Smartphones spread slowly in China, despite 3G and iPhone

High prices and a lack of attractive smartphone content are hurting sales, analysts say

China now has the iPhone and more big-name smartphones are due in the country, but few buyers overall are choosing smartphones despite promotion by China's mobile carriers.

High prices are slowing smartphone sales growth despite work to cut their prices down to around 1,000 yuan (US$146). Smartphone sales in China -- not counting sales on the country's gray market -- passed 7 million units in the final quarter of last year, but that accounted for less than 15 percent of mobile phone sales in the country, Chinese consultancy Analysys International said this week.

"Price is still the biggest obstacle," said Liu Ning, an analyst at technology consultancy BDA. Smartphones remain expensive because they require more powerful hardware and their makers often must pay to use their operating systems, he said.

China's three big carriers -- China Unicom, China Mobile and China Telecom -- have all sought more diverse handset lineups to match expansion of their young 3G networks. China Unicom late last year started selling the iPhone, China Mobile has a deal to get a BlackBerry model with its homegrown 3G standard and China Telecom has said it is in talks to offer the Palm Pre.

But the carriers have also worked to fill in their lower-end handset offerings. China Mobile's chairman has said smartphone sales would get a big boost if prices drop below 1,000 yuan.

Many smartphones, including the iPhone, can be had for that price or less when bought with certain mobile service contracts. But the goal is more to get unsubsidized prices down to 1,000 yuan, which the carriers have yet to do for most smartphones, said Wang Liusheng, an analyst at Analysys International. The more common price range now is 1,500 yuan to 3,000 yuan, he said.

To boost smartphone sales, the carriers also need to widen their pool of applications and other content, such as music services or mobile TV, Wang said. Each carrier is building its own app download store to expand phone content and pull in more revenue, but the range of apps available remains small.

High-end handsets have also faced a rough road. China Unicom sold 100,000 iPhones in roughly six weeks after the phone's launch, well short of post-launch sales figures for carriers in other countries. Many Chinese users have instead bought cheaper versions of the iPhone from outside the country. Android smartphones are starting to appear, but their prices can be high as well. The newly launched Motorola XT701 costs 4,299 yuan on a China Unicom Web site.

China Mobile has developed its own mobile OS based on Android, partly to help lower the cost of its smartphones, said Liu of BDA. Taiwanese chipset vendor MediaTek entering the smartphone market will also help cut costs, Liu said.

MediaTek chipsets currently power many of the low-end mobile phones sold in China. Microsoft and Google have teamed with MediaTek for phone hardware packages that support the Windows Mobile 6 and Android OSes, respectively.

Smartphone penetration is highest in China's major cities, where residents have more buying power than their rural counterparts, said Wang of Analysys. The gradual spread of 3G service is helping boost smartphone use. But 3G remains relatively new and its coverage is best in big cities, he said.

"In remote areas it definitely still has a long road to travel," Wang said.

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Owen Fletcher

IDG News Service
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