China Mobile 3G: Where Are the Subscribers? 中国移动3G：订户在哪里？

By newsdoug on December 7, 2011

China Mobile's limping data card business A leaked memo from China Mobile (HKEx: 941; NYSE: CHL), if it’s true, is providing an embarrassing look at the spectacular failure of the company’s sputtering 3G service. According to the memo, the country’s dominant mobile carrier now has a paltry 3.5 million data card users, representing a tiny portion of its 640 million total users, even though data services are supposed to be a key future growth driver. (English article) Making the situation even more embarrassing, only about half of those data card users were using China Mobile’s 3G service, while the rest were using its older 2G network. So that means that even though China Mobile reported having 45 million 3G subscribers at the end of October, only 1.7 million of those, or less than 4 percent, were using the service primarily for its Web surfing capabilities, which is what data cards are designed for. So my question to China Mobile is: what exactly are the other 43 million 3G users subscribing to? My guess is that many of them are really just 2G users who have paid a minimal fee, or possibly no fee at all, to upgrade to 3G packages that China Mobile is promoting less to build up the business and more to satisfy Beijing that it is working to justify its expense of more than $10 billion to build its 3G network. To be fair, China Mobile has been handicapped from the start in 3G by Beijing’s decision forcing it to build a 3G network based on the homegrown TD-SCDMA standard, which is only used in China and suffers from a wide range of technical problems, not to mention a scarcity of handsets that can operate on the system. The company has shown recent signs of stepping up its 3G campaign as a new generation of leadership moves in with the expected retirement of longtime Chairman Wang Jianzhou. If these new leaders are smart, they will aggressively work to fix the 3G glitches and improve coverage to build up China Mobile’s data card users, which would help to not only provide a lucrative new revenue source but also convince consumers that the company has a viable 3G offering to compete with rival products from China Telecom (HKEx: 728; NYSE: CHA) and China Unicom (HKEx: 762; NYSE: CHU).

Bottom line: A leaked memo from China Mobile showing very low 3G data card subscribers underscores the company’s pathetic progress in promoting 3G to date.

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