china vas - mobile value added services in china

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  • 1. Mobile Value-Added Services in China Project Summary Report Bernhard Holtkamp Fraunhofer ISST (Ed.) January 2006
  • 2. Summary Report VAS CHINA Project March 2005 – February 2006 Mobile Value-Added Services in China Project Summary Report Bernhard Holtkamp (Ed.) January 2006 Funded by the European Union In the 6th Framework Program under contract number FP6-2004-IST-3-015774 © VAS CHINA Project [FP6-2004-IST-3-015774] 3
  • 3. Summary Report Editor Dr. Bernhard Holtkamp Fraunhofer Institute for Software and Systems Engineering (ISST) Emil-Figge-Straße 91 44227 Dortmund Germany Bernhard.Holtkamp@do.isst.fraunhofer.de © VAS CHINA Project [FP6-2004-IST-3-015774 4
  • 4. Summary Report Contributors BUPT Prof. Shiduan Cheng Dr. Yuhong Li Chongqiu Tao Dr. Qiang Yan Xiaopeng Li Kuifei Yu Huifang Jin Dr. Jian Ma Dr. Seppo Hamalainen Na Li Dr. Yue Fei Shudong Liu Lucy Lee Dr. Bernhard Holtkamp Dr. Päivi Kallio Mika Hongisto © VAS CHINA Project [FP6-2004-IST-3-015774] 5
  • 5. Summary Report Contents 1 Objectives of the Project 12 2 Approach 14 3 VAS Situation in China 16 3.1 Economic Environment of Value-Added Services 17 3.1.1 The Economic Prosperity Stimulates the Increase of the Telecommunication Requirement 17 3.1.2 The Improvement of the People’s Living Standard Promotes the Change of Telecommunication Requirements 17 3.2 Political Environment of Value-Added Services 20 3.2.1 Supervision and Regulation on Telecommunications 20 3.2.2 Effects of Policies on Mobile VAS 21 3.3 Technical Environment of Value-Added Services 22 3.3.1 The Influence of IP 22 3.3.2 The Influence of Soft Switch Technology 23 3.3.3 The Influence of 3G Technology 24 3.3.4 The Influence of Terminal Technology 24 3.4 Conclusion 25 4 Mobile VAS Value Chain 26 4.1 Mobile Network Operators 29 4.1.1 China Mobile Communications Corporation 30 4.1.2 China United Telecommunications Corporation 33 4.2 Service Providers and Content Providers 34 4.2.1 SINA Corporation 35 4.2.2 SOHU Corporation 38 4.2.3 TOM Online Inc. 39 4.2.4 NetEase 40 4.2.5 Tencent 41 4.2.6 Linktone 41 4.2.7 Mtone Wireless 42 4.2.8 KongZhong Corporation 43 4.3 Equipment Manufacturers and Terminal Manufacturers 44 4.4 End Users 45 4.4.1 End User Status and Market Requirements 45 4.4.2 The Demand Trend of Mobile VAS Market 55 4.4.3 Conclusion 60 4.5 Ministry of Information Industry 60 4.5.1 Duties 60 4.5.2 Departments 61 © VAS CHINA Project [FP6-2004-IST-3-015774 6
  • 6. Summary Report 5 Mobile Value-Added Services 65 5.1 Pricing of VAS Services 65 5.2 Popular Services 66 5.2.1 Short Message Services (SMS) 66 5.2.2 Multimedia Messaging Services (MMS) 69 5.2.3 Individualized Ringing Tone Service 71 5.3 Emerging Services 73 5.3.1 Mobile Phone Games 74 5.3.2 Interactive Voice Response (IVR) 79 5.3.3 LBS (Location-Based Service) 81 5.3.4 Streaming Media 84 5.3.5 M2M (Machine to Machine) 85 5.3.6 Other Emerging Services 86 5.4 Analysis of the Development of Mobile VAS in China 86 5.4.1 Development Features 87 5.4.2 Development Structure of Mobile VAS 87 5.5 Selected Mobile VAS Services 89 5.5.1 M2M in China 89 5.5.2 Sample VAS Services 90 5.5.3 Mobile Virus Killing 91 5.6 Mobile VAS Technology Issues 91 5.6.1 SIP 92 5.6.2 OMA Digital Rights Management 92 5.6.3 Location-Based Services (LBS) 92 5.6.4 Importance of These Technologies for the Chinese VAS Market 92 5.7 International Developments 92 5.7.1 VAS in Germany 93 5.7.2 M2M in Germany 93 5.7.3 VAS in Finland 94 5.7.4 France Telecom Orange Mobile VAS Experiences 96 6 VAS Market Entry Process in China 98 6.1 Telecoms Regulations and Policies 99 6.1.1 Network Construction 99 6.1.2 Regulations and Policies on FITEs 100 6.1.3 Commitments to WTO Regarding VAS 101 6.2 Phase 1: Partnering with a Chinese Company 101 6.2.1 Foreign Investment Telecommunications Enterprises (FITE) for Value-Added Services 103 6.2.2 FITE Registration Process 103 6.3 Phase 2: Getting a Service Provider License 104 6.3.1 VAS License Application Process 104 6.3.2 Licensing Situation 107 6.4 Phase 3: Cooperation with Mobile Operators 107 6.4.1 China Mobile 108 © VAS CHINA Project [FP6-2004-IST-3-015774] 7
  • 7. Summary Report 6.4.2 China Unicom 109 6.4.3 How to Become a VAS Partner of China Unicom 109 7 VAS CHINA Project Networking 116 7.1 Ministry of Information Industry 116 7.2 Mobile Operators 118 7.2.1 China Mobile 118 7.2.2 China Unicom 119 7.2.3 GD Unicom 119 7.2.4 GZ Mobile 120 7.3 Service Providers 120 7.3.1 TOM Online 120 7.3.2 Biao Qi Century Data Communication Technologies 121 7.3.3 Tencent 122 7.3.4 Linktone 122 7.3.5 A8 Music Group 123 7.4 Related Organizations 123 7.4.1 VAS Committee China (VASC) 123 7.4.2 EU Chamber of Commerce 124 7.4.3 DVB Project PARTAKE 124 7.4.4 eShip 125 7.4.5 International Financing Investment Consultancy Company Ltd. (IFIC) 125 8 Conclusion 127 9 References 129 10 Sources 130 A Project Consortium (Alphabetical Order) 135 A.1 Beijing University of Posts and Telecommunications, BUPT, China 135 A.2 France Telecom 137 A.3 Fraunhofer ISST, Germany 139 A.4 Nokia Research Center / Nokia (China) Investment Company Ltd, China (Project Coordinator) 140 A.5 VTT Technical Research Centre of Finland 142 © VAS CHINA Project [FP6-2004-IST-3-015774 8
  • 8. Summary Report List of Figures Figure 1 VAS CHINA project workflow and results .....................................14 Figure 2 Mobile VAS revenue and its share in the whole mobile service market.........................................................................................16 Figure 3 The architecture for providing VAS in the next generation packet- based voice network ....................................................................23 Figure 4 VAS value chain members and relationships.................................27 Figure 5 I-Mode value chain ......................................................................28 Figure 6 Monternet value chain .................................................................28 Figure 7 Departments of CMCC ................................................................32 Figure 8 Organization of the CMCC data service department ....................33 Figure 9 Organization of China Unicom.....................................................34 Figure 10 Important factors influencing users for using SMS service.............47 Figure 11 Age distribution of mobile phone game users ..............................50 Figure 12 Education of mobile phone game users........................................51 Figure 13 Income of mobile phone game users............................................51 Figure 14 Distribution of mobile game content............................................52 Figure 15 Market share of mobile phone game in 2004...............................53 Figure 16 Expectations of free WAP contents ..............................................54 Figure 17 Using frequency investigations of several WAP services ................55 Figure 18 Reasons why high-end users are not satisfied with current mobile VAS .........................................................................................59 Figure 19 Increase of SMS in China from 2001 t0 2004...............................67 Figure 20 Growth of SP revenue..................................................................67 Figure 21 Market share among SPs in 2003.................................................68 Figure 22 MMS market shared by SPs in 2003. ............................................70 Figure 23 Market share of mobile phone game platform in 2004 ................76 Figure 24 Market shares of different types of mobile phone games .............76 Figure 25 Mobile game industry chain .........................................................77 Figure 26 Market of IVR shared by SPs.........................................................80 Figure 27 Number of mobile VAS users .......................................................88 Figure 28 Revenue structure of mobile VAS market in China .......................88 Figure 29 Mobile services markets in Finland 2002–2005 (M€) (Source: [2]).95 Figure 30 The number of mobile terminals with colour displays, GPRS, WAP, MMS and Java in Finland (Source: [2]) ..........................................96 Figure 31 Overview of the VAS market entry process in China .....................98 Figure 32 Phase 1: Setting up a FITE ..........................................................102 Figure 33 Phase 2: Applying for a service provider license ..........................105 Figure 34 Phase 3: Partnering with a mobile operator................................108 Figure 35 Procedure of application for qualification and services................112 Figure 36 Procedure of service testing and contract ...................................113 Figure 37 Settlement procedure ................................................................115 © VAS CHINA Project [FP6-2004-IST-3-015774] 9
  • 9. Summary Report List of Tables Table 1 Mobile VAS used by high-end users ................................... 18 Table 2 The interest degree (%) of high-end users in VAS provided by future 3G network............................................................. 19 Table 3 Mobile VAS used by high-end users ................................... 56 Table 4 The interest degree (%) of high-end users in VAS provided by future 3G network............................................................. 58 Table 5 Comparisons of LBS solutions ............................................ 81 Table 6 Materials needed during the application .......................... 111 © VAS CHINA Project [FP6-2004-IST-3-015774 10
  • 10. Summary Report Abbreviations 3G Third Generation ADSL Asymmetric Digital Subscriber Line ARPU Average Revenue Per Unit BBS Bulletin Board Service BUPT Beijing University of Posts and Telecommunications CDMA Code Division Multiple Access CM China Mobile CMCC China Mobile Communication Corporation CP Content Provider CU China Unicom DRM Digital Rights Management EUCC FITE Foreign Invested Telecomm Enterprises GPS Global Positioning System GSM Global System for Mobile communications IP Internet Protocol ISP Internet Service Provider IVR Interactive Voice Response JV Joint Venture LBS Logical Block Addressing M2M Machine-to-Machine MII Ministry of Information Industry MISC Management Information Services Center MMS Multimedia Messaging Service MofCom Ministry of Commerce OMA Open Mobile Alliance PRC People’s Republic China RBT Ring Back Tone RMB Renminbi (China’s currency) SIM Subscriber Identity Module SIP Session Internet Protocol SMS Short Messaging Service SP Service Provider TAB Telecommunication Administration Bureau VAS Value Added Services VASC Value Added Service Committee WAP Wireless Application Protocol WLAN Wireless Local Area Network WTO World Trade Organisation © VAS CHINA Project [FP6-2004-IST-3-015774] 11
