2012: Visualizing iPhone Growth Opportunities in China

There's good reason why the mobile battleground is moving to China. The Middle Kingdom is the world's most populous nation by far, and that's a lot of subscribers looking for mobile connectivity, even if broader growth has been somewhat decelerating of late. I keep track of subscriber figures from China Mobile (NYSE: CHL  ) , China Unicom (NYSE: CHU  ) , and China Telecom (NYSE: CHA  ) , so let's look how the three main wireless carriers fared in 2012. The trio recently put up digits as of November, so we'll look how they compare with last November.

China Mobile
The largest carrier in China is also the largest carrier in the world. At the end of November, China Mobile was sitting on 707.3 million mobile subscribers, of which 82.4 million were 3G subscribers. That represents 3G penetration of 11.7%, which is significantly lower than its rivals.

Source: China Mobile.

This is due to a number of reasons. First and foremost, China Mobile uses a unique 3G network standard, TD-SCDMA. Handset manufacturers tend to make devices with broad compatibility, so they sometimes overlook China Mobile despite its lusty subscriber base. This has historically been exactly why Apple (NASDAQ: AAPL  ) doesn't offer the iPhone on China Mobile, although the iPhone 5 is compatible.

Also, China Mobile focuses more heavily on the prepaid segment, which generally brings in lower average revenue per user, or ARPU, and subscribers are more price sensitive. Since the prepaid segment is mostly an unsubsidized market, the high price tags of smartphones also tend to scare off consumers relative to a subsidized purchase.

China Unicom
The second-largest carrier was also the first iPhone carrier in the country. China Unicom has enjoyed healthy subscriber gains and has 3G penetration of 31%.

Source: China Unicom.

China Unicom has 162.9 million mobile subscribers, of which 73.3 million are 3G subscribers.

China Telecom
Coming in third place -- but closing the gap with China Unicom -- is China Telecom, which is within 5 million subscribers of becoming the No. 2 carrier. Even though it's the smallest, it actually has the highest 3G penetration rate at nearly 42% of subscribers. The carrier has 158 million subscribers, including 65.9 million of the 3G variety.

Source: China Telecom.

China Telecom became an official iPhone carrier earlier this year with the iPhone 4S.

Two bigger pictures
If we put all these figures together, we see that there are now over 1.1 billion mobile subscribers in China. Within that total, 3G subscribers have soared by 88% to 221.6 million, representing 20% 3G penetration.

Sources: China Mobile, China Unicom, and China Telecom.

It's no coincidence that China Mobile's share of the 3G market in particular has suffered as a result of its unique network standard and lack of iPhone availability. That's why it seems inevitable that Apple and China Mobile will finally ink a deal next year, as it would be mutually beneficial.

Sources: China Mobile, China Unicom, and China Telecom.

China Mobile is perfectly aware of how big of an opportunity it represents for the iPhone maker. The company is leveraging its position and wants some type of "benefit sharing," as it's likely seen the margin-draining effects that the iPhone has had on other carriers throughout the world.

There's more where that came from
Apple's not the only one looking to tap into the mobile growth in China. Due to Apple's hesitancy to address low-end (and low-margin) market segments, there's a lot of room for rivals to squeeze in from below. Many local white-box original equipment manufacturers -- like ZTE, Huawei, and Xiaomi, among others -- have been enjoying unit growth on the low end.

But if there's one thing investors should remember about the smartphone market, it's that market share doesn't equal profit share.

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  • Report this Comment On December 27, 2012, at 10:58 PM, techy46 wrote:

    Nice article on Chinese carriers and mobile device opportunities. Now take those same opportunities and switch to a Nokia vantage point with the Lumia 620, 802 and 920 and subsidies being offered by China Mobile and Chine Unicom.

  • Report this Comment On December 30, 2012, at 7:03 PM, EmergingGrowth wrote:

    If you want potential big upside for 2013, Nokia now is a stock to consider. The stock has come down more than 90%. Now, the stock is only below $4, and it used to be over $60.

    Many catalysts, such as China Mobile deal, RIM´s continuous royalty payment, the coming Verizon´s

    team work with Nokia etc. make Nokia a BUY now, or maybe you will miss the train.

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