Maverick China Research - Maverick China Research

Fixed-line operators China Telecom and China Netcom saw their fixed-line subscriber growth slow to a crawl in the first half of 2007, and total subscribers have actually declined for the past several months. Take a look at each company's monthly adds for this year (numbers are taken from the operators' own public statistics):

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.

Fixed-line growth has been stagnant for at least the past year, but never has there been such a long period in which both operators were losing subscribers at the same time. Even worse for China Telecom and China Netcom, the total loss is increasing each month. After peaking in June and July at 339.6 million, the operators lost a combined 700,000 users in August, 1 million in September, and 1.2 million in October.

Both operators still have growth in other areas, such a broadband. And it’s quite possible that the loss in Xiaolingtong users could turn out to be a blessing in disguise, if the growing imbalance between fixed-line and mobile operators can push the government to finally get moving on 3G licensing and operator restructuring.

UPDATE (Nov. 23): I missed this when it came out, but MII vice minister Xi Guohua hinted several days ago that the drop in fixed-line subs could help accelerate the government’s 3G timetable:

China’s Ministry of Information Industry (MII) will grant fixed-line operators licenses for mobile telecom services “at an early date”, a senior official said here on Sunday….

MII Vice Minister Xi Guohua told a telecom forum that the rapid development of mobile telecom services had lured away subscribers of fixed-line services.

BUPT professor Zeng Jianqiu says it a bit more directly:

“The canceling of fees for receiving calls via mobile phones since the beginning of this year has made it more difficult for fixed-line phones to compete with the more advanced and convenient mobile technologies….”

“The sagging performance of the fixed-line market has come to a point where it cannot be fixed by operators themselves,” Zeng said. He urged the government to give fixed-line operators access to mobile services.