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Mobile-phone vendors with TD-SCDMA |
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Written by Administrator
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Friday, 01 June 2007 |
By Olivia Chung
HONG KONG - While the guessing game of when China will open its third-generation market is still under way, foreign mobile-phone vendors are being warned that they stand to lose out in China's 3G market, which is expected to unleash orders worth billions of US dollars.
However, industry experts believe foreign brands will retain their dominance in the world's largest handset market by number of users in the coming years, because of their more frequent new-product launches and more efficient marketing strategies than local firms.
As China has promised to provide 3G services during next year's Summer Olympic Games in Beijing, the country is expected to issue 3G licenses this year.
The Ministry of Information Industry has so far provided cellular-phone operators with three standards for building their 3G networks. They are home-grown time division-synchronous code division multiple access (TD-SCDMA), Europe's wideband code division multiple access (WCDMA) and the US-backed CDMA 2000.
The TD-SCDMA standard was introduced to compete with WCDMA and CDMA 2000, which are already used in the West. There are reports that the main reason for the delays in 3G licensing is that TD-SCDMA is still being tested.
Strong backing from the Chinese government will give TD-SCDMA an edge over foreign rivals, said Chen Haofei, secretary general of the TD-SCDMA Forum. He called for foreign handset vendors to get more involved in this locally developed standard or lose out in China's mobile-phone market.
"Foreign companies need to get serious about TD-SCDMA, as they are less likely to get anywhere with WCDMA and CDMA 2000 in the near future," Chen was quoted as saying by China Daily.
China Mobile Communications Corp (CMCC), parent of Hong Kong-listed China Mobile, which has been leading the TD-SCDMA trial in mainland Chinese cities, is estimated to have spent four billion yuan (US$523 million) of a budgeted 30 billion yuan in purchasing two million TD-SCDMA mobile handsets.
To cash in on the opportunities brought about by TD-SCDMA, foreign companies need to establish that they have the right attitude, Chen said.
Wang Jianping, a research director at the China Center of Information Industry Development, expects more than 3 million people to buy 3G handsets in China this year, and forecast the number to reach 300 million by 2012.
At present, the top foreign handset makers in China have yet to give full support to the development of TD-SCDMA mobile phones. Motorola has just developed a model based on the Chinese standard, while Nokia has adopted a wait-and-see approach.
However, other industry experts believe foreign handset vendors will retain their dominance in the mainland's handset market in the coming years.
As CMCC is expanding its trial of TD-SCDMA to more and more Chinese cities, it is in effect giving the handset vendors that have developed a model based on the Chinese standard a head start in the 3G market.
"Once cellular operators are [permitted] to build 3G networks, TD-SCDMA phones mostly developed by domestic players might be able to tap the new market first. However, it won't take long for foreign players, which have been betting on WCDMA and CDMA 2000, to lure back potential 3G users because of the brand effect," said an expert who spoke on condition of anonymity.
"Besides, 3G service performance in other countries is just so-so; that's why we don't see leading operators or the authorities very excited about the launch of 3G services. Therefore, China will keep its promise to provide 3G services in some big cities during the 2008 Beijing Olympics, but it will be difficult to launch the services across the country by 2010," said the expert.
"Third, I really doubt the prospect of 3G services in China. Given the high production costs, the effect of higher prices of 3G handsets cannot be understated. Although China has more than 481 million mobile-phone subscribers, 80% of them have phones priced at less than [$105]. I wonder how many people here are willing to pay for a more expensive 3G cell phone," he said.
There is a similar situation in Hong Kong, where 3G phones have become increasingly popular. But one reason for this is that many users are forced to buy 3G handsets because that is all some telecom operators provide. As a result, many people use 3G handsets for 2G services, but decline to use more expensive services offered by 3G service providers.
The expert also said the lukewarm response to TD-SCDMA from foreign handset vendors indicates that they do not have high hopes for 3G services in China.
"Even if domestic handset vendors are able grab the small 3G market in China in the beginning, the dominant status of foreign handset vendors will not be under threat," he said.
Sandy Shen, a Shanghai-based telecom analyst at Gartner Inc, a US-based information-technology consulting firm, said foreign handset vendors remain dominant in the domestic market, with combined unit sales of the top three foreign brands - Nokia, Motorola and Samsung - accounting for 60% of the total in the first quarter of 2007.
She attributed the popularity of foreign brands among mainland phone users to more frequent new-product launches and effective marketing strategies.
"Foreign brands are more fashionable and pack an array of features including digital camera, color display and a music player compatible with MP3 format - doing them earlier than their domestic counterparts, which still pale in comparison to foreign brands in terms of technology and design," she said.
Nokia sells its products through 20 retail partners, including Gome Electrical Appliances, China's largest home-appliances chain retailer. Last month, Motorola and Suning Appliance Co, China's second-biggest home-appliance chain retailer, formed a partnership in Nanjing, under which Motorola will open counters in 100 select Suning stores in China.
While foreign brands remain dominant, there is a growing presence of domestic brands, with the top three domestic handset brands being Lenovo, Bird and Amoi.
In the first quarter of 2007, more than 36 million mobile phones were sold in China, an increase of 10% over the same period in 2006.
In terms of unit sales, the market share of foreign handset brands was reduced to 63% in the first quarter of this year from 73% in the last quarter in 2006, according to Shen.
Shen attributed the growing presence of domestic brands to a competitive "price-value ratio" offered and more price-sensitive users in the rural market.
"Domestic brands, including new entrants, are able to pack more features into the same price points, so their models look more attractive to price-sensitive users," she said, adding that unit sales of Tianyu accounted for more than 2% of total sales in the first quarter of this year, although it only started selling handsets last year.
As of this March, China had 481 million mobile-phone users, most newly added subscribers in rural areas, where many consumers are buying handsets for the first time.
But Shen believes it will take time for domestic handset brands to increase their presence in the domestic market.
"There is no single factor [allowing] any brand to get a bigger market share [of] the domestic market; for example: handset vendors need to develop and carry out marketing campaigns and introduce new products to cater to diverse customer needs," she said.
However, given that domestic handset vendors are much smaller than well-established foreign vendors, which can inject lots of money into marketing to increase brand penetration, it takes time for domestic counterparts to build up their market share, Shen noted.
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Last Updated ( Saturday, 28 July 2007 )
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