Analyst Angle: Chinese like their Internet ‘to go’

Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
At the end of 2010, China had 457 million Internet users and 303 million mobile Internet users. The latter number increased 69.3 million within just one year. What is driving this high level of mobile Internet growth and penetration in China?
Compared to developed countries, China’s Internet market is unique: the number of users of the mobile Internet continues to grow faster than the rate of overall Internet usage. Almost two-thirds of Chinese using the Internet are doing so on mobile phones, despite lower 3G network and smartphone penetration. Already Chinese mobile Internet usage has surpassed that in the United States. According to Nielsen survey data from 2010, 38% of Chinese mobile users access the Internet compared to 27% of Americans. Based on our research there are four main factors driving high mobile Internet penetration in China.
Mobile outpaces wired Internet
The mobile Internet has become an important extension to the traditional broadband- connected Internet. China’s fixed-line broadband was developed later than that in the United States. At the same time, China’s mobile user market is very large and developing rapidly, providing ample opportunities for China’s mobile Internet market to surge. According to the CNNIC Internet Report, China’s average fixed Internet access speed is only 100.9 kilobits per second, far behind the world average speed of 230.3 kbps. The lack of computer knowledge and skills, combined with low computer penetration rate, have also contributed to the lag of fixed-line broadband development. Consider the facts: In Western Europe, there are approximately 70 personal computers for every 100 people, compared to less than 20 for every 100 people in Asia and the Pacific region. In contrast to low personal computer ownership, China is the largest mobile phone user market in the world, with statistics from China’s ministry of industry and information showing that there are 863 million mobile users in China as of February – greater than the total number of global mobile users just a decade ago. Mobile penetration in China’s more developed cities is nearing saturation. A large-scale market survey of Guangdong province conducted jointly by China Telecom Guangzhou Research Institute and Nielsen showed that fewer than half (47%) of households have computers while 87% of people (age 15-65) have mobile phones. The rise of 3G and smartphones that enable consumers to easily and quickly use the Internet on their cell phones will continue to drive growth in the mobile Internet market.
Varied pricing plans boost mobile Internet usage
Another important factor affecting the growth of mobile Internet is data fees. Subscribers can choose from a range of data plans to browse the mobile Internet. China Mobile Ltd. (CHL), for example, was the first to launch a low price plan that allowed customers to use limited data package for less than $1 per month. Under the plan, users can enjoy their mobile Internet or chat through mobile QQ anytime they like. In order to boost their share of the 3G market, China Telecom Corp. Ltd. (<a href=http://stocks.rcrnews.com/rcrwireless./quote?Symbol=CHA target=_
blank>CHA) and China Unicom (CHU) each released low-cost data plans with rates of .76 cents per minute, or .15 cents per kilobyte. China Telecom launched a package that for 76 cents package included 30 megabytes of data, with a very minimal amount for excessive usage, which has proven to be very popular with consumers.
The low costs and convenience of mobile phones has met the communication needs and economic conditions of the younger generation, especially students. Almost 60% of China’s 3G users are young people age 20-29.
In short, behaviors started on the traditional Internet are slowly shifting to the mobile Internet. The development of mobile apps and the low cost of data usage have been key in driving growth in this sector.
EIS drives growth
Another factor behind the surge of China’s mobile Internet market is the development of enterprise information services (EIS) with Chinese characteristics.
Like many of their global counterparts, Chinese mobile network operators experiencing slower subscriber growth rates, declining average revenue per user and high churn rates have begun exploring new areas to expand the business and maintain sustainable growth. Industry focused applications have been an important component of their growth strategy. In fact, the mobile phone is not simply a tool for personal communication and entertainment, but also a business tool for information sharing and administrative functions.
Telecom operators in China have provided EIS solutions for various industry segments .
China has a huge number of civil servants: according to the National Bureau of Statistics, there are more than 13 million civil servants, equating to one civil servant for every 100 people. Chinese government organization is complex, consisting of national ministries, provincial governments, and municipal governments in cities, counties, towns and villages. Each has different information needs such as state administration and law enforcement (government to the public), information exchange between departments (parallel) and information transfer (superior to subordinate). As a result, targeted EIS is booming for different section needs. For example, China Telecom has provided e-commerce for the Industry & Commerce Bureau, e-police for Ministry of Public Security, Safe City, Digital Municipal Administration, mobile e-government and a total of 18 EIS services for the government and administrative bureaus.