  • 11. Summary Report 1 Objectives of the Project The first service for mobile phones was "voice". As we know, mobile "voice" was everywhere a great success. But in China its growth has been geometric: in 1998 less than 10 million subscribers and now 6 years later over 300 million subscribers. The first VAS technology introduced to China was the short message service (SMS). It came to China relatively late since both mobile operators and officials believed that "SMS is a European success story – and SMS will never become a success in China". Examples and success stories from Europe were essential, but finally SMS was ignited into Chinese awareness by a local idea. Chinese Internet SMEs offered to send "good news" messages when Chinese won medals at Sydney Olympic Games. SMS service was a success and proved that there are real business opportunities with VAS. In 2004 Chinese already sent some 30.000 million SMS per month and growth still continues. Since then more VAS technologies, applications and services have been introduced for mobile phones in China. Operators are eager to take more benefit of their massive subscriber base via VAS. Here are some examples of VAS offered in China: • short message services (ring tones, other) • Java downloading services (games) • Internet browsing (entertainment, sport news, etc) • multimedia messaging service (MMS) • location-based services (LBS) Since SMS a lot of learning has happened. New Chinese words have been invented to describe various VAS services. The process on how new VAS technologies are getting into market is developing. It is a complex process with evolving regulations, standards, rules, tests, trials, technical forums, and finally business models, tariffs, application developers and more. We see continuous progress with VAS but yet, there is neither clear, known guideline nor process on how Chinese mobile operators adopt European or global mobile VAS technologies into use and into end-user benefits. For every organization VAS is a learning process but in China VAS has strong impact on society and culture, too. Continuously more new global VAS technologies are getting mature. Here are a few examples: • Push-to-talk over Cellular (PoC) service ; “walkie-talkie” service, which will enable other new services when combined with existing VAS technologies © VAS CHINA Project [FP6-2004-IST-3-015774 12
  • 12. Summary Report e.g. messaging, location-based services, or when taken as an element into applications e.g. mobile games, enterprise applications • TV broadcast to mobile based on DVB-H which will enable the birth of whole array of new innovative applications via mobile network • Payment solutions which use mobile phones Each new VAS technology enables creation of new categories of applications and services. By combining existing and new VAS services, complexity grows but so do opportunities for both Chinese and European SME industries. Chinese market is reactive, so understanding of the situation by Europeans could give us some "first-mover advantage". To be able to enter the Chinese market European companies in general and SMEs in particular need to understand the specifics of this market, its rules and regulations, entry processes and requirements, time-schedules. To be able to sell their applications European SMEs need to match make and localize their products for Chinese taste. Hence, “information” is the most important tool for European SMEs to be able to cooperate with Chinese partners and to enter the Chinese market. The mission of the VAS CHINA project was to challenge the existing unclear flow related to VAS technologies entry into China market. With a systematic approach we tried to learn, understand and map a process and to develop positive networking between organizations and individuals. More precisely, VAS CHINA project objectives were: 1 To identify and network with those Chinese organizations which are key influencers in the market-entry process for new VAS technologies: to create contacts and to find possible partners to explore the possibilities of VAS in China 2 To produce information which will clarify, "map" the process of how China accepts and adopts new VAS technologies 3 To recognize and produce information about China-specific needs related to existing and future mobile Values Added Services, and produce policy recommendations to improve the situation with Chinese-European co- operation 4 To introduce the results to interested EU-parties Compared to many other industries, VAS technologies represent a new innovation space with lots of room. European SMEs are famous about their innovative products related to mobile VAS technologies and applications. But being famous is not enough if wanting to do business in China. The ultimate goal of this project is to provide European SMEs access to latest information about VAS in China. Quality information will enable fast, rational decisions. © VAS CHINA Project [FP6-2004-IST-3-015774] 13
  • 13. Summary Report 2 Approach The picture below clarifies the workflow and the results distribution of the VAS CHINA project. Figure 1 VAS CHINA project workflow and results During the monthly workshops every consortium member learned about Chinese organizations which participate into China VAS process; their role and linkage to other actors. During the workshops consortium members were introduced to Chinese organizations that have role in China’s VAS entry process. The leading partner for this is BNRC. During the monthly workshops each consortium member “tested” the China VAS entry process by looking it from their focus angles; technology, applications, services. © VAS CHINA Project [FP6-2004-IST-3-015774 14
  • 14. Summary Report VTT was the leading partner in the work to develop the understanding about the Chinese organizations and their roles in China VAS process, and to map and develop China VAS entry process. All consortium members naturally contributed to this work. VTT and Fraunhofer ISST produced (round-robin basis, 50/50 of the workshops) a condensed report about each monthly workshop’s results and findings. These reports, written in English, have been made public through the VAS CHINA project home page (www.vas-china-project.org), maintained by Fraunhofer ISST, and were delivered to the Commission. This up-date of findings has also become part of the VAS CHINA Summary Report. During the VAS CHINA project the Europe-located consortium members, VTT and Fraunhofer ISST, visited the workshops in Beijing 5 times each. One of the workshops was held in Guangzhou in South-China. Guangzhou has advanced mobile services and local VAS-actors’ view needed to be collected. The project’s web-site includes information about the VAS CHINA consortium, project plan, and monthly workshop reports summarizing the up-dates of the findings. The VAS CHINA Summary Report, Seminar Report, and Final Report are also added to the web-site. © VAS CHINA Project [FP6-2004-IST-3-015774] 15
  • 15. Summary Report 3 VAS Situation in China In recent years, the market of mobile communications has developed very fast. Mobile phone is affecting the way of people’s life. Correspondingly, mobile VAS increases also very fast. Both the amount of mobile users and the requirement of the users on different kinds of services ascend greatly. So far, about 80% of mobile phone subscribers use VAS. The revenue increase of mobile VAS has exceeded the increase of other telecommunication services. As shown in Fig. 2, the market scale of mobile VAS was 1.98 billion RMB Yuan in mainland China in the year 2001, and in 2002, it reached 9.36 billion RMB Yuan. This means that the market has increased 373% compared to the preceding year. And in 2003, the revenue of mobile VAS was 23.32 billion RMB Yuan. It is expected that in 2006 the market of mobile VAS can reach 70 billion RMB Yuan. From this figure we can also see that the revenue share of mobile VAS to the total mobile services increases also annually. 160 35.00% 152 143 140 29.20% 29.70%30.00% 126 27.30% 120 25.00% 100 94 22.10% 20.00% 18.40% 80 70 15.50% 15.00% 60 12.20% 52 10.00% 40 35 6% 5.00% 20 4.30% 23.32 9.36 1.98 1.10% 0 0.00% 2001 2002 2003 2004e 2005e 2006e 2007e 2008e 2009e 2010e Revenue of mobile VAS (billion RMB) Share of mobile VAS to the whole mobile services Figure 2 Mobile VAS revenue and its share in the whole mobile service market Now there are more than 70 thousand types of mobile VAS. These services can be divided into mobile Internet content/application services, mobile Internet access services and mobile value added voice services. According to the running platform, mobile VAS can be classified into five categories at present in the Chinese market. They are SMS, MMS, WAP, JAVA/BREW and IVR. And according to the contents and applications, the services can be classified into communications, business and trading, information support and entertainment © VAS CHINA Project [FP6-2004-IST-3-015774 16
  • 16. Summary Report etc. In the following, we analyze some typical mobile VAS currently popular and emerging in China. It is no doubt that the external environment can produce great influence on the development of mobile VAS. In the following, we will introduce the economic, political and technical environment in China from the perspective of telecommunication industries, and analyze their possible influence on mobile VAS in China. 3.1 Economic Environment of Value-Added Services 3.1.1 The Economic Prosperity Stimulates the Increase of the Telecommunication Requirement The Chinese economy keeps fast development in 2004 after the GDP broke through 11,000 billion RMB Yuan in 2003. Some authoritative international organizations, such as World Bank, IMF etc. have adjusted the prediction about the annual increment of Chinese economy to over 9%. With the development in economy, the living standard of Chinese people has improved significantly. Demand on housing, autos and telecommunications is increasing strongly. This enlarges the Chinese telecommunication market, and provides also an economic guarantee for the development of the telecommunication services. 3.1.2 The Improvement of the People’s Living Standard Promotes the Change of Telecommunication Requirements The economic development influences not only the total amount of the telecommunication requirement, but also the trend of the content changes of the telecommunication requirement. After some basic telecommunication requirements have been satisfied, people want more and more comfortable, intelligent, individual and entertainment services. How to provide more value added services and keep the increase of the revenue has become the focus for the telecommunication enterprises. Requirement on mobile VAS Mobile VAS plays a more and more important role in the telecommunication market with the economic development. Table 1 illustrates the services used by high-end users nowadays. © VAS CHINA Project [FP6-2004-IST-3-015774] 17
  • 17. Summary Report Beijing Shanghai Shenzhen Wuhan Chengdu Kunming Mobile phone SMS 93. 3% 95.7% 98.8% 96.6% 98.8% 91.9% Mobile phone lottery 8. 0% 4. 3% 43.0% 18.2% 17.6% 11. 3% Mobile phone stock 8 .0% 18.8% 16.4% 28.4% 16.4% 8.1% Web SMS 26.7% 38.2% 23.6% 29. 5% 43.6% 41.3% Mobile phone E-mail 43. 3% 57.0% 50.3% 51.1% 50. 3% 31.9% Mobile phone 26.0% 46.8% 38.8% 19.9% 28.5% 31.9% information ordering Mobile QQ 28.7% 54. 3% 23.6% 34.7% 43.0% 40.0% Mobile phone online 39.3% 44.6% 52.7% 44.3% 66.1% 43.1% game Web browsing 50.0% 62.4% 29.1% 38.6% 60.0% 25.6% Color messages/Color E 29.3% 53.2% 18.2% 23. 3% 31. 5% 18.1% Mobile phone 8.7% 22.0% 6.7% 9.7% 4.8% 2.5% online shopping Mobile phone pictures & 54.0% 65.6% 49.7% 49.4% 49.7% 74.4% ring tone downloading Travel services 10.0% 1.1% 7. 3% 19. 3% 7. 3% 31. 9% Case= 150 186 165 176 165 160 Table 1 Mobile VAS used by high-end users The data illustrates that many types of mobile VAS other than the widely used SMS are required by the end users from different cities nowadays. Receiving and sending Email and network browsing are widely required and used. In addition, the individual services, such as downloading from the networks are also welcome currently. Moreover, users from different cities display also great interest in online games. Other inquiries have also revealed that the customs who have not used VAS show low interest on the existing services, nevertheless, they are interested in some new emerging services, such as online translation, pictures upload etc. Table 2 shows the interest degree of high-end users in mobile VAS provided by future 3G mobile network systems. From this inquiry we can see that high-end users believe that sending images to friends and relatives will be the most popular services in the future 3G system. Moreover, web browsing and E-mail sending and receiving through mobile phone are also the desired services by high-end users. © VAS CHINA Project [FP6-2004-IST-3-015774 18
