Chinese Carriers' Marketing Costs On the Rise
By Carlo Longino, Fri Jun 18 17:45:00 GMT 2004

While China's giant population promises plenty of room for growth, the high end of the market is becoming increasingly saturated, driving up marketing costs and leaving carriers to battle over low-revenue customers.

China, China, China -- it's been the "it" location in terms of booming emerging markets, but one analyst says that customer-acquisition and marketing costs are going to put pressure on operators' margins there. Textually turned us on to a WSJ article citing a study by BDA China, a Beijing telecommunications consultancy, that says operators are already having to shell out on "gold-plated membership cards, special airport lounges and programs that dole out frequent-flyer miles" for top customers, putting pressure on their margins.

But of more concern is the consultants' next point: that the high end of the market is saturated, and subscriber growth will come from markedly less wealthy consumers that generate much lower average revenues. The group says 40 percent of users that signed up for China Unicom's CDMA service recently got some subsidy or promotion -- and while Western carriers use subsidies as a big part of their marketing plans, their tariffs tend to be more expensive and represent a lower chunk of their customers' income.

Chinese consumers are already quite saavy at saving money on their mobile plans -- the average China Mobile user has 1.4 subscriptions, switching phones or SIM cards when they travel or using PHS service in a local area. BDA says more than 10% of the carrier's users plan to drop their subscriptions in the next 12 months, another gloomy sign.

This data means that Chinese carriers have to find a way to sustain profitability as their ARPU gets dragged down by lower-spending consumers -- the paradox of growth in emerging markets. The rapid uptake of PHS service has already increased competition and hit rates, and the potential entrance of one or more new competitors in the market will fan the flames of an already hot market even more.