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The Changing Rules of the Game in the China Mobile Value-
Added Services Market




                               MobileM...
Foreword: MobileMonday in Shanghai
Foreword: MobileMonday in Shanghai

Launched in Oct 2006 by three seasoned executives of
the mobile, internet and advertis...
The China Mobile Environment

Unique Size, Unique Rules, between Tradition and Modernity




                             ...
Highly Regulated Market
All fixed and mobile telecom operators are state-owned
(though shares floating in Hong-Kong or NY)...
But mind-boggling figures

523 million subscribers (September 2007), +18% YOY (MII)

39.9% Penetration, but coastal cities...
A Regulator’s nightmare? the CDMA anomaly
Mobile Traffic and MVAS steady growth*
In large cities, such as Shanghai, Beijing, Guangzhou, Shenzhen,
penetration has re...
Manufacturing for local and export markets

Strong Exports, but a fragmented and weak local industry




                 ...
China Ships 50% of total World phones

Q2’07, China Mobile phone shipments reached 132.2
million units, + 23.1% YOY.

H1’0...
China Mobile Phone Market - 2007

           Handset vendor          shipment share, 2Q07
           Company              ...
Mobile Applications and Operators’ Policies

A Glossy Picture of Growth, but the Ecosystem is shrinking




              ...
MVAS experiencing a cold front since 2005

High Capital requirements (RMB 10 Mil ~ EUR 0.9 Mil) to
operate a national inte...
MVAS experiencing a cold front since 2005
China Mobile taking control of more and more services
(mobile IM, Mobile Music, ...
Mobile gaming still sees obstacles and is
                                 waiting for 3G to take off

                   ...
China Mobile preparing a new platform for mobile
                                        gaming business
China Mobile’s Ba...
China Mobile’s M.Music Club subscribers grew
                          sharply in Q2 2007
        M.Music Club VIP Users

...
China Mobile “Mobile Newspaper” and “Mobile IM”
                service Fetion saw rapid growth in 1H due to
       Mobile...
WAP market dropped significantly after China Mobile
         launched new WAP regulation on May 17th 2007

           Tota...
China Mobile’s regulations on pre-installed MVAS
            applications increasingly stricter since 2005
    Timeline of...
Unicom increased investment on mobile music
         launching full track music download service


• June 2007, China Unic...
Mobile TV in China

The China dilemma




                22
Immature Technology & great confusion
• Very Few licenses granted so far, amidst political feud between
  SARFT and MII.

...
China Mobile has strengthened its streaming mobile
  TV services through its new partnership with CRI
                    ...
China Internet Market




                   25
Growth of Internet Usage in China is strong
         Internet Users in China reached 172 Mil in Sept 2007
      Million
18...
Both broadband and wireless internet have become
                   major internet access platforms
                      ...
News, Search, IM, Music, Video dominate usage
                            Mainstream Internet Application Usage (July 2007...
Converged services opportunities:

The China Internet Advertising Market




                                   29
China Advertising Revenue US$ 25.8Bil in 2007

                      Others
          Wireless             Outdoor
      O...
China Internet advertising and search revenues

                                           Online advertising   Search
   ...
Mobile Web (wap) Market
The Mobile advertising Market in China
Opportunity: Communities, Social Networks
 69% of Chinese youth use social networking sites

 Chinese youth have 37 “net” ...
Online and Mobile Communities are untapped
                                  opportunities



  Online advertising spend i...
China Mobile IM and Social Networking Market
     China IM market is dominated by Tencent’s QQ (84.4%)
     and MSN (13.9%...
Conclusion




        37
Summary & Conclusion
Solid Operator revenue and growth, but a weaker
ecosystem, due to constraining regulations and the cr...
Thank You!

Bruno Bensaid - 布鲁诺 - bruno@mobilemondayshanghai.net
                        www.mobilemondayshanghai.net




...
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China Mvas Changing Environment 2007

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presentation given in Jakarta on Dec 3, 2007 at the launch of mobilemonday Indonesia

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Transcript of "China Mvas Changing Environment 2007"

