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China Mobile and China Unicom: How to Swim in a “Blue Ocean” [24.09.07]

As of June 2007, China Mobile and China Unicom provided services to over 330 million and 151 million subscribers respectively.  “The China Mobile subscriber base surpasses China Unicom’s by far,” said Mr. James Shen, General Manager of UNICOM-Brew joint venture. “However, China Mobile is operating only in GSM standard, while China Unicom owns two networks, CDMA and GSM standards.   Considering that most of the Chinese population live in rural areas, the numbers that you see show that China’s mobile communication market is quite developed.  The mobile penetration level in China’s largest cities, Beijing, Shanghai and Guangzhou, has reached saturation, now over 100%. And this means that currently mobile operators target mainly rural areas,” says Shen. 

Pointing out that GSM is the key standard for China Unicom, Shen said that his company’s interested in developing work in the CDMA standard as well.  “I personally am confident that CDMA-based projects will work excellently.  In fact, this standard has already played a positive role on the China’s mobile market,” he said. 

Shen continued: “CDMA-2000 1x has much higher data transmission speed compared to GPRS, and you could basically apply and experiment with 3G services right in this standard, such as music downloads and games even before 3G is deployed.”  According to China Unicom, during the first quarter of 2007 its profit grew 41% year-on-year.  The revenue reached USD 253 million compared to USD180 million during the same period of 2006.

China Unicom’s main competitor, China Mobile, is the world’s largest mobile operator in terms of mobile service subscribers and network size.  By the end of March 2007 its subscriber base totaled 316.12 million.  According to the operator, during the first quarter of 2007 its net profit grew 22% y-o-y to USD 2.28 billion.  China Mobile’s subscriber base also expanded.  Its EBITDA grew 13.8% and reached USD 5.2 billion (from USD 4.5 billion in 2006). In the first quarter of 2007 this operator added 14.89 million subscribers compared to 14.08 million in the fourth quarter of 2006.  In March 2007 alone some 5.12 million subscribers connected to its network (4.91 million in February 2007). 

What lies behind this growth? Mr. Wang Jianzhou, China Mobile’s Chairman, in his interview to the South China Morning Post (SCMP), explained it simply – he is a confidant of the so-called “Blue Ocean” strategy.  The strategy was coined by two authors, W. Chan Kim and Rene Mauborgne, in a book which quickly became an international bestseller.  Kim and Mauborgne believe that new leaders must be able to create “blue oceans” of new market space ready for growth instead of aggressively competing for existing market space.  The blue ocean strategy provides necessary methodologies and tools to create new market space.

As Wang said to SCMP, China Mobile’s blue ocean strategy is that it is not trying to aggressively lure subscribers from its competitors, such as China Unicom, China Telecom and China Netcom.  In fact, the operator is interested not only in its subscriber numbers, but also in better pricing for various services and expanding in China’s rural market.  China Mobile will explore its blue oceans by acquiring new telecom assets in new markets.  In particular, the rural market became a very important niche for China Mobile.  In 2007 capital investments in network expansion in this market segment reached USD 12.8 billion.  The company expects that by the end of 2009, mobile penetration in China will reach 50%, with half of its subscribers coming from rural areas.

Over 700 million out of 1.3 billion Chinese citizens live in rural areas.  Here China Mobile has some definite advantages: its network covers some 90% of rural regions in China.  Now only 15 people out of 100 use mobile services in rural areas, offering great potential for further growth.  In addition to voice services China Mobile offers some value-added services to its customers in villages, such as agricultural products stock news.  In March 2007 China Mobile’s monthly ARPU for a rural citizen was USD 6.4 compared to its overall average ARPU of USD 11.6.

Nevertheless, the operator is expanding the range of its services in various other markets.  One of the most profitable has been SMS, mobile news and mobile music.  Thus, according to Wang, over 23% of all profits come from non-voice services.  A good example of how big SMS service is in China – China Mobile’s subscribers sent over 2.8 billion messages on the Chinese New Year’s Eve in 2007.  Over 170 million subscribers of China Mobile pay for RBT an average of 60 cents.   Moreover, SMS accounts for 46% of all revenues from non-voice services.  According to Fang Weiqin, currently some 2,000 content providers are working in China Mobile’s network.

China Mobile’s brand, valued at over USD 4 billion, took fifth place in the world’s most influential brands, having surpassed Marlboro and Wal-Mart, according to Financial Times.  On top of that, China Mobile’s capitalization was about USD 185 billion as of April 2007.