Chinese Telecom Market in Perspective

News hit this week that China’s economy surpassed Japan’s and took the number two spot. Newspapers were ablaze describing the different implications and quoting experts for insight and projections. At AccuConference, all the uproar got us thinking about the implications for the Telecommunications sector.

Telecom infrastructure is necessary for economic growth as it facilitates the communication between other industries; therefore, coming off the economic downturn, the implications for telecom couldn’t be greater. This need is reflected in the global telecom spending as a share of GDP.

According to an industry review by The Insight Research Corporation (IRC) global telecom spending as a share of GDP went from 2.5 percent in 1990 to 4.8 percent in 2006. By 2013 it is supposed to jump to 5.9 percent. This growth has resulted in worldwide revenues of $1.9 trillion and is projected to leap to $3.7 trillion by 2015.

Amid this impressive compound growth, different regions of the world account for different growth rates. The lowest is the Europe/Mid East/Africa region, which is slowed because of poor conditions in much of the Middle East and wireless saturation in Europe. By contrast, the Asia-Pacific region has the fastest overall compound annual growth rate, with 17.9 percent.

This region is buoyed most vigorously by China. With a burgeoning middle class and surging GDP rates overall, Chinese telecommunications companies are aggressively broadening their broadband penetration.

The industry review by the IRC expects the growth of telecommunications in the Asia Pacific Region, which has strong contributions from India, to surpass that of North America this year, making it the region producing the most revenues in the world.

Factors driving this include the massive underserved population and the turning of China into a consumer-driven economy, a feat that the Government is adamantly advocating and directly pursuing through policy choices.

For example, the Chinese government is investing heavily in infrastructure and has devoted $586 million in government pump spending to development. A good portion of this stimulus is devoted to telecommunication projects.

Just for a frame of reference: China Mobile, the largest mobile company in the country, had a total subscriber base of 554.04 million subscribers by the end of June 2010. The entire population of the United States is less than 400 million. Despite this massive base, China Mobile signed up 31.8 million people in the first six months of this year. These numbers are from this WSJ report.

When all of the mobile subscribers are tallied across all providers, the number reaches nearly 800 million.

Despite this, the big three providers—China Mobile, China Unicom and China Telecom—have their problems, namely in that their growth is starting to wane.

To maintain growth, the companies have strategized to attract users to third generation mobile, which is meant to generate profits and curb the $21 billion spent rolling out the 3G service.

China Mobile posted $4.7 billion in net profit for the quarter from April through June.

Nonetheless, The New York Times reports that China Mobile faces a struggle forward, as competition for and saturation of subscribers increases.