China Unicom Rides 3G Demand To $22.50

China’s smartphone market is poised to grow by leaps and bounds as low-cost smartphones make an entry into the market and the carriers subsidize expensive handsets such as Apple’s iPhone. As a sign of growing demand, the mobile Internet market is booming with purchases made on mobile devices in the first quarter of 2012 already matching that for the whole of last year. According to data group Analysys International, data for Q1 2012 showed that mobile shopping climbed to 10.5 billion yuan and accounted for more than a third of all revenues generated by the mobile Internet market. ^[1] The surging demand for data is a good opportunity for incumbent Chinese telecom providers such as China Unicom (NYSE:CHU), China Telecom and China Mobile (NYSE:CHL) to tap their huge 2G subscriber base and drive the demand for more lucrative 3G data services.

In this piece, we take a look at how China Unicom, with its laser-like focus on 3G, is well-positioned to benefit from the rising demand for 3G services.

See our complete analysis of China Unicom here

3G Market In China Is A Close Race

Currently, China Mobile is the largest wireless carrier in the world and has almost thrice as many subscribers as China Unicom does but the latter is better positioned when it comes to 3G. As of May 2012, China Unicom had almost 33% of the 3G subscriber base, no far behind China Mobile’s 38%. Further, China Unicom has been closing the 3G gap with China Mobile by adding at least an equal number of 3G subscribers each month. In April, the former added about 26% more 3G subscribers than China Mobile and contributed more than 40% of the total 3G net adds in the country. In May, the story was similar with China Unicom adding 2.73 million 3G users compared to China Mobile’s 2.39 million.

3G penetration in China stands at a low but steadily growing 16%. This gives smaller carriers such as China Unicom ample opportunity to compete on an even ground with the otherwise dominant China Mobile. Besides, China Mobile runs its 3G network on a proprietary homegrown TD-SCDMA standard, which has proved to be a big deterrent in securing smartphones that are compatible with its network. Even the iPhone, which has already been launched on the other two Chinese carriers, hasn’t made its way to China Mobile yet.

Higher ARPU levels

To accelerate 3G penetration, China Unicom started promoting 1,000 RMB priced smartphones last year and plans to drop the price to 700 RMB this year. The proliferation of affordable 3G smartphones has helped China Unicom have the upper hand in the 3G race, with China poised to become the biggest smartphone market by the year-end. Its newly launched higher speed HSPA+ network should also help it lure more users into adopting 3G and maintain its lead.

Leading the 3G race is proving beneficial for China Unicom because most growth is coming from data rather than voice, which has reached near-saturation. Adding 3G subscribers is helping China Unicom increase its ARPU levels as 3G smartphone users consume huge amounts of data. For the first quarter of 2012, China Unicom’s 3G ARPU was RMB 94, almost three times as much as its 2G ARPU of RMB 35. The launch of higher speed HSPA+ network will help it further increase ARPU levels as subscribers use more data-intensive applications on their phones.

However, China Unicom will be wary of China Mobile for the iPhone could well be on its way to the world’s largest wireless carrier by the year-end. (see Qualcomm Paves the Way for an Apple-China Mobile iPhone Deal) But since China Unicom has been offering the popular smartphone for close to three years now and has a higher speed ‘4G’ network should help it hold its own. (see China Unicom Speeds Ahead In Smartphone Race With HPSA+ Rollout)

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1. China smartphone shopping surges in 1st quarter, MarketWatch, July 3rd, 2012 [↩]