  • 18. Summary Report City Beijing Shanghai Shenzhen Wuhan Chengdu Kunming Total Case= 150 186 165 176 165 159 1001 Transmitting images to 15.9 14.9 14.6 15.8 17.1 14.1 15.4 friends or relatives Web browsing 14.6 15.8 13.6 15.2 15.6 13.3 14.7 Transmitting information 14.3 14.7 14.4 14.8 16.0 13.1 14.6 with videos E-mail receiving and 14.3 15.7 13.3 14.5 15.2 13.2 14.4 sending On line music 12.5 15.4 13.6 15.0 14.8 12.1 13.9 Video phone 12.1 14.3 13.9 14.9 15.3 12.2 13.8 Internal Email transmitting 12.6 15.0 13.6 14.0 14.1 12.1 13.6 Emergency location 13.5 13.9 12.3 12.5 14.3 14.1 13.4 Customer relationship 13.0 14.2 13.4 13.4 14.5 11.8 13.4 management Online translation 11.9 14.5 13.2 13.5 14.2 11.0 13.1 Film on demand 12.5 13.7 12.1 13.4 15.1 11.4 13.1 Internal document sharing 11.8 14.3 12.6 13.5 13.6 11.4 12.9 Movie or TV foreshowing 11.2 14.4 12.2 13.4 14.2 10.9 12.8 Online virus killing 11.1 14.0 11.5 12.7 14.4 10.8 12.5 Video program ordering 11.0 13.6 12.3 13.1 13.7 10.2 12.4 Online interactive games 10.9 13.6 11.9 13.1 14.0 9.6 12.2 Online shopping 11.1 14.3 11.2 11.4 13.3 9.7 11.9 Mobile picture QQ 10.5 14.3 11.3 11.9 13.4 9.4 11.9 Internal training 10.5 13.1 11.4 11.8 13.0 10.0 11.7 Broadcasting 10.6 13.4 11.9 12.0 12.1 9.6 11.7 Navigation 11.9 13.0 10.7 9.8 12.1 10.8 11.4 Information ordering in 10.6 12.6 10.3 10.1 11.8 9.5 10.8 shopping center Mobile phone stock 9.2 12.2 10.4 11.2 13.2 7.7 10.7 Instant monitoring of 10.3 12.4 10.4 9.7 11.8 9.2 10.7 posting goods Remote medical treatment 9.0 10.5 10.0 11.8 8.8 10.0 Mobile phone lottery 7.4 11.9 9.9 10.9 12.0 7.0 9.9 Remote education 9.1 9.1 10.3 11.5 9.6 9.9 Table 2 The interest degree (%) of high-end users in VAS provided by future 3G network © VAS CHINA Project [FP6-2004-IST-3-015774] 19
  • 19. Summary Report Some changes of the requirements on mobile VAS can be found through the comparison between the inquiries made in 2002 and in 2003. Dissimilar with the inquiry result obtained in many foreign countries, in 2002 most of the people in China were not interested in the services of messaging and mobile entertainment such as game, video and so on. However, in 2003, video services were accepted by most of the people. 3.2 Political Environment of Value-Added Services The political environment influences also the development of the telecommunications and the market of mobile VAS. In the following, we first review the major activities related to the supervision and regulation on telecommunications and then analyze their possible influences on the mobile VAS market. 3.2.1 Supervision and Regulation on Telecommunications From the beginning of the 1990’s, a series of definitions concerning VAS have been given and policies regarding the supervision and regulation of the Chinese national telecommunication market have been put forward. The major points are summarized as follows. • In December 1993, the State Council authorized the construction of China Unicom Corporation Limited, and defined the concept of basic telecommunication services and value-added services for the first time. • According to the “Telecommunication Regulation of the People’s Republic of China” issued by the State Council in September 2000, VAS includes 9 services: E-mail, voice mail box, online information storing and searching, electronic data exchange, online data and trade processing, value-added fax, Internet access services, Internet information services, video conferencing . • On June 11th, 2001, the Ministry of Information Industry (MII) made a declaration to classify the VAS into five categories, which are VAS in the fixed telephone networks, VAS in the mobile telephone networks, VAS in satellite networks, Internet VAS, and VAS in the other data networks. • According to the “Catalog of Telecommunication Services” defined and implemented by MII since April 1st, 2003, the telecommunication VAS will be classified according to the characteristics of the services instead of network features. Namely the services that can be implemented on different networks but do not have much essential difference are combined. Furthermore, considering the factors such as the degree to which the VAS may influence the telecommunication market, the VAS may be also divided into two categories. One is the services that can affect the telecommunication market greatly. These services have aptitude requirement on the service operators. This kind of services includes mainly online data and trade processing, domestic multi-party communication services, domestic Internet VPN services, Internet data center services. The other category of services has relative less impact on the market, and do not © VAS CHINA Project [FP6-2004-IST-3-015774 20
  • 20. Summary Report require the operators to have special aptitude. This kind of services includes mainly the store and forwarding services, call center services, Internet access services and information services. • On December 8, 2003, the Committee of the Internet News and Information Service of the Chinese Internet Association was founded. The people from more than 30 Internet news and information services companies, such as People’s Net, Xinhua Net, China Net, Sina, Sohu and Wangyi etc. signed together the “Common Agreement of Internet News and Information Services”. With the agreement these companies promised to accept the government administration and public supervision. • Depending on the “Reference Process for Telecommunication Opening” signed when China joined the WTO, the stock of value-added telecommunication services hold by the foreign capitalists may not exceed fifty percent (50%). At the same time, China will cancel the region restriction of value-added services completely. The opening range of mobile voice and data services will expand to fourteen cities. Foreign capital may reach 49% in a joint-venture company. • On February 10, 2004, Jiang Yaoping, the director of the department of Policy and Regulations of MII, said during the meeting of “Information exchange about the development of telecommunications and the corresponding policies”, that the draft of Telecommunication Law has been sent to the related organizations and enterprises for comments. • In the middle of June 2004, MII issues a “Notification about the standardization of SMS market”. The notification deals with problems in the SMS market, such as the opaqueness of SMS charging, charging for non- ordered SMS, complains cannot be solved in time and so on, aiming at standardizing the SMS market, and protecting the legal rights of the users. • In late June 2004, MII defined the year 2004 as the Telecommunication Service year. MII tries to standardize the telecommunication service protocols, and to insure the rights and responsibilities of the formatted contracts. MII requires that the telecommunication enterprises should ask the opinions from the customers, specialists on law, and the related administrative organizations when they issue the telecommunication service protocols. The telecommunication enterprises should provide services to the customers according to the service contracts. When conflicts occur, the telecommunication supervision organization will solve the conflicts according to the service contracts. 3.2.2 Effects of Policies on Mobile VAS The Chinese government has made a lot of efforts on the standardization of VAS and VAS market. From the above activities on the supervision and regulation of VAS, following conclusions can be made: • The amount of the operating entities for VAS increases continuously, and the market competition becomes much stronger. The threshold for permitting a VAS to enter the telecommunication market © VAS CHINA Project [FP6-2004-IST-3-015774] 21
  • 21. Summary Report becomes lower, and more third parties participate in the running of a VAS. More and more foreign companies, as well as companies from Hong Kong and Macau are entering the VAS market actively. This is helpful for breaking the monopoly and improving service quality. However, this may also result in illness competition and finally have negative effect on the VAS development. • The competition activities are expected to become standard, and the capabilities for service creation will increase. Currently the competition in the VAS market focuses on only some small service area. In case no mature regulations, laws as well as policies exist, the competition may simply go through low prices. This results in some illegal and short sighted activities which are not beneficial to the long term healthy and sustainable development of VAS market. Under the political regulation and supervision, the service providers may concentrate more on the user requirements instead of illness competition. • The rational participation of foreign capital may stimulate the development of the Chinese VAS market. On the one hand, the customers will benefit from the introduction of foreign capital into the Chinese market. For example, the irrational price for some services will decrease, and more types of VAS can be provided. On the other hand, some advanced theories and technologies can be provided to the Chinese service providers through cooperation. This may stimulate the development of VAS and VAS market. 3.3 Technical Environment of Value-Added Services In the recent years, computer, Internet and IP technology developed very fast in the world and in China. This provides a strong technical support for the development of VAS. With the pervasion of IP technology in elecommunication networks, the application of soft switch technology and the evolution to 3G, the telecommunication networks in China will have greater capability for supporting various VAS. 3.3.1 The Influence of IP With the transfer of telecommunication services from voice service to data service, all kinds of the traditional telecommunication networks carrying the services, such as the access networks, transmission networks, and signaling networks and so on, also change to a single carrier network system based on connectionless IP technology. This change strengthens the capability of the networks. The networks become more flexible, and at the same time possess also high stability, reliability and are easy to manage. Not only the current quality of services can be guaranteed, but also an open system architecture can be provided, which allows rapid deployment of new VAS and provides services to third parties. The evelopment © VAS CHINA Project [FP6-2004-IST-3-015774 22
