China is a country divided into urban and rural areas. The urban centers, primarily the ones on the coastline, are historically the wealthiest areas and this still holds true today. Living standards inland are dramatically lower. Mobile phone penetration is 23 percent on a countrywide level, but it is up to 70 percent in some urban areas.

Kristina Sandklef, China expert and senior advisor at Ericsson ConsumerLab, says: "The differences between rural and urban are much greater than the differences between regions.  The habits and outlooks of consumers in urban areas are comparable those of consumers in Europe or North America. Whereas people in rural areas often don’t have access to running water or electricity."

Nearly 20 million Chinese are urban trendsetters. They are educated, ambitious, brand-conscious consumers. They buy mobile phones as an extension of their personality or as a fashion statement.

Sandklef says: "Only the latest and most innovative phones are going to grab their interest. If a telecom company can sell products and services to this group, they should also be able to sell them to consumers in Europe and North America."

Ericsson ConsumerLab's studies of China show that mobile phone users want:

1. Phones that assert the status and personality of the user   
2. Ground-breaking, unusual or fashionable design   
3. Innovative technology   
4. The latest services   
5. Quality and good value for money

Mobile phone ownership in China used to be solely for the privileged. But now mobile phones are an essential part of "san da jian," the three big consumer items. Consumers in China aspired to own a wristwatch, sewing machine and bicycle in the 1970s. Today people set their sights on a mobile phone, computer, video camera, car, their own home or even a vacation abroad.

Urban consumers in China are generally price and brand conscious. Certain brands are simply more desirable than others and these are not necessarily the same brands that appeal to, for example, a similar target group in Western Europe. For example, Sandklef observed on a recent visit to China that the Playboy brand of high-end clothing is targeted to middle and upper class consumers.

Voice is still the most frequently used mobile service, but consumers in China have warmly embraced a number of other services such as SMS, downloading ringtones and melodies, and alarm clock and time functionality as well as camera phones.

SMS is popular because it is inexpensive and solves the network coverage problem caused by tall buildings in urban areas. On a monthly basis, 20 billion SMS messages are sent in China. Mobile phone consumers interviewed in Ericsson ConsumerLab surveys say they use their cell phone because it’s an easy way of contacting people and it helps them feel less lonely.

Sandklef says: "Besides being cheap, SMS is an easy way to stay in touch with friends and family. Remember that urban life can be isolated. Families only have one child, if any, and their extended family might live halfway across the country."

Some urban mobile phone users, especially the younger ones, are highly dependent on the alarm and clock functionality. They use both throughout the day and have simply replaced their clocks and watches with their mobile phones.

A recent Ovum report indicates steady expected growth in SMS, ringtones, Java game downloads, music and video streaming.

Prepaid is popular because of price and privacy issues. Users perceive prepaid as a less expensive payment alternative and it helps them control their phone expenditures better than traditional billing methods. Additionally, prepaid users do not have to register their address with the operator in order to use prepaid.

In an Ericsson ConsumerLab survey, one young woman, a 20 year-old student in Shanghai, described an experiment that she and her schoolmates tried: "Everybody in my dorm bet we could survive one week without our mobile phones. It turned out to be the worst week ever."

"We couldn't check the time because we use our mobiles instead of watches and we couldn't kill time in class because we couldn't SMS to each other. All we could do was flip through our books. It was really boring. Eventually we just dozed off. We came to the conclusion that we couldn't live without mobile phones.”

Total population: 1,298,847,624 as of July 2004
Median age: 31.8 years
Literacy rate: 90.9 percent
Unemployment rate: 10.1 percent urban unemployment; substantial unemployment and underemployment in rural areas (2004 est.)
Economic growth: 9.1 percent (official data) (2004 est.)

Fixed telephones in use: 263 million
Mobile phones: 353 million in September 2004 (including 60 million PHS Personal HandyPhone Systems users. PHS phones are wireless phones, which are sometimes called "Little Smart" in Japan.)
Internet users: 80-87 million. Note that many of these users are surfing in a café or at work/school rather than owning a computer themselves.

China Mobile is the cellular market leader in China. China Unicom is only full service carrier licensee. It operates a GSM network and the country's only CDMA network.

China Netcom and China Telecom are the country's two domestic fixed-line carriers, but they also offer PHS services.

Analysts indicate that China will allocate three 3G licenses by the end of 2005.
China Mobile, China Unicom, China Telecom and China Netcom are the most likely recipients of the licenses.

Kristina Sandklef, sinologist and senior advisor at Ericsson ConsumerLab, report from Ovum, CIA World Factbook.

By Kendal von Sydow