The big theme at the Mobile World Congress (MWC) Asia, held in Shanghai this month is the launch of 5G services by China Mobile. The company “switched on” its 5G network a day before the opening of MWC Asia. With the launch of 5G services, China joins the league of early 5G adopters, which includes South Korea, the US, Australia, Switzerland, and others. Meanwhile, China Mobile joined 11 other telecom operators to have launched 5G services. We estimate that China will become the largest 5G smartphone market by the end of 2019.

China is an important market for telecom infrastructure companies providing 5G equipment as the scale of deployment will be massive due to the market size, both in terms of users and coverage. Smartphone OEMs are also looking to benefit from the newly launched 5G services in China. The Chinese smartphone market has so far shown signs of recovery. However, with the early launch of 5G, OEMs will try to sell more of their flagship 5G devices to boost their revenues slightly.

China Mobile, like other Chinese telecom companies that are launching 5G services, wants to capitalize on the early adopters. By the end of this year, 5G services will launch in 50 key cities followed by expansion to 300 cities in the coming years.

Challenges Ahead

As of now, there are no signs of subsidy provided by operators in China to fuel adoption, as we have seen in some other countries. Although the subsidy model does not seem to be sustainable in the longer term.

To make 5G services acceptable among the masses, it needs to be affordable, and 5G devices must be available in the US$150-US$250 price range. China Mobile estimates that by H2 2020, the cost of 5G smartphones will come down to anywhere between RMB 1,000 to RMB 2,000 (roughly US$150 to US$300). However, we estimate that achieving US$150 retail price for devices will be challenging as the 5G experience these devices provide must also be considered.

While 5G will lead the smartphone market to grow in 2020, we estimate the total smartphone market in 2019 to decline. China will dominate the 5G smartphone market with 5G shipment share going above 30% in 2020, from an estimated 25% in 2019.