  • 22. Summary Report of IP technology provides plenteous network resources for value-added services. 3.3.2 The Influence of Soft Switch Technology Soft switch technology is a kind of new technology based on IP phone, and is deemed as one of the key technologies for NGN. In a soft switch system, in order to be able to introduce new or value-added services, the call control function provided by the soft switch technology should be the basic or atomic call control function required by all kinds of services for the purpose of convenient introduction all kinds of new services and value-added services. The ISC application workgroup has put forward an architecture for providing value-added services in the next generation packet-based voice network. Fig. 3 illustrates this architecture. API: application program interface API SIP: session initiation protocol App Server RTP: real time transmission protocol Media Server SIP BICC: bearing independent call control SIP RTP BCP: bearing control protocol Soft switch Soft switch BICC/SIP-T RTP Signaling Media gateway Media gateway Signaling gateway gateway Figure 3 The architecture for providing VAS in the next generation packet-based voice network The greatest advantage of soft switch based NGN is that it can introduce some exciting new value-added services rapidly and economically during the provisioning of the normal services. Soft switch only provides some basic and supplementary services, whereas processing the value-added services has been moved out from the soft switch. Application server can provide the environments for deploying VAS rapidly and economically, and various kinds of programming interfaces (API), such as JTAPI, JAIN, Parlay, CPL, CGI, Servlet and so on. These interfaces are open and flexible, and enable establishing, managing and deploying new services without updating or renovating soft © VAS CHINA Project [FP6-2004-IST-3-015774] 23
  • 23. Summary Report switch equipments. This can reduce the cycle and expenses for deploying the new services. 3.3.3 The Influence of 3G Technology Being able to provide various mobile multimedia services is one important feature of 3G mobile network systems. The technical breakthrough may stimulate greatly the development of mobile VAS in China, and following services become possible. Mobile location based services Many location orientated services can be provided, such as navigation, measurement, first aiding, vehicle scheduling, guarding against theft and robbing, city planning, tourist guidance and so on. Since the data transmission rate increases greatly in a 3G system, the location based services will play an important role in 3G networks. Video telephony and video conference Video telephone will become more and more popular in 3G networks, where the network bandwidth can be guaranteed. Especially with the development of coding technique and the introduction of IP technique, the cost of the network operators for video telephony based on IP can decrease. This may promote the popularization of video telephony and video conference services. Mobile business Mobile business is another hotspot of VAS in 3G networks. Users can obtain, process and send information at anytime and everywhere. The trading based on the closed mobile networks may be more safe and reliable than that based on the open Internet system. Mobile business uses the mobile network operators with good reputation as the medium; this solves the reputation crisis problem in the current Internet. Moreover, it is allowed to use multiple ways such as voice, SMS, WAP for trading, and the mobile business becomes more convenient and flexible. Hence, mobile business is a launch point for the development of E-business, and the 3G networks provide a platform for the mobile business. 3.3.4 The Influence of Terminal Technology The development of different kinds of terminals provides conditions and possibilities for enriching value-added services. Especially the improvement in encapsulation, displaying, and CPU processing speed etc., has made it possible for enjoying VAS using mobile multimedia terminals. © VAS CHINA Project [FP6-2004-IST-3-015774 24
  • 24. Summary Report 3.4 Conclusion In general, China possesses a suitable environment for the development of mobile VAS. The continuous increase in economic in China provides a necessary precondition for the development of mobile VAS. A large amount of potential users and requirement on diverse mobile VAS can be expected. In addition, the telecommunication laws and regulations in China can guarantee also the normal operation of mobile VAS and the rational market competition. Furthermore, the technical progress in China provides the basis and possibility for the introduction of mobile VAS. The network infrastructure and platform needed by various mobile VAS can be realized and provided. © VAS CHINA Project [FP6-2004-IST-3-015774] 25
  • 25. Summary Report 4 Mobile VAS Value Chain The value chain for value-added services consists of • content providers (CPs), • service providers (SPs), • device manufacturers, • mobile operators, • infrastructure providers, • end users, i.e. customers • Ministry of Information Industry. Strictly seen, MII is not a part of the value chain. However, in China, MII plays a very important role in the whole information industry and influences each entity in the VAS value chain heavily through stipulating regulations and laws. On the one hand, MII ensures the fair developing environment for the value chain. On the other hand, each entity in the value chain should abide the regulations stipulated by MII. They choose standards and technologies used in networks, e.g. 3G (Third Generation) standard, or alternatively may develop new standards when they see that it is good for Chinese economy. In particular, MII provides the regulations to get a mobile VAS License. They also control the domestic VAS economy through these fixed-term licenses. For local services (e.g. City of Shanghai) it is necessary to get the license from the local telecoms administration. Equipment manufacturers are in a key role to bring new technologies on board. They initiate trials for new services together with operators and sell terminals to end users. Operators do not lock their SIM (Subscriber Identity Module) cards to mobile phones and consumers are free to choose any phone they desire. Current market shares for terminal manufacturers are Nokia (15,5 %), Bird (11 %), Motorola (10,8 %) and Samsung on the fourth place. Operators provide voice and data services, portals and micro payment mechanisms for VAS. They control content and services provided by the service providers, according to MII and government regulations. e.g. prevent the distribution of ”harmful” and ”politically incorrect” information including erotic content. They also have a strong role in initiating trials and inviting SPs to join into providing new services. It seems that operators are interested to have a greater role in service providing. The mobile operator market is divided between two companies, China Unicom (40%) and China Mobile (60%). China Unicom is focusing on CDMA technologies and offers a service platform based on BREW from Qualcomm. Their revenue sharing model is 80% for the SP and 20% for the operator © VAS CHINA Project [FP6-2004-IST-3-015774 26
  • 26. Summary Report China Mobile is using GSM (Global System for Mobile Communications) technology and offers the Monternet portal based on a Java platform from Motorola. China Mobile is commanding 85% for the SP and 15% for the operator. The role of service providers is to provide content for operators. They are strictly controlled to comply with MII regulations and need licenses to operate. Market share figures for SPs is difficult to come by, but Sina, Sohu, Tencent and Tom Online are major players. Currently, more than 70% of the service providers operate on loss. Third party content providers are quite rare at the moment, as service providers and operators provide their own content. Some big global companies such as Sony Music, Disney and AOL are providing content for the Chinese market. The figure below describes business actors and their interaction in mobile service arena. Figure 4 VAS value chain members and relationships Revenue sharing models are due to change in the future as operators are going to provide marketing on behalf of SPs. They might also be trying to diminish the role of SPs by locking content into their own service mechanisms. © VAS CHINA Project [FP6-2004-IST-3-015774] 27
  • 27. Summary Report The following diagrams compare the Japanese I-Mode from Docomo to China Mobile’s Monternet offering. Figure 5 I-Mode value chain Figure 6 Monternet value chain © VAS CHINA Project [FP6-2004-IST-3-015774 28
  • 28. Summary Report The above figure 4 indicates that: • The mobile network operators are the core in the value chain • Equipment manufacturers and Integrators are the upriver participants in the value chain. They provide the network environment together with the operators. • CP→SP→Operator→End User is the value fulfillment process. • Network operators, SPs and terminal manufacturers are facing end users directly. • Customization of the terminals is an emerging tendency. Hence, there exists links among terminal providers, network operators and end users. Generally speaking, the efficient cooperation between various participants is the key factor to form a healthy value chain. Moreover, the cooperation and competition coexist between the participants of the value chain. In the following, we will analyze the entities in the value chain in detail. 4.1 Mobile Network Operators Under the current Chinese circumstances, the mobile network operators, as an entity in the value chain, have the following features. Operators are cores in the value chain On the one hand, operators possess network infrastructure and large customer resources. On the other hand, SPs can only provide services to end users through the network infrastructures owned by the operators. These two facts make the mobile network operators have absolute advantages in the value chain. However, this means also that the operators must be responsible for maintaining a good and healthy value chain. Operators have taken actions to enhance the management for SPs For the first several years when VAS began to develop, SPs have developed rapidly. Both the number of SPs and the services they provide increase very fast. However, the management from the mobile operators is relatively mild at this period. Driven by profits, some SPs have taken some actions violating the regulations and even the law. As a result, the operators’ reputation was affected too. Having noticed this phenomenon and to keep the value chain in good condition, MII, together with China Mobile and China Unicom, began to take measures to supervise SPs severely. The relationship between mobile operators and SPs have changed from cooperation to cooperation and competition In the early phase of VAS development, mobile operators encouraged SPs eagerly to develop VAS for the consideration of profit and market share. Operators and SPs cooperated happily with each other. Operators charge for © VAS CHINA Project [FP6-2004-IST-3-015774] 29
