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China Mobile Uses Hotspots to Stem Internet Addicts Defections
Published on: 2011-01-19
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Yolkie Sun’s addiction to Facebook Inc. cost China Mobile Communications Corp. a longtime customer.

Sun, who used China Mobile for 11 years, switched to China United Network Communications Group Co., parent of China Unicom, to access the social networking site. Her smartphone accesses the website through a virtual private network that can take three times longer to run on China Mobile.

"I can’t live without Facebook,” Sun, 23, said. “Lots of people use Unicom for the 3G because the Internet is very fast. China Mobile’s 3G is not as good.”

Defections such as Sun’s may cause the world’s largest mobile-phone company by users to lose market share even as the nation doubles its 3G subscribers this year. The Beijing-based company plans to more than triple its Wi-Fi hotspots this year so subscribers have another way to connect to the Internet, said Kelvin Ho, a Shanghai-based analyst at Yuanta Securities Co.

China Mobile may increase its number of hotspots to 1.1 million by year’s end from the 300,000 it had in June, he said. Its capital expenditures of 111 billion yuan ($16.8 billion) this year may be 13 percent above previous projections, he said.

'Worried’ About Unicom

"They are more aggressive than before in terms of Wi-Fi rollout and coverage,” Ho said. “China Mobile is worried its higher-spending customers will turn to Unicom.”

China Mobile, the world’s largest phone carrier by market value, has the nation’s largest 3G user base with 18.8 million as of Nov. 30, compared with China Unicom’s 12.8 million, according to subscriber data. China Unicom is the only carrier offering Apple Inc.’s iPhone with a contract.

China Mobile’s 3G market share may drop to 40 percent this year from 44 percent last year, and China Unicom’s may rise to 33 percent from 31 percent, Donald Lu, a Beijing-based analyst for Goldman Sachs Group Inc., said in a Jan. 6 report.

China Mobile Chairman Wang Jianzhou said building out the Wi-Fi network is “the fastest way” to meet rising Web demand by phone users. The company started the expansion last year and will speed it up this year, he said.

"The competition in the 3G market is very fierce,” Wang said Monday at the Asian Financial Forum in Hong Kong. “We will be adding a lot more hotspots and access points in areas with high population density.”

China Mobile Ltd. rose 6 percent last year in Hong Kong, trailing the 8.2 percent gain in shares of China Unicom (Hong Kong) Ltd.

Italy’s Population

China’s 3G users will reach 103.3 million this year from an estimated 46.8 million last year, Lu said. Those 57 million new subscribers almost equal Italy’s population.

China Mobile’s subscriber numbers include 5.2 million people using its less lucrative “fixed wireless” phone package, according to estimates from Paul Wuh, a Hong Kong-based analyst at Samsung Securities Co. The phones for home or office use the 3G network for voice and texting, though not the Internet.

The growing popularity of tablet computers, including Apple’s iPad, is stoking demand for 3G services that China Mobile hopes to meet with Wi-Fi, Wuh said.

"If people with smartphones or iPads or iPhones want to surf the Web and don’t want to switch to China Unicom, Wi-Fi is one way that China Mobile can help them get around that,” he said.

Zhang Jie received an iPhone three years ago and still uses China Mobile’s 2G network and Wi-Fi, believing it handles phone calls better.

Inferior Network

"China Unicom can be quicker with data, but in many areas even the voice service won’t work,” Zhang said. “China Mobile still has the broader coverage.”

China Mobile in January 2009 received its 3G license for the Time Division Synchronous Code Division Multiple Access system, or TD-SCDMA. The Chinese system was developed as an alternative to the global W-CDMA and CDMA2000 standards.

China Mobile was picked to use the homegrown network because of its market dominance, said Jim Tang, a Shanghai-based analyst at Shenyin Wanguo Securities Co. The government gave China Unicom a license for W-CDMA and China Telecommunications Corp., with a 26 percent market share, one for CDMA2000.

"TD-SCDMA is not as mature,” Tang said. “To offer users a better Web experience, China Mobile has to rely on Wi-Fi.”

In a test by Tang, China Unicom’s 3G network loaded a video clip of a popular song in China called “Tan Te,” or “Perturbed,” about three times faster than China Mobile’s network. Unicom started playing the clip in 25 seconds, compared with 75 seconds for China Mobile, Tang said. Unicom’s data- transfer speed of 110 kilobytes per second compared with China Mobile’s 33 kilobytes.

Planning for 4G

China Mobile customers can buy unlocked iPhones at Apple’s Beijing store and at gray markets. The handsets only work on its older, international 2G network because they aren’t compatible with the homegrown 3G standard.

China Mobile wants Wi-Fi to be an interim solution until it gets a fourth-generation network in place, Ho said.

China Mobile said last month it received government approval to start a network trial in six cities, including Shanghai and Shenzhen. China Mobile likely won’t get a 4G license within two years because the government wants carriers to recoup 3G investments, Ho said.

"China Mobile is pushing 4G hard because their network technology is lagging,” he said.

China Mobile customer Wang Zhen of Beijing said he can wait. The tour guide will use an unlocked iPhone on China Mobile’s 2G network rather than lose his current phone number.

"China Mobile’s network will be slower, but if I need to make heavy use of the Internet, there are lots of hotspots around,” Wang, 24, said. “The problem is I don’t want to change my number.”

Li Gang, 30, started using China Mobile 10 years ago with his first mobile phone. When he recently bought an iPhone 4 for downloading maps and directions, he switched to China Unicom.

"I always used China Mobile but their 3G service is just not as good,” Li, a mining equipment salesman at Jin Feng Co., said at the Apple store. “I like to use my phone to watch movies online, and I don’t want to be restricted to having to find a Wi-Fi hotspot to do it.” 

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