in the 3G market.

Is the Chinese Wireless Market Approaching Saturation?

On analysis of the operation data, we see a trend in decline of net additions of total users for both China Unicom and China Mobile. We suspect this is an indication of China’s wireless market fast approaching a saturation point. With net additions of 2G users turning negative in December, we will continue experiencing declining net additions of wireless users with the possibility of the wireless market experiencing saturation later this year.

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