  • 29. Summary Report network flow fee, while SPs for service fee. Gradually, the operators realized that SPs have more profit space. They are not satisfied with the profit sharing mode anymore. Therefore mobile operators begin to act in SP’s role themselves. For example, China Mobile has set up a corporation called “ZHUOWANG”, which is an SP actually. Thus, operators and SPs become competitors. However, we should note that operators can not do everything. SPs will not be died out. Therefore, in the future the cooperation and competition between SPs and operators will coexist. The cooperation between operators and equipment manufacturers and terminal manufacturers will be even tighter The development of VAS depends on perfect network environment and terminals to some degree. Especially in the 3G mobile network environment, mobile network operators and equipment as well as terminal manufacturers will be bound together. On the one hand, operators can feed back information to the equipment manufacturers and terminal manufacturers. On the other hand, facility and terminal manufactures should provide new technology and possible VAS in time to operators. In a word, they should communicate sufficiently and contribute to value chain together. Operators begin to pay attention to enterprise applications Having some success and experiences in developing VAS for individual applications, China Mobile and China Unicom have both realized the importance for cooperating with enterprises. They both begin to develop VAS for enterprise applications. With the development of the communication industry and market, China communication industry was reformed and reconstructed at the beginning of 2000. As a result, China Mobile was split from the former China Telecommunication, and the former China Telecommunication (China Telecom) was reconstructed to the current China Telecommunication and China NetCommunication (China Netcom). On July 1994, the United Telecommunications Corporation (China Unicom) was established. Together with China Satellite Communication Corporation and China Railway Communication Corporation, now they represent the major network operators in China. Since China Mobile concentrates its business on mobile communications, and China Unicom has a big competition capability in both the mobile and fixed network market, in the following we introduce China Mobile and China Unicom in detail. 4.1.1 China Mobile Communications Corporation China Mobile Communications Corporation (China Mobile or CMCC for short) (http://www.chinamobile.com/) was officially founded on April 20th, 2000 and is directly under the leadership of the central government. It is a key state- © VAS CHINA Project [FP6-2004-IST-3-015774 30
  • 30. Summary Report owned enterprise focusing on mobile business, and is now the largest mobile network operator in China. CMCC has a registered capital of 51.8 billion RMB Yuan, assets of over 320 billion RMB Yuan and 120,800 employees. It has wholly-owned subsidiaries in 10 provinces/autonomous regions in China and fully holds the equity of China Mobile (HK) Group Limited. China Mobile (HK) Limited, of which China Mobile (HK) Group Limited is the major shareholder, has established wholly-owned subsidiaries in 21 provinces/autonomous regions and municipalities directly under the central government in China and went public in HK and New York Stock Exchanges. CMCC is the only network operators focusing on the development of mobile communications. It plays a dominant role in the development of Chinese mobile communication, and has an important position in the international mobile communication area. After the construction and development of more than 10 years, CMCC has established a comprehensive communication network with wide coverage, high communication quality, various service types and high level services. The network scale and the customer number are in the first position in the world. Till the end of 2002, the network has covered most of the cities and regions in China. All the main traffic lines have been covered, and indoor coverage has been realized in the major areas of cities. The GSM exchange capacity has reached 182 million, and the total user number is over 138 million. Roaming service has been realized. CMCC deals mainly in mobile voice, data, IP telephone and multimedia service. It has also the right to operate Internet services and possesses the international gateways. Beside the basic voice services, it provides multiple value-added services such as fax, data, IP telephone etc. CMCC has succeeded in shaping nation-wide famous brands like "GoTone", "Shenzhouxing" and "M-Zone". "GoTone" has gained a massive occupying ratio among the high-value customers for the superior value of service, while innovative brands like "M- Zone" are welcome in the Fun-Love-Youth group. The network access numbers of CMCC are 139, 138, 137, 136 and 135. Being a large enterprise, the organization of CMCC is depicted in fig. 7. Among those departments, the Data Service Department is responsible for the operation and development of the value added services. Fig. 8 shows the architecture of the data service department. As indicated by the name, the Service Operating Department is in charge of introducing, managing and coordinating value-added services. Especially, the Cooperation and Management Group as well as the Portal Operating Group have close relationship with SPs. The former is responsible for the cooperation and management of the SPs, the evaluation of services of the “DreamNet”, as well as the service, customer and product supporting, VAS market etc. And the © VAS CHINA Project [FP6-2004-IST-3-015774] 31
  • 31. Summary Report latter organizes and manages portals, new services, as well as supervises the quality of the services, integrates and optimizes the services. Figure 7 Departments of CMCC Currently, value-added voice services like "E-tone On-line" saw positive results at trial spots. Data services maintained a robust growth momentum, accounting for 6.3% in total sales revenue, an increase of 4.1 percent points over last year. The SMS traffic hit 79.3 billion transactions throughout the year (2004), 8.45 times that of last year. The International SMS has commenced and the initiative launch of MMS service promoted and enriched the application of GPRS. The data-bundled services targeting at young people, businessmen and group clients have been widely recognized and welcomed. © VAS CHINA Project [FP6-2004-IST-3-015774 32
  • 32. Summary Report Data Service Dept. New Product Center Service Operating Sale Planning Group Customer Dept. Dept. Dept. Service Management Cooperation Portal Operating Terminal Group Management Group. Group Cooperating Group Figure 8 Organization of the CMCC data service department 4.1.2 China United Telecommunications Corporation China United Telecommunications Corporation (China Unicom or CU for short) (http://www.chinaunicom.com.cn/chinaunicom/) was established on July 19, 1994. The birth of China Unicom brought competition into China's telecommunication market and has been instrumental to the reform and development of the country's telecom industry. Unlike China Mobile, China Unicom not only concentrates on mobile services, but also possesses fixed network and services. Nevertheless, it is the second largest mobile network operator in China. On May 10, 2004, China Unicom announced that the total number of its GSM and CDMA subscribers exceeded 100 million, and thus it became the world's 3rd largest GSM operator and the 2nd largest CDMA operator. Fig.9 illustrates the organization of China Unicom. Dissimilar with China Mobile, where VAS administratively belongs to the data service, China Unicom has a separate VAS department, that is responsible for all things related to value-added services, such as the development of data network, Internet and E- business, the development of VAS market, sale planning etc. The VAS Department is also responsible for the management of SPs. It constitutes rules for the cooperation with SPs, improving and adjusting the cooperation mode with SPs. SPs must hand in service applications, and the applications must be approved by the VAS Department before the services can be operated in the networks. © VAS CHINA Project [FP6-2004-IST-3-015774] 33
  • 33. Summary Report So far China Unicom has cooperations with a lot of SPs and has already provided a large amount of VAS to users, such as Prepaid Call, Mobile VoIP, Voice SMS, Super SMS, Unicom Secretary, Mobile Pager, Mobile Stock Trading, Mobile Banking, etc. Its wireless Internet service brand "Uni-Info" provides a wide range of wireless VAS such as hot news, weather forecast, stock info, foreign exchange rates, railway schedule and flight schedule. Multiple access modes are available under "Uni-Info". Mobile phone users can not only get on- demand service and customize service, but also access the Internet where shopping, entertainment, sports, video and financial info are available. Moreover, China Unicom keeps introducing new features such as "10158 Voice SMS", which gives users not used to writing short messages an alternative of saying and hearing short messages. Leveraging its integrated service capability China Unicom enables mobile subscribers to receive and send Emails via their mobile phones without accessing the Internet. This is achieved by linking mobile phone numbers to Email boxes. The company's new "OTA- STK" service further satisfies SMS application demands among its users. DIRECTORATE BOARD OF SUPERVISORS PRESIDENT VICE PRESIDENT GENERAL BUSINESS PLANNING MOBILE TELECOMMUNICATION DATA & IMMOBILITY CUCC AFFAIRS DEPT. DEVELOPMENT DEPT. FINANCE DEPT. SERVICE DEPT. TELECOMMUNICATION SERVICE DEPT. COLLEGE HUMAN BUSINESS & GROUP COSTOMER VAS INFRASTRUCTURE CHARGE, SETTLEMENT & RESOURCES DEPT. MARKETING DEPT. CUSTOMER DEPT. SERVICE DEPT. DEPT NETWORK DEPT. INFORMATION SYSTEM DEPT. TECHNOLOGY DEPT./CUCC RUN SUPERVISING INTERCONNECTION AUDIT PARTY & THE MASSES SUPERVISING LABOR RESEARCH ACADEME DEPT. DEPT. DEPT. WORKING DEPT. OFFICE UNION EACH BRANCH EACH SUBSIDIARY COMPANY COMPANY Figure 9 Organization of China Unicom 4.2 Service Providers and Content Providers With the development of technologies and the increase of market demands, the service and content providers (SPs/CPs) play a more and more important role in the telecommunication industry. They have become a separate entity in © VAS CHINA Project [FP6-2004-IST-3-015774 34
  • 34. Summary Report the telecommunication industry chain. In general, SPs or CPs belonging to the basic telecommunication operators have much more convenience than other SPs/CPs. They have advantages in the VAS market competition and can get the high-end users in the user group, such as the InterStar of China Telecom, JiuZhou Online/Everyday Online of China Netcom, Monternet of China Mobile and Unicom Online of China Unicom. Whereas other SPs/CPs can only obtain the markets given up by the SPs/CPs belonging to the basic network operators. The following sections describe the features of SPs and CPs currently in the VAS value chain in China. SPs are under strict supervision Compared with the earlier phase for VAS development, nowadays, SPs are under severe supervision. SPs are punished for several reasons, such as disobeying the regulations, providing unhealthy information, vague charges, setting SMS traps etc. In addition, the admittance threshold is heightened. SPs will face new challenges from the market The market and regulation environments for SPs are changing quickly. Some small SPs will be washed out of the market or bought by big ones; some SPs will become CPs. Providing inimitable services becomes more and more important for SPs to survive in the market competition.. CPs may play a more and more important role in the value chain in future. So far, one of the biggest problems of the value chain is the lack of CPs. In the current VAS market, SPs play both APs' and CPs' roles actually, i.e., SPs develop and provide both application services and content services by themselves. CPs belong to SPs and have lost their positions in the value chain. As the development of content becomes harder and harder CPs will play a more and more important role in the value chain in the near future. In the following, we introduce some SPs/CPs that have a relatively great competition capability in today’s mobile VAS market in China. 4.2.1 SINA Corporation SINA Corporation (NASDAQ: SINA) (http://corp.sina.com.cn/eng/sina_intr_eng.htm and http://corp.sina.com.cn/eng/sina_prod_4_eng.htm) is one of the leading online media company and value-added information service (VAS) providers for China and Chinese communities worldwide and has more than one hundred million registered users. With the most recognized Internet brand in China, SINA has established a network of localized Web sites that target China and overseas Chinese communities. © VAS CHINA Project [FP6-2004-IST-3-015774] 35
