At first glance, Chen Xiaomei seems like the sort of customer wireless companies would dream about: The 23-year-old department store clerk is so fond of cellphones she just bought a new one -- her second in two years.
But in making her purchase at a Shanghai shopping mall, Chen didn't even glance at the more expensive handsets offering Internet access and e-mail. "I don't want all that," she said. "I just want to talk to my friends."
PHOTO: AP
She walked out with a simple model costing US$100.
"Low-end subscribers" in industry parlance, Chen and others like her are helping keep the shine off a wireless market that already rivals that of the US in size and could easily dwarf it soon.
They want basic, no-frills voice service. Companies are having a hard time persuading them to upgrade to phones that can also read e-mail, store numbers, download movies -- extras that fatten profit margins.
"In China, the low-end subscriber is somebody who only has a couple of extra dollars a month. That doesn't leave a big margin," said Ted Dean, an analyst at Beijing-based BDA China Ltd.
China's Ministry of Information and Industry announced the number of mobile phone owners jumped by half in roughly 12 months to 120.6 million in July. That would make it the world's largest market, surpassing the US' 120.1 million.
Some suspect the ministry's counting method overstates the number of users. But no one doubts the market potential of 1.26 billion people.
About one in 10 Chinese has a cellphone, compared to four in 10 Americans. Analysts predict that by 2005, China could add another 250 million users.
Wringing profits from that growth is getting harder. China Mobile, the larger of China's two wireless phone service providers, last week reported first-half earnings of US$1.67 billion. Analysts had expected earnings of US$1.8 billion, and noted a 21 percent drop in the amount of money China Mobile earned per user each month, to US$19. By comparison, earnings per user in the American market average US$50.
The decline helped knock more than 20 percent off China Mobile's Hong Kong-listed shares in three days.
To spur growth, companies have been lowering costs to consumers. Until last year, buyers had to pay a US$60 registration fee and monthly service charges of at least US$6 -- and then were charged for every call made and received on top of that. That's a lot in a country where the average city dweller makes US$750 a year.
In October, prepaid calling cards and over-the-counter phone numbers costing US$12.50 appeared. The cheaper rates helped attract 3.8 million new subscribers per month this year -- more than twice the US growth rate.
One of the new subscribers was Chen, the department store clerk. She paid US$120 for a handset, a phone number and about a month's worth of calls.
It represented about one month's salary for her. "I wanted to replace my old mobile phone with a cheaper one," she said.
To keep up with growth, China Mobile spent US$3.7 billion on new infrastructure in the first six months of this year alone. That kind of investment has been a boon for foreign equipment-makers. It contributed a big chunk of Motorola's US$4 billion in sales last year in China, said company spokesman Michael Ning.
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