China’s mobile operators are playing a central role in forging a legal digital music industry—as opposed to the huge, illegal, pirated one that already exists—through their sales of legit ringtones and other handset-friendly music services. But they still have a ways to go before capitalizing on the biggest ticket item of them all: full music downloads. In its half-year earnings report in August, China Mobile noted that that the value-added service that had the most revenue growth was its “Color Ring” ringtone service, which was up by 90.3 percent to RMB5.027 million (US$661.7 million); and M.Music mobile music club picked up 31 million customers in the half, bringing the total number of subs to 48 million. Premium subscribers now number 22 million (the rest get a free information service).

But sales of full-track downloads are still very low, and might have trouble progressing because of slow networks and already-established habits of getting free downloads from the Internet, says an article in Investor’s Business Daily. Sandy Shen, an analyst with research firm Gartner: “The main issue is the abundant supply of free music from the Web. Music will be a challenge for China Mobile unless they come up with a service with very attractive pricing, content and usability.”

China Mobile and its rival China Unicom are both keen to push into more music services. Both are working on ways of locking down music downloaded onto phones so that it cannot be copied to other places. Both also say they are working with recording labels to expand their offerings of paid-for music services.

The article also notes that Chinese mobile operators have a window of opportunity in the full-track download market because iTunes is not yet an active player in the country, and a release date for the iPhone in China is not clear. But if it’s true that most music downloads in China are pirated, perhaps that gives a clue as to why Apple (NSDQ: AAPL) has not yet pursued trying to crack this market.

• Earnings: China Mobile Revs Up 22 Percent; Huge Gains In Non-Voice Services