  • 35. Summary Report The company has close to 2,000 employees in its offices in six cities throughout Asia and the U.S. and maintains a network of four localized Web sites. On December 31, 2004 SINA generated annual net revenue of $200.0 million. SINA.com is an online media and entertainment service provider. SINA.com is committed to becoming an all-in-one online community for the global Chinese population. As the leading Internet brand name in China and global Chinese communities, SINA.com offers a full range of comprehensive and on time Chinese-language content, multi-functional and easy-to-use web space and cutting-edge ways of enabling free and easy communications worldwide. By cooperating with about 600 content providers, SINA operates over 30 channels on its localized websites across China. SINA.com's all-round and timing news coverage includes breaking news, sports and games, entertainment and fashion, and financial and IT information. SINA generates revenues from five major business lines: SINA.com (online news and content), SINA Mobile (mobile value-added services), SINA Online (community-based services and games), SINA.net (search and enterprise services) and SINA E-Commerce (online shopping and travel). Together these units provide an array of services, which include regionally focused online portals, mobile value-added services, search and directory, interest-based and community-building channels, free and premium email, online games, virtual ISP, classified listings, fee-based services, e-commerce, and enterprise e- solutions. SINA Mobile SINA Mobile emerged in early 2002 as another major business line of SINA by integrating the advantageous resources of the former SINA Wireless, Memestar, Crillion and StarVi. As a leading mobile VAS provider in China, SINA Mobile provides over various platforms services including SMS, MMS, Coloring Ringing Tone (CRT), IVR, WAP and KJAVA/BREW. Its products range from subscription to dating, gaming and download. The contents are provided by famous brands such as Time Warner, BANDAI, HELLO KITTY and WALKGAME. SINA mobile's partners include the major domestic telecommunication operators, such as China Mobile, China Unicom, China Telecom and China Netcom. With SINA's deep experience in product planning and development, sales, marketing and partnership, the newly remolded SINA Mobile tracks closely the development of the mobile VAS industry in China and provides Chinese mobile phone users with the best value-added content service. SMS Products of SINA SMS are divided amongst subscription, dating, games, downloads and Internet SMS. The flagships are Splendid Downloads, Friends and Headline News. As the leader of mobile VAS SP in China, SINA SMS builds © VAS CHINA Project [FP6-2004-IST-3-015774 36
  • 36. Summary Report upon its strong content resources, as well as partnerships with numerous CPs both home and abroad, to offer the most exciting SMS services to users. MMS In addition to various MMS products, SINA MMS boasts the largest MMS downloading library in China. The downloading library offers exclusive products including the cartoons of Hello Kitty, Kitten Dream, PUCCA, Zhu Deyong and Jimmy, as well as photos and voices of celebrities such as A-Mei, Ren Hsien Chi, Chow Wah Kin, Yu Quan, Zhang Ziyi. There are over 20 customized services ranging from news to entertainment. CRT (Coloring Ringing Tone) SINA CRT is composed of three parts: songs, funny dialogues and special sounds. For the songs, SINA has obtained copyrights from big music houses such as Warner International, Zhushufang Culture, Star Factory, Kirin Kid, providing access to downloading pop stars' songs. Funny dialogues are popular for its Northeast Dialect and Sichuan Dialect series and Stephen Chow's recognized dubbing voice by Shi Banyu. IVR SINA Mobile provides two kinds of IVR services, Voice Message Interactive and Entertainment Voice Online. Centering on voice content service, SINA IVR provides mobile phone users with a voice information VAS platform integrating voice and SMS. Based on users' demand, SINA IVR sets up a three-tier product system, offering content that includes chatting and dating, news information, interactive games, etc. Products already introduced to the market include Entertainment Scenery, Love Bible, SINA News, Binfen Blessing Zone, etc. WAP SINA WAP offers a full range of information services on its wireless terminal platform with sophisticated design and plan in user experience, product classification and interactive feedback. Based on the design of China Mobile's Monternet services SINA WAP provides compatible products and services in Graphics & Ringing Tones, Chatting & Dating, Fashion & Life, Games & Entertainment, etc. KJAVA/BREW The spread of smartphones in China has enabled the development of KJAVA/BREW technologies. SINA's KJAVA/BREW platform offers SINA Netizens with improved users experience in products such as combat games, puzzles, sports games, poker and chess games. Currently, SINA's K-Java game products are an important part of China Mobile's K-Java mobile product line. SINA's KJAVA/BREW platform also offers products in foreign language tips, Karaoke, entertainment and cartoons. © VAS CHINA Project [FP6-2004-IST-3-015774] 37
  • 37. Summary Report 4.2.2 SOHU Corporation SOHU.COM (NASDAQ: SOHU) (http://www.sohu.com/about/English/aboutsohu.htm and http://www.sohu.com/about/English/proandser.htm) is one of the China's premier online brand and indispensable to the daily life of millions of Chinese who use the portal network for their news, search, e-mail, wireless messaging, instant messaging, browsing, games and shopping. SOHU has built one of the most comprehensive matrixes of web properties in China, consisting of the mass portal and leading online media destination www.sohu.com; the No.1 online alumni club www.chinaren.com; No.1 games portal www.17173.com; top real estate website www.focus.cn and wireless value-added services provider www.goodfeel.com.cn. This network of web properties offers the vast SOHU user community the broadest possible choices regarding information, entertainment, communication and commerce. SOHU.com, established by Dr. Charles Zhang, one of China's Internet pioneers, is in its eighth year of operation. SOHU.COM has been listed on the NASDAQ national market since July 2000 under the ticker symbol SOHU. SOHU products & services Through its pioneering roll-out of wireless services since 2000, SOHU has become a frontrunner in making the Internet ubiquitously available, whether in the office, at home or on the road. Via SOHU wireless messaging services subscribers can receive the latest news, download logos and ringing tones, access their email account, stay in touch with friends and fellow alumni, get dates, play games, or sign up for a host of other information, entertainment and communication applications that have made the mobile phone an essential tool in young people's daily lifestyle. SOHU offers mobile services on SMS (short messaging services), MMS (Multi-media Messaging Services), WAP (Wireless Application Protocol), K-Java based platforms and IVR (Interactive Voice Response). In May 2004 SOHU acquired Beijing G. Feel Technology Co., Ltd. (‘Goodfeel'), a leading Chinese provider of value-added mobile data services for Wireless Applications Protocol (WAP) . WAP is a rapidly growing area in the Chinese wireless data market. Goodfeel, a Beijing-based WAP service provider, offers WAP services via CMCC throughout China. CMCC allows subscribers Internet browsing on their mobile phones through a quick and convenient ‘One Key Access' Monternet platform. Goodfeel is one of the leading WAP service providers to CMCC, with its main product being ringing tone and picture logos. Goodfeel enjoys preferential menu placement positioning on this Monternet platform, a key competitive advantage relative to other service providers. In a joint branding promotional campaign in May 2003, SOHU.COM teamed up with CMCC and Motorola Inc. to jointly introduce short messaging and multimedia messaging services at the Mount Everest, where some twenty international teams had gathered to commemorate the first human conquest of the world's highest mountain half a century ago. © VAS CHINA Project [FP6-2004-IST-3-015774 38
  • 38. Summary Report 4.2.3 TOM Online Inc. TOM Online Inc. (Hong Kong GEM stock code: 8282, NASDAQ stock symbol: TOMO) (http://ir.tom.com/en/index.html and http://ir.tom.com/en/ps.html ) is one of the leading mobile Internet companies in China, the flagship portal www.tom.com was launched in July 2000 and has become one of the most popular portals in China. www.tom.com offers a complete suite of services for today's young and trendy audience, including news, free e-mail, chat rooms, and a wide range of infotainment covering sports, entertainment, technology, finance, health and beauty and so on. www.tom.com is also the platform upon which they deliver core services such as mobile VAS and online advertising. TOM began offering wireless data services in 2001 and soon became the most popular source and one of the biggest SPs for young and trendy users to connect, interact and share experience. TOM`s offerings include SMS, MMS, WAP and Java services, through which infotainment content such as news headlines, sports information, daily horoscopes, games, ring tones, wallpaper downloads and dating services are provided. TOM were one of the first players in this market to provide wireless interactive voice response (IVR) services and are now the biggest IVR provider in terms of market share (as of December 31, 2003) offering on-demand infotainment, one-on-one dating communications and chat rooms. The SMS service includes ringing tone and wallpaper downloads, greeting messages, daily top line news, weather report, info-on-demand and dating. And the MMS service includes polyphonic /true-tone ringing tone downloads, special tone downloads, animated messages, color picture messages, graphical infotainment, picture news and DIY. The WAP includes ringing tone downloads, games, news, horoscope, jokes, and cartoon download. And the IVR service now includes one-on-one dating, chat rooms, music and info-on- demand in voice format. TOM Online acquired interests in Wu Ji Network, the leading IVR service provider in China, on November 19, 2003 and became one of the first players in China to provide wireless IVR services. The synergies between the wire VAS business of TOM Online and Wu Ji Network's wireless IVR services business strengthen the position of TOM Online as a leading provider of value-added multimedia products and services. In addition, because both TOM Online and Wu Ji Network target similar users, they are able to create synergies by cross- selling wireless data services and Wu Ji Network's wireless IVR services to expand the user base for both of these services. As a summary, TOM was, in terms of revenues on CMCC’s platform: • No. 1 in IVR for the month of December 2003 • No. 2 in MMS for the month of December 2003 and WAP for the month of January 2004 • No. 3 in SMS for the month of December 2003 © VAS CHINA Project [FP6-2004-IST-3-015774] 39
