China Mobile (CHL) is the largest cellular operator in the world, with 644 million subscribers and two-thirds of the Chinese mobile market. The state-owned giant’s market capitalization of $196 billion makes it the most valuable telecom company globally.
But in the fastest-growing part of China’s cellular industry, China Mobile is much less of a force. Competitors China Unicom (CHU) and China Telecom (CHA) each control about 30 percent of the market for fast 3G connections, which has more than doubled in size since the end of 2010, to about 118 million subscribers at the end of November. China Mobile has 40 percent of the market, but many of its 3G customers use fixed-line handsets instead of mobile phones to access the network, making them less valuable because they don’t use data. When it comes to 3G, “only China Unicom and China Telecom are benefiting,” says Andy Poon, an analyst with Kim Eng Securities in Hong Kong. China Mobile’s stock price was down 1.7 percent in 2011, compared with a 47 percent jump for China Unicom and an 8.6 percent rise for China Telecom. All three declined to comment.
China Mobile’s slide is in part the government’s doing. When Beijing issued 3G licenses in 2009, it forced the national champion to use a locally developed technology called TD-SCDMA. Chinese regulators hoped the homegrown standard would give an advantage to domestic technologists while reducing royalty payments for foreign-owned patents. But in a nod to practicality, the same year they let China Unicom and China Telecom start building their 3G networks using the world’s two most common standards.
Global chipmakers and phone manufacturers are reluctant to design components for a technology that looks to be a dead end. Qualcomm (QCOM), for instance, makes chips for several 3G phones sold in China but won’t offer one that works with China Mobile’s network until later this year. As a result, China Mobile subscribers can’t use the iPhone or many popular Android phones, and the carrier’s own selection of handsets is “boring,” says Mark Natkin, managing director of Marbridge Consulting in Beijing. There are fewer apps and glitchier service. “It’s just a less mature standard,” says Natkin.
Stripping some power from China Mobile may have been the intent of regulators. The government controls the three major cellular operators and wants them more evenly matched, says Paul Wuh, an analyst in Hong Kong with Samsung Securities. “China Mobile’s mission in life now is to lose market share gracefully,” he says.
China Mobile will have another chance to extend its lead, when the country begins its transition to the next generation of mobile network, dubbed 4G. China Mobile has gotten permission from regulators to use TD-LTE, a technology standard in use globally. It’s still years away from being ready, though. For the time being, highflying China Mobile will continue to coast back to earth.