703 Million Reasons To Invest In China
703 MILLION EARS
THE BIGGEST AUDIENCE IN THE WORLD
China’s unimaginably large mobile phone industry just broke through another barrier today, surpassing 700 million users – 703 million to be exact. That’s twice the population of the United States which has subscribed to one of just three mobile phone companies in all of China.
The big three are spending big to continue expanding their user base and revenue potential. Although 703 million is a very large customer base by anybody’s standards, the big three continue to add new subscribers by the millions every month in the cities and in poor rural areas.
In fact, China added 61.4 million new handset users in the first seven months of this year to rank as No. 1 in the world for mobile phone use. As city markets appear to become saturated, much of the growth in urban areas is from new mobile users who are abandoning land line service. China’s fixed-line phone user base, dropped by 12.41 million to 328 million in the first seven months of the year.
Much of the new growth in the industry is in low-income rural areas which generate lower average revenues for the Big Three telephone companies. The standard revenue measure for the telecom industry is Average Revenue per User (ARPU) and that average is declining for all of the Big Three as poor rural users bring the average down. (We have much more detail on our investments in this sector in the September issue of the China Stock Digest).
Despite the decline in ARPU, total revenues continue to rise with the explosive adoption of communications technologies in the Middle Kingdom. Balance sheets are also being tipped this year by heavy spending on the rollout of 3G technology. Investment in this sector will top $35 billion.
All of these factors may shadow the balance sheets of the Big Three for a time, but we remain invested in this sector with a long term, continuous growth outlook. As readers of the Digest know, one of China’s mobile operators has signed a deal to sell the Apple iPhone on its network. That company has not been forced to share iPhone revenues with Apple.
Another of the Big Three is making deals for 3G phones with Dell as well as some of the world’s traditional giants in mobile phone technology. (More about this in the Digest.)
All of this adds up to a bullish future for this world-leading industry. Although China’s ARPU is still low by U.S. standards, the market is colossal and the appetite for new communications technology will generate increasing 3G and traditional revenues. As the 3G build-out is completed, those revenues will turn to into greater profitability.
China’s telecommunications revenues reached $69.9 billion during the first seven months of 2009, an increase of just 2.6 percent year over year. That rate of increase still hasn’t reflected the rate of subscriber growth due to heavy infrastructure spending.
But many Chinese people use their cell phones as personal computers. 3G penetration is only one percent now. China’s appetite for computer and communications technology will drive higher revenues from 3G for our investments for years to come.
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Dedicated to Your Profits From China,
Jim Trippon
Editor-In-Chief
China Stock Digest
http://www.chinastockdigest.com