  • 39. Summary Report 4.2.4 NetEase Guangzhou NetEase (http://corp.163.com/eng/about/overview.html and http://corp.163.com/eng/wireless/overview.html) established in May 1997. NetEase.com Inc. went public on NASDAQ in June 2000. Through its subsidiaries and contracts with its affiliates, NetEase operates a leading interactive online and wireless community in China and is a major provider of Chinese language content and services through its online games, mobile VAS and Internet portal businesses. As of June 30, 2004, NetEase had approximately 232 million accumulated registered accounts, and average daily page views for the month ended September 30, 2004 exceeded 264 million. NetEase generate revenues from fees. NetEase charge users of its online games and mobile VAS and other fee-based premium services, as well as from selling online advertisements on the NetEase Web sites. Basic service offerings are also available on the NetEase Web sites without charge to its users. NetEase Wireless Through arrangements with the two principal mobile network operators in China, China Mobile and China Unicom, NetEase offers a wide range of services which allow users, for example, to receive news and other information such as stock quotes and e-mails, download ringing tones and logos for their mobile phones and participate in matchmaking communities and interactive games. Combining contents from NetEase Internet portal (both user-generated and from NetEase content partners) with the applications, NetEase have developed in-house. The wireless business department strives to offer services that are responsive to users’ changing tastes and needs, as well as leverage the core services of the Internet portal. Currently, most of the mobile value-added services are provided to users in the form of SMS. On December 31, 2003, NetEase had more than 33 million registered SMS accounts. The NetEase SMS services can be generally classified into four main categories, namely, news and information subscription services, interactive and community services, Internet-related services and media downloading services. In addition to SMS offerings, a small but increasing portion of mobile services includes MMS, IVRS, and WAP. Users can access these advanced services with mobile phones that utilize the new GPRS or CDMA 1X technology standards. NetEase intends to continue to develop and introduce higher-end and more sophisticated mobile VAS, as these new technologies become more widely available and accepted. © VAS CHINA Project [FP6-2004-IST-3-015774 40
  • 40. Summary Report 4.2.5 Tencent Tencent (http://www.tencent.com/about/about_e.shtml) is one of the first Internet Instant Messaging (IM) software developers in China, and a leading provider for Internet and mobile value-added services with a focus on IM and related value-added services. Tencent was founded in November 1998 in Shenzhen. In February 1999, Tencent launched its first IM software - Tencent QQ. On June 16, 2004, Tencent Holdings Limited (SEHK: 700) successfully listed on the main board of Hong Kong Stock Exchange. Over the past six years, Tencent strived to pursue technological advancement, maintaining a steady high growth in users. The vast community of Tencent QQ users demonstrates Tencent's technology strength in operating massive online application systems and IM-related applications. As a leading Internet company and award-winning SP in China, Tencent integrates IM across different platforms such as Internet, mobile and fixed networks to cater for the communication needs of users. Users can communicate in real time with each other via the IM platform with their PCs, mobiles and fixed phones as well as various terminal devices. Not only can users communicate via texts , images, audio, video, and email, but they also have access to various Internet services and mobile VAS designed to enhance community experience, including mobile games, dating, content downloads and other entertainment services. Tencent develops its business in three strategic directions, i.e. consumer IM, enterprise IM and Infotainment. They are heading to realize their vision "To become a top Internet enterprise". 4.2.6 Linktone Founded in October 1999, Linktone (http://61.129.68.130/company/aboutus_en/overview/overview.html) has emerged as a leader in China's fast-growing wireless services sector. By developing a wide range of attractive content and applications for the paying end users, and by establishing nearly nationwide coverage through China's mobile operators, China Mobile and China Unicom, Linktone has enjoyed substantial, sustained growth in its user base and revenues. Linktone's current focus on SMS allows potential access to virtually all of China's 185 million GSM subscribers. Linktone's consumer services focus on entertainment, messaging and personalized information. Linktone has also established itself as a provider of innovative enterprise solutions. In May of 2002, Linktone partnered with McDonald's Corporation © VAS CHINA Project [FP6-2004-IST-3-015774] 41
  • 41. Summary Report (China) to launch a first of its kind, nationwide SMS promotion for the 2002 World Cup Tournament in Japan and Korea. Linktone has also worked to promote feature films, television programs, major entertainment events, and consumer goods. A high-quality content and application offering that suits the tastes of the China wireless market, a fanatical devotion to excellence in service to both consumers and enterprise partners, and willingness to pursue synergies with customers and would-be competitors, have helped Linktone to secure a position as a preferred content provider for the two major mobile network operators. 4.2.7 Mtone Wireless Mtone Wireless (http://www.mtone.com/Services.htm) is one of the leading developers and providers of mobile interactive entertainment and social networking and other value-added services to mobile phone users throughout China. They foster long-term customer loyalty by emphasizing subscription- based services allowing customers to socialize, communicate, compete, role- play and develop relationships with each other within the context of their services. Their services are offered nationwide and cover over 200 cities in China. Their sales operations cover most of China. They have customer service in 26 provinces, and their excellent customer service has won it the No. 1 ranking from multiple top provincial mobile bureaus in China. The company has been an innovator and pioneer in the market. It was the first to provide wireless data information services in China in 1998. It was the first to offer commercial wireless mobile stock trading worldwide in mid 1998. Their customer base is primarily those in their late teens and young adults. In addition to its own service applications, Mtone works with other content providers to allow these partners to distribute their content using the broad coverage, countrywide customer service, billing capability, marketing knowledge of local provinces. The company has developed content for delivery via SMS, MMS, WAP and KJava to the largest cellular phone market in the world. With the advancement of handset capability to support video, 3D graphics, MP3 audio, color screens, more memory and processing power, Mtone with its experience in developing large data communications systems is well positioned to provide the next generation of highly sophisticated integrated services. © VAS CHINA Project [FP6-2004-IST-3-015774 42
  • 42. Summary Report 4.2.8 KongZhong Corporation KongZhong Corporation (Nasdaq: KONG) (http://www.kongzhong.com/aboutus/) is a leading provider of advanced second generation (2.5G) wireless value-added services in China. To provide customer-oriented services, instant information and convenient communication are the main concerns of KongZhong. As the strategic partner of China Mobile who has the largest mobile subscriber base in the world, KongZhong has gained the leading position in terms of revenues of WAP, MMS and JAVA. KongZhong delivers a broad range of services in three major categories, consisting of Interactive Entertainment, Media and Community which are warmly welcomed by users who in turn lead others to use the services of KongZhong. The strategic relationships with China Mobile, China Unicom, China Telecom and China Netcom guarantee KongZhong to provide various mobile VAS to over 300 million mobile phone customers and 300 million fixed-line phone users. KongZhong has established strategic relationships not only with mobile operators but also with handset manufactures. Headquartered in Beijing, KongZhong is now growing to a company with total employment of over 500 people in its different departments such as Tech Department, Media/Community Product Department, Entertainment Product Department, Business Development Department, Marketing Department, Network and Billing Center. Gathering experts and talents from all around the world, KongZhong is now on the way to an international enterprise under the lead by an experienced management team represented by Yunfan Zhou, the Chairman and CEO, and Nick Yang, the President. KongZhong Products & Services Interactive Entertainment: Rich content & Trendsetter KongZhong has established strategic partnerships with the leading wireless content providers such as Japan's Index and Korea's Olarks. They also entered agreements with many prominent international mobile game providers including Japan's Namco Limited, France's Gameloft and Britain's Macrospace. Representatives are China Treasure Hunting. On November 12th, 2004, the concurrent online players of the game exceeded 1000 persons, up to 1017, which is the first online mobile game exceeding 1000 players in China. Ringing tones and Pictures KongZhong has signed agreements with both domestic and international record companies including the world top five record tycoons to be able to use the music in their company's products. Representatives include True-tone CD and Colour Dreamwork, the biggest download center on the Monternet platform. © VAS CHINA Project [FP6-2004-IST-3-015774] 43
