China

Nokia Deal Is Just the Beginning for China Mobile


A customer leaves a China Mobile store in Beijing.

Photograph by Mark Ralston/AFP/Getty Images

A customer leaves a China Mobile store in Beijing.

Nokia boss Stephen Elop, chief executive of the beleaguered Finnish company, has managed something the late Steve Jobs never achieved: a partnership with the world’s biggest cellular operator. On Dec. 6, Nokia (NOK) unveiled plans to cooperate with China’s dominant cellular operator, China Mobile (CHL), to offer the Lumia 920T, Nokia’s new Windows-based smartphone, to the more than 700 million Chinese who are China Mobile subscribers. The Lumia tie-up with China Mobile offers Nokia “a chance to reestablish its brand in China,” writes John Butler, Bloomberg Industries analyst.

The Lumia partnership isn’t the only new strategy for China Mobile. The company also has plans to introduce its own-brand cell phones and launch a mobile Internet subsidiary, the official China Daily newspaper reported on Dec. 6. “We need to change the operating model of being a traditional state-owned company to help us break into new fields and create new products and services,” CEO Li Yue said.

In other words, China Mobile’s leadership seems to understand it has a problem as the Chinese market rapidly matures. The company is by far the biggest mobile operator in China, but China Mobile relies on low-end 2G users far more than its smaller rivals, China Unicom (CHU) and China Telecom (CHA), according to Bloomberg Industries analyst Butler. Only 11 percent of China Mobile subscribers subscribe to 3G, compared with China Unicom’s 30 percent and China Telecom’s 40 percent. While China Mobile has a 50 percent share among total cell-phone users, the three state-owned companies are about evenly matched in 3G market share.

Lagging in 3G won’t do at a time when the Chinese market is quickly moving away from the feature-phone business that has long been China Mobile’s bread and butter. Smartphone sales rose 197 percent in the second quarter of 2012, and for the first time smartphone demand outpaced feature phones. China accounted for 29 percent of global smartphone shipments in the second quarter of 2012, up from 14 percent a year earlier. (The U.S. share is shrinking, falling from 23 percent in 2011 to 15 percent in the second quarter this year.)

As smartphone sales increase, more Chinese are signing up for 3G services. Nineteen percent of Chinese cellular subscribers use 3G, according to a Nov. 27 report by Kary Sei, an analyst in Hong Kong with ICBC International Research. At the start of 2011, 3G subscribers accounted for just 6.1 percent of the market.

The shift to 3G makes China Mobile an even more attractive partner for Western companies, such as Qualcomm (QCOM), trying to build sales in the country. The average selling price for 3G phones is $364. For 2.5G, it’s just $38. For years, Qualcomm didn’t have chips suitable for China Mobile phones. The problem: While the two smaller carriers operate 3G networks that run on standards common in other countries, China Mobile’s network uses a home-grown standard called TD-SCDMA that isn’t popular anywhere except China.

Finally, though, Qualcomm has adapted its chipsets to work on China Mobile’s network. “That’s a big opportunity for us,” Steven Mollenkopf, Qualcomm’s president and chief operating officer, said in an interview in Hong Kong on Dec. 5. “We have really opened up China Mobile, the largest operator in the world.”

China Mobile could be a valuable partner for Nokia, too. The company has endured a dizzying fall in the world’s largest cell-phone market: As recently as mid-2011, Nokia was still the dominant player in China, with 30.2 percent of the market, according to IDC statistics. Then the business collapsed. Within a year, the Finnish company’s market share was down to 6.4 percent. And the decline hasn’t stopped, with Nokia at just 2 percent in the third quarter of this year.

At least for now, though, there’s one company that won’t be teaming up with China Mobile, and that’s Apple (AAPL). The two engaged in talks in 2007 but couldn’t come to an agreement, with China Mobile walking away in early 2008. Apple went on to cooperate first with China Unicom and then with China Telecom, but it still hasn’t given up on landing a deal with the No. 1 player. The two sides haven’t reached a deal, though. “The business model and benefit sharing still need further discussion,” China Mobile CEO Li said on Dec. 5.

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Einhorn is Asia regional editor in Bloomberg Businessweek’s Hong Kong bureau. Follow him on Twitter @BruceEinhorn.

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Companies Mentioned

  • NOK
    (Nokia OYJ)
    • $8.32 USD
    • 0.64
    • 7.69%
  • CHL
    (China Mobile Ltd)
    • $54.85 USD
    • 0.41
    • 0.75%
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