  1. 1. The Changing Rules of the Game in the China Mobile Value- Added Services Market MobileMonday Indonesia Launch JW Marriott, Jakarta, December 3rd, 2007 Bruno Bensaid, MobileMonday Shanghai Chapter Founder 1
  2. 2. Foreword: MobileMonday in Shanghai
  3. 3. Foreword: MobileMonday in Shanghai Launched in Oct 2006 by three seasoned executives of the mobile, internet and advertising industry bringing a new vision of converged services. Pioneering sponsors (Finnish Agency for Technology and Innovation, Nokia, etc) and advisory board +2000-member community, growing 100/month. Holding monthly events in the heart of Shanghai. Visibility across China through tight partnership with Mobilemonday Beijing team www.mobilemondayshanghai.net
  4. 4. The China Mobile Environment Unique Size, Unique Rules, between Tradition and Modernity 4
  5. 5. Highly Regulated Market All fixed and mobile telecom operators are state-owned (though shares floating in Hong-Kong or NY). GSM prevailing over CDMA (less than 5% subs). Telecom sector gradually opening under WTO commitments. To date, foreign telecom operators cannot operate services, and Foreign Internet Service/Content Providers (ISP/ICP) cannot hold more than 49% of local ISP/ICP. 3G licenses have not been granted yet. Home grown TD- SCDMA standard expected to prevail, on top of existing GSM and CDMA networks. Mobile ARPU is about 1/4 of Europe’s average (€8 vs. €32)
  6. 6. But mind-boggling figures 523 million subscribers (September 2007), +18% YOY (MII) 39.9% Penetration, but coastal cities dominate (Beijing 101.6%, Shanghai 96.2% penetration) - MII 371 million fixed telecom subscribers (28.3% penetration) Average 50 Bil SMS sent per month!!!! Sept 2007, 52.65 billion SMS sent, averaging 3.38 SMS / subscriber / day!!! (423 Bil SMS sent in 2006). Total MVAS market 59.6 billion RMB (EUR 5.5 Bil) in 2006 (Analysis), and EUR 3.3 Bil in H1’07 (+45% YOY). 2006 WAP revenue 7.4 billion RMB (EUR 0.7 Bil) - CNNIC
  7. 7. A Regulator’s nightmare? the CDMA anomaly
  8. 8. Mobile Traffic and MVAS steady growth* In large cities, such as Shanghai, Beijing, Guangzhou, Shenzhen, penetration has reached over 100%. Subscribers growth is now occurring in 2-tier and 3-tier cities as well as rural townships. * Source China Mobile
  9. 9. Manufacturing for local and export markets Strong Exports, but a fragmented and weak local industry 9
  10. 10. China Ships 50% of total World phones Q2’07, China Mobile phone shipments reached 132.2 million units, + 23.1% YOY. H1’07 shipments topped 253.8 million units +25.6% YOY China-only combined shipments reached 34.85 million for combined GSM and CDMA handsets (Q2’07). Nokia and Motorola top two vendors (source: Analysis). For CDMA models alone, Samsung and China-based Huawei Technologies were the top two vendors with market shares of 24.1% and 18.4% respectively (Analysys). Over 80 brands of phones, and 6000 phone models
  11. 11. China Mobile Phone Market - 2007 Handset vendor shipment share, 2Q07 Company Share Nokia 29.5% Motorola 18.5% Samsung 10.8% Lenovo (Chinese) 6.7% Sony Ericsson 5.5% Ningbo Bird (Chinese) 4.6% Amoi (Chinese) 3.3% LG Electronics 3.0% Konka (Chinese) 1.8% Haier (Chinese) 1.6% Source: Digitimes
  12. 12. Mobile Applications and Operators’ Policies A Glossy Picture of Growth, but the Ecosystem is shrinking 12
  13. 13. MVAS experiencing a cold front since 2005 High Capital requirements (RMB 10 Mil ~ EUR 0.9 Mil) to operate a national internet or mobile content service). Obligation to sign with every provincial operator (instead of one “hub”) – (2005) Ministry of Information Industry (MII), China Mobile and China Unicom enforcing double confirmation rule (2006) China Mobile enforcing mandatory “Monternet” landing page for all SPs, including free wap SPs (2007) to curb off- deck usage.
  14. 14. MVAS experiencing a cold front since 2005 China Mobile taking control of more and more services (mobile IM, Mobile Music, Mobile gaming, Mobile blogging, Mobile news aggregator), with great promotion and successes. China Mobile / Unicom cancelling flat-rate GPRS packages. Next generation networks not ready (no 3G licenses yet) As a result, ~ 300,000 jobs were obliterated from the Industry between 2005 and 2007, and large mobile SPs market capitalization went down the drain, SPs were acquired or merged to survive (Hurray for ex.)
