Gartner: China to surpass US mobile market in 2002

China's mobile subscriber base is slated to overtake the U.S. in the second half of next year, becoming the world's largest cellular market with almost 121 million mobile phone users, according a report from market researcher Gartner Inc.

Gartner's report puts it at odds with China's Ministry of Information Industry (MII), which claimed earlier this month that China already has more cell phone subscribers than the U.S.

However, the MII figures do not take into consideration inactive or prepaid users in China, Gartner said, nor do they account for the approximately one percent of inactive U.S. subscribers.

Although China will overtake the U.S. in subscriber numbers by the second quarter next year, according to Gartner's estimates, China's total revenue from cell phone use will remain much smaller. Revenue in China will still be less than 22 percent of U.S. revenue in 2005, due to falling average revenue per user (ARPU), Gartner predicted. Today's average Chinese cellular user spends US$223 per year, compared with an average annual spend by U.S. subscribers of $615, the company said.

The spending trend in China is likely to continue its downward course: ARPU declined by 41 percent last year, and will further decrease by 29 percent in 2001, Gartner said.

"The adoption of prepaid services has prompted a significant fall in blended ARPUs during the past 18 months," said Bertrand Bidaud, Singapore-based Asia-Pacific telecommunications director at Gartner. Prepaid usage is exploding in the poorer provinces, depressing the ARPU, while more prosperous regions raise the ARPU, he said.

"ARPU will continue to fall but that's not necessary a tragedy... what matters more is profit," Bidaud said, adding that prepaid cards have expanded mobile penetration in China, and service providers have benefitted as well from receiving money up front.

The growth of the Chinese cellular market has also been driven by low-priced mobile handsets, with simple units selling for less than $121. The availability of second-hand mobile phones has also enabled marginal subscribers to obtain cellular services, increasing subscription rates, the report said.

Looking ahead, another revenue generator for China's mobile service providers could be the data market, as short message service (SMS) becomes more prevalent, Bidaud said. Although mobile data usage will increase in popularity, voice will still constitute over 70 percent of mobile revenue in China, he added.

In the Philippines, service providers have generated significant revenue from the low-end data market, despite having the lowest ARPU in the Asia-Pacific region, he said.

"It would be a very good strategy for service providers to develop SMS in China," Bidaud said, adding that the Philippines has been extremely skilled in generating text revenue, with data representing 40 percent of total revenue from prepaid subscribers.

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