China’s “One Family, One Child” policy means that most families have only one child with six adults (4 grandparents and two parents) taking care of him or her. Chinese parents place a great deal of importance on education as a result of Confucianism’s influence. They want their children to win at the starting line, care about their learning progress and are willing to invest for their children’s future education. According to the Nielsen Consumer Confidence Survey 2010, children’s education ranked in the top three 3 concerns for Chinese. Almost half (45%) of consumers will use spare cash for education of their child, second only to putting it into savings. To capitalize on the importance place on education, Chinese mobile operators have launched a number of products such as educational instant messaging, multimedia messaging and text messaging for teachers, parents and students, which meet the needs of home-school communication.
Local Chinese Internet companies have seen tremendous growth in a relatively short amount of time. Benefiting from the rapid development of the Internet, online shopping has become more and more popular, with 161 million consumers as of the end of 2010. Logistics enterprises, especially private express delivery couriers, are experiencing rapid growth as a result of this trend: According to the China Post Bureau website, China’s express delivery service totaled 2.34 billion deliveries with 25.9% year-over-year growth; business revenue totaled $8.8 billion with 20% year-over-year growth. A number of EIS products have emerged to meet the mobile location tracking and logistics management demands of this sector.
Technology advances rapidly
Last but not least, technology advances have allowed the mobile device to offer more capabilities and connectivity. As the closest and most personal device for users, mobile phones have play
ed a pivotal role in the development of operator services as wel
l as the mobile Internet.
With the increasing emphasis on mobile devices, Chinese mobile users attach great importance to powerful functions, a cool appearance and a stylish design and are interested in trying new handsets. These factors have led China to have one of the highest mobile replacement rates in the world. According to a survey by China Telecom Guangzhou Research Institute in August 2010, more than two-third respondents have had their current mobile phone for less than two years.
Mobile devices features are increasingly important in consumer’s device selection. Statistics from China Telecom Guangzhou Research Institute and Nielsen China have shown that in the 3G era, appearance and function have become the principal elements consumers consider when selecting a mobile device – even more important than price.
In terms of those functions, mobile Internet and 3G capabilities are important factors for Chinese consumers, as are the availability of mobile applications.
Moreover, the intense competition in the handset market has compelled device manufacturers to reduce costs and keep innovating to meet the changing needs of consumers. It also helps lower the threshold for mobile Internet applications, working as a strong impetus to the development of mobile Internet. Mobile Internet applications have become an integral part of people’s daily lives, both at home and work.
For example, Chinese use more instant messaging than Americans, with almost a quarter (23%) of Chinese using the service compared to just 18% of Americans. The prevalence of IM has propelled the development of China’s mobile Internet to a great extent. QQ (a type of IM service) has been a popular IM brand on computers since the 1990s and is now the most popular Internet communication tool in the world with over 647.6 million active accounts.
Social networking is also developing rapidly in China. Renren Web and Kaixin Web are the most famous social networks in China, and are as popular as Facebook is in the United States. Chinese youth are flocking to these sites to stay in touch with friends, express their opinions online and build their own virtual world. While they may set up accounts on PCs, they are also accessing them on their mobile phones, with the proportion of social networking site visits via mobile devices reaching 13%.
In addition, knockoff cell phones, which mimic mainstream brands with very low price points and improvements in appearance and functions, have become a hit and are a strong force which cannot be ignored in the Chinese mobile phone market. The counterfeit cell phone is not just a product, but a unique business segment in China. The counterfeit cell phone sector has also undergone a transformation, from producing phones that copy (and infringe) the designs of the larger manufacturers, to producing phones that look nice, have powerful features as well as a low price. These devices will also play an increasingly important role in the continued growth of mobile Internet in China as they make it available to people who might otherwise not have been able to afford mobile internet service.
China is a diverse and rapidly changing market, and the country now boasts the world’s largest mobile population despite having a relatively low mobile penetration. The increased adoption of mobile internet capable devices, the proliferation of competitive data price plans, an increased focus by many industries on deriving efficiency through mobile EIS and the astounding technology advances happening in China mean that China is likely to continue driving adoption and innovation in the mobile internet for many years to come.