China's mobile subscriber base exceeded 400 million in 2006, and mobile penetration is estimated to be slightly more than 30 percent, analysts say.
These numbers continue to climb, although exact figures differ from one research house to another.
Informa Telecoms & Media is forecasting China's mobile subscribers to top 600 million by the end of 2007. Other research houses have figures around the 500-million mark: Wireless Intelligence forecasts total mobile connections to be around 509 million, while Gartner and Portio Research's estimates are 511 million and 519 million subscribers, respectively.
China's massive market presents tremendous opportunities for operators, device manufacturers and content providers.
Sandy Shen, China research director at Gartner, mobile user growth will come from rural and low-tier cities as well as first-time users, while mobile phone growth will increasingly come from replacement sales.
Although SMS continues to dominate, new mobile applications are emerging, such as 2D barcode, IM (instant messaging), as well as GPS (Global Positioning System) location and navigation. "NFC (near-field communication) mobile payment is coming soon, too," Shen said.
But despite the practical value 2D barcode and NFC payment can offer to users, she said, such applications will take a while to emerge due to "fragmentation of the technology and phone platforms, and complications in the business model".
Therefore, the majority of the carriers' mobile data revenue will still come from SMS and ringtones/ring-back tones—at least till 2010, Shen said.
The Gartner analyst attributed the popularity of these applications to their affordability and simplicity. "SMS and ringtone/ring-back tones are cheap, easy to use, works on all phones and allow personalization," Shen said.
According to Portio Research, China is the world's largest SMS market. Over 451 million text messages were sent in 2006, an increase of 67 percent over 2005.
One closely watched area is the deployment of 3G (third-generation) networks in China.
According to Gartner, the industry will be watching to see the initial market response to China's homegrown 3G communication standard TD-SCDMA, which was approved in 2006.
"This will indicate how successful [or not] the technology will be, and when the official 3G licenses will be issued," Shen said. "After that, we will see other 3G technologies like W-CDMA and CDMA2000 being deployed and compete with TD-SCDMA."
According to the Gartnet analyst, future mobile adoption will not be hugely impacted by 3G "since most future 3G users are already mobile users, and new users are likely to be 2G users first".
Shen also expects to see some industry reorganization, which "is very likely to happen" before the 3G licenses are awarded. For example, she said, it is "unlikely" that China Unicom will continue to operate both GSM and CDMA networks.
China Unicom and China Mobile are the two leading mobile network operators in the country. China Mobile leads with 67.9 percent market share as at December 2006, according to Portio Research.