China's decline in fixed-line subscribers accelerated in December with a net loss of over 4 million subs. China Telecom reported a loss of 1.48 million and China Netcom a drop of 2.53 million. This brings the overall fixed-line subscriber loss in 2007 to 7.25 million.
As my colleague Dave Carini explained back in October, there are several reasons behind this trend. Most important has been the steady decline in mobile calling fees, which has taken away the price advantage that allowed fixed-line operators to sign some 90 million users onto the quasi-mobile Xiaolingtong service. The price cuts, combined with the relative ease of getting a mobile account, have also encouraged more and more users to go "mobile only" and forego the installation of fixed-line services altogether. This stand in contrast to China Mobile and China Unicom, who together gained a total of 7.9 million mobile subscribers in December alone.
We don't think the high numbers for December are a one-time event. Now that word of mobile fee drops is out, expect the heavy losses to continue in the coming year as Xiaolingtong subscribers, many of whom are signed in to year-long contracts, choose not to renew their service.
Needless to say, this is becoming a crisis for China Telecom and CNC and could finally provide the incentive needed for the government to push through the long-rumored round of operator restructuring (and, soon after, 3G licenses). Without 3G networks, the fixed-line operators just don't have any way to compensate for their losses. VoIP, which in many other countries is a leading factor behind stagnant or declining fixed-line numbers, has been basically out of the discussion in China for years now.
It was only in late 2003 that mobile subs surpassed fixed-line subs in China. With CMCC and Unicom reporting a total of 530 mobile subs, we would not be surprised to see mobile subs surpass 600 million and fixed-line subs drop below 300 million before 2008 is over.
