By Bloomberg News - Jan 19, 2012 11:00 PM GMT+0700
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People pass a China Unicom Hong Kong Ltd. service hall in Beijing, China. Photographer: Adam Dean/Bloomberg
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China Unicom Hong Kong Ltd. (762), the nation’s No. 2 carrier, is adding a record number of high-speed wireless subscribers and gaining market share by pushing smartphones that cost 80 percent less than Apple Inc. (AAPL)’s iPhone.
China Unicom started winning customers from market leader China Mobile Ltd. (941) after it switched focus from high-end users of the iPhone to those who can’t afford the device. China Unicom started selling handsets from local manufacturers Huawei Technologies Co. and ZTE Corp. (000063) that cost less than 1,000 yuan ($158), or about half a month’s salary for an urban worker.
The strategy helped make China Unicom the best-performing stock on the benchmark Hang Seng Index last year with a 47 percent increase. It also accelerated the shift to high-speed networks in China, putting the nation on course to surpass the U.S. in smartphone users and enabling Huawei and ZTE to compete against Apple in their home market.
“People aspire to own an iPhone, but they can’t afford it,” said Teck Zhung Wong, a Beijing-based analyst at IDC China. “If a vendor offers a phone that can do most of the things a high-end device can do, there’s no reason people won’t bite.”
IPhones continue to be popular among those who have the money. China Unicom, the only carrier offering the device with a service contract, is down 11 percent this year after customers frustrated by not being able to buy the new iPhone 4S pelted Apple’s main Beijing store with eggs, prompting the handset maker to pull all phones from its store shelves.
Two Months’ Wages
Apple also said its application for a phone to work on China Telecom (728)’s network was moving through the approval process.
China introduced third-generation wireless networks in 2009, six years after the U.S. Adoption of the high-speed service was hampered by handset prices in a nation where monthly urban disposable income was 1,811 yuan per capita through the first nine months of last year, according to the national statistics bureau.
A 16-gigabyte iPhone 4S costs 4,988 yuan at Apple’s online store, or more than two months’ wages.
Last year’s introduction of cheaper models from Huawei and ZTE spurred a 44 percent jump in monthly 3G subscriber sign-ups in June compared with January. The top three carriers -- China Mobile, China Unicom and China Telecom Corp., respectively -- added a record 8.34 million subscribers in September.
Apple Focus
China Unicom initially was on target to miss its forecast for adding 25 million 3G subscribers last year, signing up between 1.21 million and 1.86 million users a month through May, according to government statistics. That’s because the carrier focused on high-end users with the Apple device, said Tucker Grinnan, a Hong Kong-based analyst at HSBC Securities Asia Ltd.
The carrier started selling 1,000-yuan smartphones in May, said Sophia Tso, a Hong Kong-based spokeswoman. By August, it was adding more than 2 million 3G subscribers a month, culminating in a record 3.49 million in December.
China Unicom added 26 million 3G users last year, according to data it released yesterday.
“Low-cost smartphones will enter a period of rapid development as a decisive factor in the popularity of 3G,” Zhou Youmeng, president of sales, said in a statement on the carrier’s website.
China Unicom subscribers can still get a free iPhone 4S by signing a three-year contract for as little as 286 yuan a month.
Taking Share
The number of subscribers to 3G mobile networks in China will almost double to 229 million this year, according to the median estimate of 11 analysts surveyed by Bloomberg News. That compares with 200 million in the U.S., according to the median estimate of five analysts surveyed.
“People are underestimating the growth,” said Jim Tang, an analyst at Shenyin Wanguo Securities Co. in Shanghai who doesn’t cover the U.S. market. “The number is going to be huge.”
As the market expands, more subscribers are going to China Unicom and China Telecom at the expense of China Mobile. China Unicom’s market share will rise to 32 percent this year from 30 percent at the end of 2010, and China Telecom will boost its share to 28 percent from 26 percent, according to the median of four analysts surveyed by Bloomberg News.
China Mobile’s share will drop to 38 percent from 44 percent in 2010, according to the survey. Rainie Lei, a Hong Kong-based spokeswoman for China Mobile, declined to comment on the company’s 3G strategy.
‘Like Hotcakes’
Investors back China Unicom because its 3G customers use an average of about twice as much data as China Mobile’s, said Paul Wuh, an analyst at Samsung Securities Co. in Hong Kong. China Mobile shares are down 3.4 percent in Hong Kong in the past 12 months.
“Unicom’s subscribers are going there with the specific purpose of buying smartphones and using data,” Wuh said. “That’s why people are more excited about Unicom versus China Mobile.”
Between the first and third quarters last year, ZTE’s sales in China almost quintupled and Huawei’s almost tripled, according to data compiled by research company Gartner Inc. Huawei sold 4.47 million handsets there through the first nine months, and ZTE sold 3.03 million.
Cupertino, California-based Apple sold 5.6 million iPhones during the same period as its market share dropped to 10.4 percent in the third quarter from 13.3 percent the quarter before, according to Stamford, Connecticut-based Gartner.
Closely held Huawei passed Apple in smartphone market share with 11 percent. ZTE more than doubled its share to 8.4 percent, cutting Apple’s lead to 2 percentage points from almost 7 in the first quarter, according to Gartner.
Huawei’s best-selling smartphone in the 1,000-yuan category is the C8650, Huawei spokesman Ross Gan said in an e-mail. The Android-based smartphone sold 1 million units within two months of its introduction in July.
ZTE’s top handset is the 1,000-yuan Blade, with 6 million sold, said Rena Qin, a spokeswoman for the Shenzhen-based company. ZTE since has introduced four more smartphones in that price range, she said.
“Low-end smartphones are selling like hotcakes, and there is nothing in the market trends that suggests this is not going to continue,” Wuh said.
To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net
To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net
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