2007 Asia - Telecoms, Mobile and Broadband Market Overview

Through 2006 and into 2007, we have continued to see a generally strong run of economic growth throughout the Asian region. There continues to be some anxiety in region, however, with the uncertainty surrounding oil prices and the likely impact of high oil prices on the global economy. On a positive note, the giant growth engine that is China has continued to provide a sustained lift to the economies of its neighbours. However, if China’s economy starts showing signs of stalling, the impact will certainly be felt right across Asia.

The region’s telecommunications sector was clearly benefiting from the healthy economic environment. Highlights in the telecoms sector coming into 2007:

·         Asia’s mobile market has continued to grow strongly; having passed the one billion subscriber milestone in late 2006, the market was expanding at an annual rate of almost 30% into 2007;

·         3G mobile services are being rolled out in the major markets, with the developed markets taking a strong lead;

·         The region’s choice of Internet access continues to rapidly move from dial-up to broadband;

·         The developed economies of Asia are leading the way in the drive to build out powerful NGNs in the region.

In looking at the Asian telecom market, it is impossible to avoid the impact of China. With its huge population and strongly developing economy, it is a real presence in the region. Having become the biggest mobile market in the world, China was continuing to expand its mobile subscriber base at a rate of almost 20% per annum. As a consequence, it could claim over 470 million mobile subscribers by April 2007.

In the meantime, while China has been grabbing the headlines, a long-time global and regional telecommunications leader in the shape of Japan has been keenly maintaining its reputation for innovation by regularly adding value to the telecom market. Its industry leadership has embraced the application of wireless Internet access, with over 85 million mobile subscribers using either NTT DoCoMo’s i-mode (with 48 million) or one of the other proprietary products by mid-2007.

Asia claims the world’s largest regional Internet market. With an estimated 437 million Internet users (a user penetration of 12%) by mid-2007, Asia was maintaining its lead over Europe (322 million) and North America (233 million). Not surprisingly, Internet application in Asia continued to be led by the developed economies of the region - Japan, Hong Kong, South Korea, Singapore and Taiwan. This group has been joined by China. With a user penetration of 10.5%, China had a massive 137 million Internet users by the start of 2007. (China’s CNNIC reported 162 million users as at June 2007.)

South Korea was continuing to dominate the area of broadband Internet access, leading the world and the region with its 84% of households having a broadband connection by end-2006. The two major technologies supporting broadband in Asia were DSL and cable modem. DSL was dominating by a factor of 2 to 1. By March 2007, there were almost 75 million DSL subscribers and around 39 million cable modem subscribers across the region.

Across Asia, as the local economies improve and national regulators restructure their markets, operators have been facing increasingly competitive markets. Price cutting continues to be widespread, the offering of value added services has been expanding and innovative product promotion and packaging is popular. Working in such highly competitive markets, the ARPU across the product range has experienced strong downward pressure, but some equilibrium has been achieved. In the meantime, with the introduction of 3G services and other value-added service platforms, some operators have already seized the opportunity to grow ARPU again. Nevertheless, profit margins have been falling and operators need to be flexible in a quickly changing market.

For the last decade, the investment strategies adopted by telcos throughout the region have remained relatively cautious. While obviously still keen to find new markets, operators, often with the support of equipment suppliers, have been building fresh business plans to suit the changing market. A case in point was the oversupply of undersea cable capacity that became apparent three or four years ago. This had a particularly severe impact on investment plans (and on the financial viability of companies). As the submarine cable market rebounds and is once again needing an injection of capital, the players are expected to adopt a more circumspect approach this time. At the same time, after a period of sluggish growth, the satellite segment has also seen a series of new launches and there are signs that this will continue.

The Asian region has a wide spectrum of telecommunications and IT development. Countries can be found at both ends of this development spectrum. While some of the world’s leading developers and implementers of technology are to be found in Asia, many countries in the region are still in the early stages of their information technology and telecommunications adoption. There is, nevertheless, a consistently strong awareness of the importance of telecommunications and information being demonstrated right across the region. The commercial significance of telecommunications is well recognised and, at the same time, the potential contribution to the social and cultural wellbeing of nations is also well appreciated. As a consequence, the growth potential in the Asian market remains extremely high.

In 2007, the Asian telecom market was estimated to be worth around US$350 billion. The big new drivers in the market are broadband and IP services, as well as ongoing growth in the mobile sector, particularly as more and more value-added services come into play. NGNs are also being rolled out by the regional heavyweights, with the inevitable strong move into triple play services on the back of the NGNs.