  15. 15. Mobile gaming still sees obstacles and is waiting for 3G to take off Mobile Gaming Market Size and Forecast USD Million 800 37.6% 39.6% 40% 33.7% 600 30% 22.0% 18.4% 400 20% 717 513 200 373 10% 229 279 187 0 0% 2006 2007F 2008F 2009F 2010F 2011F Market Size Annual Growth Rate Source: BDA forecast and analysis 15
  16. 16. China Mobile preparing a new platform for mobile gaming business China Mobile’s Baibaoxiang Quarterly Sales Revenue CMCC launched “Game CMCC issued strict Recommendation Zone” regulations on SPs under Baibaoxiang in May in July RMB Million 150 140 123 106 92 94 95 100 CM added validation codes 50 for game downloading in September to prevent SPs from fraud billing 0 2005 Q4 2006 Q1 2006 Q2 2006 Q3 2006 Q4 2007 Q1 Source: China Mobile, BDA 16
  17. 17. China Mobile’s M.Music Club subscribers grew sharply in Q2 2007 M.Music Club VIP Users Million 25 107.2% 120% 22 20 100% 17 14 80% 15 11 60% 10 28.7% Service 23.1% 27.7% 40% 5 5 20% 0 0% Feb-07 Mar-07 Apr-07 May-07 Jun-07 User base Growth rate Source: China Mobile, BDA 17
  18. 18. China Mobile “Mobile Newspaper” and “Mobile IM” service Fetion saw rapid growth in 1H due to Mobile Newspaper Paid Users aggressive promotion Million 20 15 15 11 User Base of Fetion 9 10 7 5 3 38 29 0 (million) 21 Feb 07 Mar 07 Apr 07 May 07 Jun 07 15 9 10 6 7 2 4 Feb 07 Mar 07 Apri 07 May 07 Jun 07 Active Users Regesitered Users Source: China Mobile, BDA 18
  19. 19. WAP market dropped significantly after China Mobile launched new WAP regulation on May 17th 2007 Total WAP Revenues of SPs with Kongzhong and Sohu’s Monthly WAP Nationwide WAP Service License Revenues RMB million RMB million 200 12 168.3 168.8 9.8 10.3 10 9.2 150 8.1 8 101.0 5.6 5.7 100 6 5.3 5.2 78.5 4.2 4.1 4 50 2.1 2 1.5 0 0 Mar-07 Apr-07 May-07 Jun-07 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Kongzhong Sohu 19
  20. 20. China Mobile’s regulations on pre-installed MVAS applications increasingly stricter since 2005 Timeline of China Mobile’s Regulations on MVAS Links Pre-installed in Handsets China Mobile China Mobile reiterated announced it would the regulation prohibiting deduct credits from SPs MVAS links pre-installed which pre-installed in handsets MVAS links in handsets Key Milestones 2003 … 2005 2006 2007 2008 China Mobile prohibited China Mobile finished China Mobile SPs from cooperating with transferring SPs’ punished 11 SPs for handset makers in handset services to MISC MVAS links pre- built-in applications platform installed in handsets 20
  21. 21. Unicom increased investment on mobile music launching full track music download service • June 2007, China Unicom launched commercial trials for full track music download “Xuan Qu”. • China Unicom has reportedly signed contract with over 23 record companies including Warner Music and Sony BMG, and can access the copyright of over 80,000 songs, covering over 90% of China’s record market. • Motorola K2 is the first handset to support Xuan Qu service, followed by Nokia and Sony Ericsson. • In June too, China Unicom released “unlimited” wireless internet traffic package in Beijing for its CDMA users. Source: China Unicom, BDA analysis 21
  22. 22. Mobile TV in China The China dilemma 22
  23. 23. Immature Technology & great confusion • Very Few licenses granted so far, amidst political feud between SARFT and MII. • Standards confusion: • In Europe and Asia, an industry group that includes Nokia has been championing DVB-H. • South Korea supports two standards, T-DMB and S-DMB. US-based Qualcomm backs MediaFlo. • The State Administration of Radio (SARFT) is pushing CMMB. • A group backed by Tsinghua University is promoting DMB-T/H • There are also other mobile television standards seeking approval from the Standardisation Committee, including TMMB, and IMMB, submitted jointly by CITIC & i-Vision and another one called CDMB.
  24. 24. China Mobile has strengthened its streaming mobile TV services through its new partnership with CRI On August 30, China Mobile and CRI (China Radio International) jointly announced the launch of commercial streaming mobile TV services over China Mobile’s GPRS networks. CRI provides mobile video content, such as live TV channels and video clips, to China Mobile’s Monternet platform. CRI obtained the mobile TV license from SARFT in December 2006, and has established a subsidy Guoshi TV (GTV) in charge of mobile TV operation. Currently, CRI mobile TV charges no service fee, but mobile subscribers need to pay GPRS data traffic fee. Source: China Mobile, CRI, BDA and analysis 24
