The Market for Wi-Fi® in China: Opportunities, Enablers and Challenges

With its large population and burgeoning urban middle class, China is emerging as a key market for a wide variety of technology and consumer electronics products. Wi-Fi is no exception. After an initial period of hype in 2001-2002, followed by a period of disorder and transition, a maturing market for Wi-Fi products and services is beginning to take shape in China, and is expected to gain strength and grow in the coming years. By 2008, revenue for non-embedded Wi-Fi equipment (access points, external PCI cards, etc.) is expected to reach RMB 10 Billion. There is also significant growth to be had from laptops, phones and consumer electronics devices shipping into China with Wi-Fi functionality on board.

With China's embrace of the PC, the mobile phone, and consumer electronics, Wi-Fi brings a compelling value proposition to the China market. The mature, proven technology, complementary to mobile networks, provides high-quality connectivity for a wide variety of devices at a low cost. Continued cost declines for Wi-Fi chips in the market, and in the devices they populate, will increase demand for Wi-Fi.

The market in China is divided into three segments. First is Telecom Operators Segment (21% in 2006), which includes hotspot deployments and provisioning of consumer home W-Fi equipment. The Enterprise Segment (63% of the market) includes university campuses and corporate WLAN/wireless data collection. The Consumer market includes individual consumers purchasing and deploying a Wi-Fi network in the home (16% in 2006).

The interaction between government control, telecom operators' power, and vendor competition presents some inhibitors to the market, but demand for Wi-Fi products in the enterprise and consumer markets is likely to emerge with strong growth in the coming years. Consumer electronics with embedded Wi-Fi functionality and converged mobile/Wi-Fi phones will bring Wi-Fi to a wide array of Chinese users, including those who might never own a computer.

This paper outlines the key market drivers, enablers, and challenges to Wi-Fi in the China market. At a glance, the following key points emerge:

• Increasing competition among silicon providers, and the decreased prices it will bring about, is expected to drive innovation and inclusion of Wi-Fi functionality in a wide variety of devices.
• Chinese telecom operators, who initially invested heavily in hotspot deployments, have shifted focus to the provisioning of home Wi-Fi networks as a value added service to basic broadband access. Consumers also purchase equipment on their own and set up networks in their home.
• Widespread product interoperability, robust security, and simpler configuration are key factors that will enable market growth in all segments in China (enterprise, home user, and telecom deployments).
• It is expected that most operators will later provide voice and data services over converged and Voice over Wi-Fi mobile phones, but the business model for these services is not year clear in the China market. However, with nearly 400 mobile subscribers in place and dramatic growth expected in the coming years, this presents an attractive opportunity for handset manufacturers.
• In the core PC networking segment, pure access point (AP) devices are giving way to devices with stronger routing and firewall functions. Similarly, the network for non-embedded Wi-Fi cards will shrink and ultimately disappear as Wi-Fi functionality becomes standard in PC equipment, particularly laptops.
• Laptop shipments into China are increasing and expected to reach 8 million units by 2009. Laptop pricing is decreasing, enabling a larger group of Chinese enterprises and consumers to purchase them. Laptops remain the first target device for Wi-Fi in China, with 90% of Chinese shipments Wi-Fi enabled by 2007.
• The enterprise market segment, already taking shape in China, will be the most attractive in the near term, with the home user market growing more slowly, driven by consumer electronics and converged phones.
• The public access (hotspot) market in China currently boasts some 10,000 hotspots, including 1,000 at universities and colleges. Investment in public access has currently slowed, but may be driven by the opportunities to provide Value Added Services and advertising in the future.
  

Though the Chinese market for Wi-Fi products and services remains immature, there is opportunity across the value chain of silicon, devices, and services in the long term.

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The Market for Wi-Fi® in China: Opportunities, Enablers and Challenges