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4G's high cost has China buyers balking

Publication Date : 29-01-2014

 

While the many tech-savvy young people in Hong Kong are rushing to embrace the faster and better mobile service offered by fourth-generation technology, their counterparts in the major cities of the Chinese mainland have been stunned by the high cost of entry into the new world of communication.

How costly is it? 4G services offered by China Mobile Ltd on the mainland are almost five times the equivalent package offered by the same company in Hong Kong.

China Mobile is the first among three mainland carriers to offer 4G services, initially covering 13 cities, including Beijing, Shanghai and Shenzhen.

Of the five different China Mobile monthly packages, three are currently available. The cheapest costs 138 yuan, with 0.6 gigabytes of Internet usage and 500 minutes of domestic calls. The most expensive one costs 338 yuan, including two gigabytes of mobile data and 2,000 minutes of calls nationwide.

However, the company offers totally different and much cheaper packages at its Hong Kong branches.

China Mobile Hong Kong provides local users with two packages. For a monthly fee of HK$218 (US$28) users can have 5GB of Internet usage and unlimited calls within Hong Kong. The other package includes 1GB of mobile data and 1,800 minutes of phone calls. This one costs only HK$128 - 100 yuan a month.

The huge price difference in 4G services between the Chinese mainland and Hong Kong has drawn criticism of and suspicion about Chinese telecom operators.

"I do not think it is fair for the same company to charge differently for similar services," said 27-year-old Zhang Hui in Shanghai. She said she wanted the speed that 4G can provide but balked at paying the high cost.

"But what can you do? We do not have a choice," she said.

Gao Shu, a spokeswoman for China Mobile's Beijing branch, refused to comment on the monthly fee, saying that it is a subject for users.

Gao added that China Mobile does have an extra package of 180 yuan for 5GB of mobile data. There will be 1GB free of charge, if subscribers make the purchase before March 31.

Telecom analysts on the mainland attributed the high initial cost to the lack of real competition. In Hong Kong, they said, the stiff competition among the many carriers and service providers is instrumental in keeping prices low.

Jane Zhang, principal research analyst in carriers and mobile services with Gartner Inc, a US information technology research and advisory firm, said it is comparatively easier for carriers to promote 4G services in Hong Kong, given the benign infrastructure and popularity of mobile Internet. However, the mainland requires a huge initial investment to cultivate the market.

"For the time being, the 4G network by China Mobile can only cover major parts of Beijing. It takes time before the services and network become mature. The company has to set a high price to cover the initial cost."

Ashley Sheng, a telecom analyst with Shanghai-based securities company Shenyin & Wanguo Securities Co, said the price gap comes from the fierce competition among various telecom operators in Hong Kong.

"China Mobile is in a monopoly position on the mainland, so it can set a very high price for the new technology. While in Hong Kong, where 4G has been quite popular and China Mobile has so many local competitors, the company has to follow the local scenario."

Sheng said the price is not unreasonable, given the higher speed and huge demand for the 4G services.

4G technology has enabled mobile service users to enjoy data download speeds many times faster, at 80 Mbps, according to China Mobile's tests.

On average, it will take about one minute to download a high-definition movie of 700 megabytes.

"It creates a dilemma," Sheng said. "While the 4G network should drive up demand for video streaming, file-sharing and browsing services over mobile networks with faster and better quality, subscribers have to be very careful when using it. Otherwise, it will take about a day or two to use up the 0.6 GB."

Its counterparts in Hong Kong, on the other hand, are providing cheap and convenient 4G services.

At present, there are five telecom operators in Hong Kong, namely China Mobile Hong Kong, CSL Ltd, Hong Kong Telecommunications (HKT) Ltd, Hutchison Telephone Co Ltd and SmarTone Mobile Communications Ltd, all of which provide comparatively cheaper 4G services to local users.

PCCW Ltd, the parent company of HKT, charges HK$148 for 1GB of usage and unlimited calls in Hong Kong. At a price of HK$238 users can have 5GB of usage. Another operator, Three Hong Kong, charges HK$239 for 5GB of usage a month.

Sheng said that the environment for telecom industries in Hong Kong is quite different from the mainland's.

Hong Kong has a high penetration rate for mobile devices and the most sophisticated telecom market in the world, which has resulted in low prices.

The first commercial 4G service was launched in Hong Kong in November 2010. At present, all five mobile network operators in Hong Kong have deployed 4G services utilising Long Term Evolution (LTE) technology.

According to Hong Kong government statistics, as of December of 2013, the number of mobile service subscribers was 17 million, representing one of the highest penetration rates in the world, at about 236 per cent. Among them, about 11.5 million were 3G/4G service customers.

There are also about 20,000 public Wi-Fi access points in the city, giving free Internet access to the users.

A spokeswoman from the Office of the Communications Authority in Hong Kong told China Daily that the telecommunications market in Hong Kong has been fully liberalised, and prices of mobile service plans are determined by market forces.

"Factors behind the competitive 4G prices include the comparatively higher population density in urban areas, availability of affordable backhaul connections from fixed network operators and a tech-savvy population that is willing to adopt new technologies," she said.

Customers have ample choices of mobile network operators, based on their preference of pricing, promotion and product offerings, and network coverage.

On the other hand, operators in Hong Kong are competing for users and continually upgrading their network coverage and capabilities to meet customer demand, she added.

Sheng said Hong Kong telecom operators can only maintain a very narrow profit margin of 7 per cent to 8 per cent generally, given the intense competition. China Mobile can hardly make any profit with its packages in Hong Kong, given its small user number and market share.

"China Mobile has a very high gross profit in general, about 20 per cent. The company does not rely on its Hong Kong operation for revenue. It is more like an overseas promotion for its brand," she said.

Zeng Jianqiu, a professor with Beijing University of Posts and Telecommunications, said it is quite common for operators to charge high fees with the latest technology.

"When the 2G or 3G services were first launched, we all experienced high prices at the beginning."

He added that as 4G user numbers increase, telecom operators may adjust monthly fees.

Sheng said China Mobile will probably lower the price once 20 per cent of its 767 million users are using the latest 4G services. Before that, the company may sell extra usage packages to users if their monthly amount runs out.

She added that ultimately, the price for 4G services will be the same as its current 3G services, or about 100 yuan for 2GB of data. But the pricing will never be as cheap as that in Hong Kong.

 

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