NEW YORK-China Mobile Hong Kong does not need 3G to take advantage of opportunities in a populous country with rising per capita income and low penetration by personal computers and second-generation wireless, said Wang Xiaochu, chairman and chief executive officer of the company.
At the end of February, the mobile operator had 50 million subscribers, compared with 15.6 million at the end of 1999, he told securities analysts at a meeting here earlier in March.
“Many people ask, with the economic problems in the United States, how is it that China is growing so fast? For the last several years, we have had annual growth of 7 (percent) to 8 percent in per capital income. This year, our GDP (gross domestic product) is forecast to be 8 percent,” he said.
“In Europe, communications economies are slowing down because 3G maturity will be slower than expected and 2G is saturated. In China, only 7 percent of the people have 2G, so there will be another three-to-five years for 2G development.”
China Mobile Hong Kong’s subscriber numbers give it a worldwide ranking second only to the United Kingdom’s Vodafone Group plc, with which it recently entered a strategic alliance, he said.
“This is a very pleasant and good alliance with far-reaching cooperation, and it creates the potential for new joint ventures,” Xiaochu said.
The agreement calls for sharing of management experience and exchanges of management personnel, exclusive licensing of technology to China Mobile and the sharing of information in areas that include subscriber management, marketing and branding, network operations and operational support systems.
Through its new, majority-owned subsidiary, ASPire, China Mobile also has formed a strategic alliance with Hewlett-Packard Co. ASPire is in charge of the rollout of MISC, a standardized nationwide platform for wireless data, and MonTernet, a wireless portal for all wireless data initiatives.
“PCs are less popular in China than in other countries, so we should pay attention to mobile data. We will continue our core mobile business and also look for new opportunities in China’s telecom market, with a focus on the Internet, especially the wireless Internet,” Xiaochu said.
“We have a huge GSM network, a very good GSM network. We have no plans to deploy narrowband CDMA. The future technology migration of GSM and CDMA is taking two very different paths, and we do not contemplate moving to a CDMA network.”
Today, China Mobile Hong Kong is working on a gradual evolution to General Packet Radio Service. Initial trials of short message service and Wireless Application Protocol “have been very successful, and the Chinese market is undergoing a basic training and experimentation with SMS,” Xiaochu said.
“Basic messaging and e-mail services will lead the way, but they (advanced wireless services) will come to China a little later than expected. Developing content and applications will be key.”
The chief executive went to great lengths to explain the rationale for a new tariff package, implemented by the federal government, which owns 70 percent of China Mobile Hong Kong.
“The government has not given up its role in the regulation of tariffs, but it has changed from a planned economy to a market economy,” Xiaochu said.
“Investors are concerned about this new tariff package, but the difference is that this issue was raised at the initiative of our company. It is not something the government handed down.”
The new scheme contains six different rate plans. At the low end, subscribers pay $11.85 cents monthly for 170 minutes. Additional peak period minutes cost 7.25 cents each and off-peak minutes cost four-tenths of a cent each. At the high end, some 2,588 minutes of use are included in a monthly package costing $95.32. Each additional peak period minute costs four-tenths of a cent, while each extra off-peak minute costs two-tenths of a cent.
“Our aim is not to reduce tariffs but to make them more flexible to satisfy the mindset of different customer groups. We want to enhance the attractiveness of contract services, promote growth of subscribers and usage and increase network utilization during off-peak hours,” Xiaochu said.
“Our EBITDA margins are about 57 (percent) to 58 percent, similar to those in the United States and much higher than in Latin America, where they average 30 percent. For us, the problem is how to maintain long-term EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization). … One of our goals is to reduce costs. “
As domestic handset makers ramped up production, China Mobile Hong Kong saw average handset prices decline to about $181 each in 2000 from $726 in 1997. Connection fees last year averaged $36.29 compared with $363 in 1997.
Expansion into new areas of the country is another important element of the carrier’s long-term growth plans. Last year, it acquired properties in seven additional regions in the eastern portion of the country. It now has licenses covering 600 million people, about 48 percent of the nation’s total population.
At the end of December, some 21 million of its subscribers lived in the other 18 regions of the mainland farther to the west. The federal government’s plans to promote development in these areas “will give us new opportunities,” Xiaochu said.
