NEW YORK ( Trefis) -- China, the world's largest mobile phone market, saw a total of about 12 million new subscriber additions in June. This took the total mobile subscriptions in China to 1.05 billion, well past the 1 billion mark it had crossed in March. To put this number in perspective, the U.S. currently has just over 330 million active connections in all.While the Chinese figure may not be reflective of the actual number of mobile users in the country as some of these connections are currently inactive, it is still a compelling statistic that shows the huge growth opportunity that China presents for many smartphone manufacturers. At the same time, it is also a huge opportunity for the incumbent Chinese telecom providers such as
3G Market in China Is an Equitable MixWith more than 680 million subscribers, China Mobile is the largest wireless carrier in the world and has almost five times as many subscribers as China Telecom. But when it comes to 3G, the difference is not nearly as much. As of June 2012, China Mobile had around 67 million 3G subscribers, only about 30% ahead of the 51 million who subscribe to China Telecom's 3G network. China Telecom announced this week that it added 2.8 million 3G subscribers in June, which is about a third of the overall 3G adds for the month, in China. Low 3G penetration of about 17% in China is giving smaller wireless carriers, such as China Telecom, ample opportunity to compete on an even ground with the otherwise dominant China Mobile. China Telecom has also been helped by the fact that China Mobile currently runs its 3G network on a homegrown proprietary TD-SCDMA standard that is not compatible with many smartphones. That may soon end, however, as Qualcomm ( QCOM) recently launched a wireless chipset (next generation MDM9615) that supports the standard, making it likely that many popular smartphones, including the iPhone, could soon be making their way to the world's largest carrier. Such a deal has, however, not been officially announced yet and China Telecom will be looking to make the most of its iPhone opportunity before that happens.
3G to Bolster Data RevenuesWhile the arrival of the iPhone on China Mobile could potentially be a huge blow to China Telecom, it is a good sign that the carrier is not banking on the popular smartphone alone to drive 3G adoption.
The carrier recently came up with a strategy to sell low-cost 3G smartphones made by ZTE, Huawei and Lenovo that run on its 3G network. Considering that the Chinese market is still in an evolving stage, the demand for cheaper Android smartphones is huge. Even Nokia ( NOK), which is trying to push its Lumia line of smartphones and create a third ecosystem with Microsoft ( MSFT), is launching Lumia handsets at lower price ranges. The Lumia 800C was launched on China Telecom at about $200 cheaper than the iPhone.
China's huge potential is fostering healthy competition among handset makers and this will help China Telecom manage its subsidies better, so as to lessen the impact on its margins going forward.
Driving 3G adoption will serve to drive the ARPU levels of China Telecom further, as has been the case in the developed world. Carriers such as Verizon, AT&T ( T) and Sprint ( S) in the U.S. have seen rapid growth in mobile data revenues over the past few years, driven by growing demand for 3G/4G-capable smartphones. This has come even as their voice ARPUs declined, a trend that can be seen in the Chinese telecom market as well. China Mobile's voice ARPU levels have declined from above $7.30 levels in 2007 to about $6.60 in 2011, by our estimates. We expect to see China Telecom's mobile ARPUs continue to increase in the coming years as 3G demand bolsters data ARPUs further. Click here to find out how a company's products impact its stock price at Trefis Like our charts? Embed them in your own posts using the Trefis Wordpress Plugin. This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.