China’s mobile market completed its restructuring at the end of October 2008, with fixed-line operator China Telecom acquiring the code division multiple access (CDMA) unit of China Unicom, itself retaining its global system for mobile communications (GSM) interests. This had a negative impact on the growth of the sector, the first time ever, with a net loss of 4.9mn in the month. The decline was due to a change in the definition of active subscriber by China Telecom, which shed customers that were unable and unlikely to pay their tariffs. This led to the operator reporting a total of 28.4mn subscribers in October 2008, compared to the 41.7mn CDMA subscribers reported by China Unicom in the previous month of September.

China Telecom will have a tough fight on its hands to improve its existing market share of 4.7%. The operator has outlined a target of 100.0mn by 2012 and a 15.0% market share. Although China Telecom has invested considerably in improving the capacity, quality and reach of its CDMA network with several contracts awarded during the latter half of 2008, the platform remains infinitely less popular than GSM.

This is a trend that has been witnessed on a global level. Part of the reason is that CDMA handsets are more expensive as they are not mass produced, unlike GSM. In view of this, we do not expect to see the operator make much headway in terms of subscriber growth in 2009.

As we stated earlier, GSM accounts for the bulk of the market, at 95.3% in October 2008, of which China Mobile has a 73.4% share. The operator, unlike its rivals, did not suffer in terms of witnessing lower growth in the month. Reporting over 7mn net additions in October, this was significantly more than its closest rival China Unicom, with 1.2mn net additions in the same period. Much of this has been down to extensive network roll-outs into rural areas, and we would also expect the operator to continue reducing prices into 2009 as part of an effort to retain its dominance of the market.

BMI has revised its mobile forecast downwards, on account of the negative growth reported. We now estimate that the market achieved a subscriber base of around 620.5mn and a penetration rate of 46.1% at the end of 2008, which we predict to rise to 61% at the end of our five-year forecast in 2013.

2009 should also see significant development and growth in the 3G market. China Mobile has continued to award a number of contracts for its time division-synchronous code division multiple access (TDSCDMA) network. At the end of November 2008, the operator reported to have 337,000 subscribers, although this was largely driven by the Beijing Olympic Games that took place in August and also by a number of TD-SCDMA handset users over its GSM network. However, China Unicom was looking at deploying a wideband CDMA (W-CDMA) network across seven cities before the end of 2008, expanding to all major cities by mid-2009. By the end of 2008, 3G networks were widely deployed ready for commercial launch.