Subsidies to Boost China’s 3G Handset Market in 2010

Driven by aggressive subsidies from wireless carriers that reduce consumer pricing for cell phones, domestic shipments of 3G handsets in China are expected to rise by nearly a factor of six in 2010, according to iSuppli Corp.

Domestic shipments of 3G handsets in China are expected to amount to 42.97 million units in 2010, up from 7.2 million in 2009.

“Chinese carriers plan to provide more than RMB50 billion, or $7.3 billion, worth of subsidies to promote the domestic 3G handset market in 2010,” said Kevin Wang, Director of China research at iSuppli. “Because of particularly strong subsidies, phones using the Time Division Synchronous Code Division Multiple Access (TD-SCDMA) air standard that is backed by the Chinese government will generate the bulk of growth in 2010. Domestic shipments of TD-SCDMA phones will rise to 20.4 million units in 2010, up from 1.3 million in 2009.”

These subsidies, which make pricing of the 3G cell phones more attractive to consumers, are expected to drive up sales despite the lack of value-added data services for the TD-SCDMA air standard.

China Mobile, the carrier expected to offer the phones to the public, is expected to increase its total subsidies to consumers to RMB30 billion in 2010, up from RMB12 billion in 2009.

Over the next five years, ongoing voice service fee reductions and declines in average selling prices for handsets will assure the continued growth of China’s mobile subscribers—an immense base that topped 727 million at the end of 2009, following the addition of 108 million new users during the year. By the end of 2014, Chinese wireless subscribers will have risen to 1.1 billion, iSuppli forecasts. Meanwhile, 3G subscribers will grow to 230 million people in 2014. Total domestic handset shipments in 2009, including 3G cell phones, amounted to 240 million units, up 8 percent from 2008.

Driven by carriers’ subsidies, newly added user and replacement demand, iSuppli forecasts that domestic handset shipments will increase to 266 million units in 2010, up 11 percent from 2009.

Besides 3G handsets, smartphones will be one of the hottest products in 2010. China’s domestic smart-phone market is expected to amount to more than 26 million units in 2009.

To promote 3G data services, operators are building a new ecosystem leveraging mobile application stores and smartphones. To this end, China Mobile joined efforts with handset makers to develop an Android-based TD-SCDMA smartphone named Ophone—a move matched by international companies such as Samsung, LG and Motorola, which also introduced their own OPhones. Entering the fray is Nokia, which iSuppli expects will introduce its TD-SCDMA handset in the first half of 2010.

A popular feature for handsets in 2010 will be Mobile TV, with China expected to adopt its own Mobile TV standard, known as China Multimedia Mobile Broadcasting (CMMB). More than 230 cities had CMMB signals in China by the end of 2009. And to support TD-SDCMA, China’s Ministry of Industry and Information Technology (MIIT) is not allowing the CMMB Mobile TV feature on other mobile-phone air standards.

In addition, a Mobile TV service fee for three years of RMB300 has been announced by CMMB operator China Broadcasting Corporation.

Aside from Mobile TV, iSuppli believes that Wi-Fi, GPS and NFC will become popular new features for handsets in 2010.

www.isuppli.com