  25. 25. China Internet Market 25
  26. 26. Growth of Internet Usage in China is strong Internet Users in China reached 172 Mil in Sept 2007 Million 180 140% 162 160 123% 120% 140 137 123 100% 120 111 90% 90% 90% 103 100 78% 94 80% 87 79.5 80 60% 68 59.1 60 45.8 40% 33% 36% 40 33.7 29% 26.5 27% 22.5 20% 16.9 18% 18% 20 8.9 15% 17% 4 9% 8% 10% 8% 11% 11% 0.62 1.18 2.1 0 0% 1997 Jun- 1998 Jun- 1999 Jun- 2000 Jun- 2001 Jun- 2002 Jun- 2003 Jun- 2004 Jun- 2005 Jun- 2006 7-Jun 98 99 00 01 02 03 04 05 06 Internte user Growth rate Source: CNNIC 26
  27. 27. Both broadband and wireless internet have become major internet access platforms Internet Users By Different Types of Access Million 200 180 44 17 160 140 120 77 43 53 64 91 100 31 108 6 6 6 80 60 52 51 52 50 48 39 40 32 20 31 30 29 29 29 27 14 0 Jun 04 Dec 04 Jun 05 Dec 05 Jun 06 Dec 06 7-Jun Dedicated Line Dial up ISDN Broadband Mobile handset Source: CNNIC 27
  28. 28. News, Search, IM, Music, Video dominate usage Mainstream Internet Application Usage (July 2007) Online News 77.3% Search Engine 74.8% IM 69.8% Online Music 68.5% Online Video 61.1% Email 55.4% Online Game 47.0% Online Shopping 25.5% Online Education 24.0% Online Banking 20.9% Blog 19.1% Online Recruiting 15.2% Onlne Stock 14.1% Online Marketing 4.3% Online Reservation 3.9% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Source: CNNIC 28
  29. 29. Converged services opportunities: The China Internet Advertising Market 29
  30. 30. China Advertising Revenue US$ 25.8Bil in 2007 Others Wireless Outdoor Out-of-home displays Cable Search Internet Radio Magazines TV Newspaper Internet & Search only 4.3% of total “publisher” intake
  31. 31. China Internet advertising and search revenues Online advertising Search Units: US$ millions 2,000.0 1,800.0 1,600.0 1,400.0 1,200.0 1,000.0 800.0 600.0 400.0 200.0 - 2002 2003 2004 2005 2006 2007F 2008F Note: Excludes agency fees Source: SBCI, Company reports
  32. 32. Mobile Web (wap) Market
  33. 33. The Mobile advertising Market in China
  34. 34. Opportunity: Communities, Social Networks 69% of Chinese youth use social networking sites Chinese youth have 37 “net” friends vs 18 in the US Close friends Friends, but not close Online friends, never met in person 90 80 70 60 50 40 30 20 10 - US China Source: Microsoft/MTV Circuits of Cool Project 2006/2007 (Millward Brown Sadek Wynberg OTX)
  35. 35. Online and Mobile Communities are untapped opportunities Online advertising spend in 2007 will hit US$1.17bn (4.3% of total Ad Budget in China) Online communities capture less than 5% of this advertising revenue Note: Excludes agency fees Source: SBCI, GroupM, Company reports, National Bureau of Statistics of China, Zenith Optimedia
  36. 36. China Mobile IM and Social Networking Market China IM market is dominated by Tencent’s QQ (84.4%) and MSN (13.9%). A host of other IM clients are also promoted by China Internet portals (Sina, Sohu, Netease etc), online gaming actors (Shanda etc), B2B players like Alibaba or foreign players such as Yahoo or Google. In the workplace, MSN can be dominant, especially in wealthiest cities and with high-worth users (over 55% market share). 47.6% of users only use text when using IM. 22.9% frequently use voice. 20.4% frequently use video chat. *Source: China Internet Network Information Center
  37. 37. Conclusion 37
  38. 38. Summary & Conclusion Solid Operator revenue and growth, but a weaker ecosystem, due to constraining regulations and the creation of new walled gardens and operator-branded services. We are shifting away from the Japan DoCoMo model and moving towards Korea’s operator controlled model. Could be a significant opportunity for mobile advertising industry. Yet, more competition (new 3G licenses and higher investment cap thanks to WTO compliance) will likely bring new sets of rules to the game. MVNO will likely start too. Expect more significant changes in 2009-2010, but no Olympics effect, except – maybe - on mobile marketing/ad.
  39. 39. Thank You! Bruno Bensaid - 布鲁诺 - bruno@mobilemondayshanghai.net www.mobilemondayshanghai.net 39
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