  • 43. Summary Report CRT KongZhong has signed agreements with record companies to get the authorization to use music in their products. At the same time, they also develop new products featured in its funny contents, special sound effects, dialogues from films and the like. Mobile Media KongZhong Media -- New reading experience on mobile phones After the traditional media such as newspapers, broadcasting stations, radios, television and internet, a new kind of media came to birth. This one is to deliver information through mobile handsets therefore is called Mobile Media. In January 2004, Kong published its mobile media brand KongZhong Media, which is based on 2.5G technology platforms and aims to provide all kinds of information including news, entertainment services, stocks and bonds information, military and literature events, sports and fashion news. • In August 2004, KongZhong Media successfully broadcasted the Athens 2004 Olympic Games to domestic mobile users. • On October 12, 2004, KongZhong Media issued Motorola V3 Launch, China's first commercial advertisement published through mobile phones to domestic users. • On November 26, 2004, more than 0.2 million people have visited KongZhong Media's news center. • On December 17 and 18, 2004, KongZhong Media broadcasted Kungfu's premiere through mobile phones, which was the first to give a live broadcasting to mobile phone users. Community: Mobile Users'Paradise City Night: the first WAP community service featured in its real-life background is a warmly welcomed community which has the largest subscriber and player base in the Monternet platform. With more than 1.5 million people who have registered, City Night provides players an environment to do everything as in real life such as working, making money, chat, shopping, buying stocks, study and dating. Romantic Dating: Registered users communicate through WAP, MMS, SMS and the like. Up to now, there have been 800 thousand customers who have enjoyed the services to make friends all around the country. School Lovers: Players can engage in the campus-oriented activities, which brings you back the simple but sweet school life and gives you a chance to experience it again. 4.3 Equipment Manufacturers and Terminal Manufacturers Equipment manufacturers and terminal manufacturers play a basic role in the value chain. In order to meet the demand of VAS development timely, equipment manufacturers and terminal manufacturers must predominate advanced technologies. Equipment manufacturers should set up a perfect network environment together with operators. Terminal manufacturers should © VAS CHINA Project [FP6-2004-IST-3-015774 44
  • 44. Summary Report response to the market requirements in time and provide customized mobile terminals. In order to keep a healthy and harmony development, each entity in the value chain should develop balanced. If any one develops too fast or too slowly, the whole value chain will not work smoothly. This is especially important for equipment manufacturers and terminal manufacturers. 4.4 End Users As the last part of the value chain, end users are the key factor for the existence of the value chain. End users can be divided into personal customers and industry customers. Operators usually have many customer resources. It is important for operators to exploit end users' requirements. At the same time, SPs should also provide services that can best meet customers' needs in order to win the market. 4.4.1 End User Status and Market Requirements In the following sections we will analyze the end user status and market requirement of the five major mobile value-added services in China currently, namely SMS, MMS/Color E, CRBT (Colour Ring Back Tone), Mobile phone game and WAP. 4.4.1.1 SMS SMS service entered the market introducing phase in 1999 in China, and now it is in the mature development phase. Large market scale and long product life circle are the features of SMS service. Currently, positive factors influencing its development are: • The number of mobile users is still increasing at a high speed; • SMS user penetration rate is rising; • User’s ARPU will increase because of the enrichment of services; • The value chain of SMS service is relatively simple, SP’s revenue on SMS service is good; • Lots of terminals support SMS service now; • SMS service price is relatively low. However, there are several negative factors influencing the development of SMS, including: • The limited carrier capability; • Complex input method; • The transmit rate of content downloading from SP is high; • The protection of copyright is not very effective and this does harm the SP; © VAS CHINA Project [FP6-2004-IST-3-015774] 45
  • 45. Summary Report • The irregular conduct of industries and the short term behavior damages the image of the SP; • The decreasing price of mobile voice and PHS service is taking up some market share of SMS service. User characteristics The investigation shows mobile phone users who like to use SMS have the characteristics: • From the perspective of age, people who are 18 to 25 years old and 26 to 30 years old are the main users. These people represent 73% of the total SMS users. • From the perspective of education degree, mobile phone users of high educational level are main users. The share of bachelor and higher than bachelor is 56.6%. • From the perspective of income, people of middle income are the main users, whose incomes are more than 2,000 RMB Yuan per month. • From the perspective of occupation, all kinds of technologists and enterprise managers are the main SMS users. Therefore, people of middle income, high educated, and 18-30 years old are the main SMS users. This means also that young people are easier to accept newfangled things. Market requirements Through analyzing the Chinese mobile telecommunication market, we can see that most mobile phone users belong to middle or low-income users. Therefore, in the future, does SMS have enough development space? Will users add expense on SMS? From the investigation result in, 42.9 percent of users will spend 5-10 RMB Yuan more per month while 20.4 percent of users will spend 15-20 RMB Yuan more per month on SMS. Hence, we can have a conclusion that SMS has huge development space. Current circumstances Factors such as low price, supported by most terminals, and SP's more revenue from SMS etc. are primary factors, which will accelerate the development of SMS. However, there still some factors exist, such as limited capacity, inconvenient input, scarce of industry standard etc., which will hinder the development of SMS. For instance, when receiving and sending messages, users attach great importance to the accuracy and non-lost of information. Moreover, being able to send messages between different operators, such as between China Mobile and China Unicom, is also very important to users. But currently in several provinces, this cannot be achieved. This influences also the positivity of users for using the SMS service. In addition, users do not care much about the expense due to the low price of SMS. Fig. 10 illustrates the important factors influencing users to use SMS services. © VAS CHINA Project [FP6-2004-IST-3-015774 46
  • 46. Summary Report I m t ant f act or s i nf l uenci ng t he user s f or usi ng SM por S ser vi ce Expense 34% Sendi ng m essage bet ween 73% C na M l e and C na hi obi hi U com ni 86% I n t i m or not e 1 86% I nput i s conveni ent or not 91% I nf or m i on i s l ost or not at 92% Ver aci t y of cont ent 0% 20% 40% 60% 80% 100% Figure 10 Important factors influencing users for using SMS service 4.4.1.2 MMS Because of some limitations of SMS, such as only text transmission is possible, whereas ringing tone, pictures and cartoons downloading are impossible, MMS services emerge. MMS in China is still in the start-up phase, and the potential market is large. The main factors stimulating the development of MMS are as follows: • MMS has a similar customer behavior with, and user can accept it easily; • MMS is able to implement complex service and have a strong carrier capability; • The competition of mobile network operators enriched MMS service content; • MMS mobile phone is becoming more and more popular, and more and more mobile users can use MMS services © VAS CHINA Project [FP6-2004-IST-3-015774] 47
  • 47. Summary Report Currently, the negative factors influencing the development of MMS are: • MMS is relatively expensive, users’ demand of MMS is limited by price; • The terminal supporting MMS service is relatively expansive; • The difficulty of writing an MMS message limits the quantity of point to point messages sent. An investigation illustrates that 45.56 percent of the interviewees believe that MMS can remedy the gap of SMS. In addition, 91.11 percent of interviewees express that they want to try the function and services provided by MMS. User characteristics MMS users show the following characteristics: • High-end users of business are the earliest users. • Young users will become the main users. With more and more mobile phones supporting MMS coming into the market, young people, especially people less than 22 years old, like MMS better. They occupy 88% of the current MMS market. These people enjoy using multimedia messages for all kinds of reasons. The current MMS is oriented to this cluster of people. • Users whose incomes are less than 2,000 RMB Yuan have high interest in MMS. With the development of market, MMS will become more popular and widespread. Market requirement 80% of the Chinese mobile phone users are interested in the beautiful graphics representation and abundant information provided by MMS services. Current circumstances Whether the MMS market can develop rapidly or not lies on popularization degree of MMS mobile phones. Currently, among the users who own MMS mobile phones, only 15% of them are using MMS, whereas 85% of them are not. There are two reasons for this phenomenon. The first one is the lack of attractive contents and applications. And the second one is that most users have no experience of using MMS, they do not know the advantages of MMS. 4.4.1.3 Customized Ring Back Tone Service (CRBT) CRBT replaces the ordinary ring back tone by euphonious music or greeting. It is currently enjoyed by many people in China. CRBT service is also called Individualized Ringing Tone service. The market of CRBT service has been rapidly entered into the growing phase and its market is expanding rapidly. Positive factors influencing its development can be summarized as: • All types of mobile phones can use this service; • It can improve the value of ARPU, which meets the network operator's vision. • A high market penetration, and a high spreading speed; © VAS CHINA Project [FP6-2004-IST-3-015774 48
  • 48. Summary Report • CRBT meets the need of the young people, who chase after individualization and show themselves; However, there are also factors hindering the development of CRBT: • The copyright of music is one of the awkward factors faced by the CRBT service; • The competition among CPs/SPs is furious but the products they provide lack diversity; • Contents provided by the CRBT service need purified; • The service development mode is monotonic. User characteristics The main users of CRBT service have shown the following common characteristics: young, middle income and highly educated. Market requirement In 2004, the number of Chinese CRBT users reached 30 millions – 35 millions. This accounts for 10% of the total VAS users. Because of the huge CRBT market, the revenue is difficult to be estimated. At least, the revenue of operators achieve 0.2 billion RMB Yuan at the end of the year 2004. There are two reasons why CRBT service is so popular. First, the development of CRBT service is not limited by mobile phone terminals. CRBT service does not have much extra requirement on mobile terminals. Second, the spread of this service is voluntary and emanative. This service can be disseminated among users very quickly. In other word, the influence of this service is rapid and highly efficient. Current circumstances The current circumstances of CRBT service are: • First, the CRBT market requirement increases rapidly. It has been changed from the market import period to the market shaped period. • Second, the equipments of operators become a choke point, which blocks the development of CBRT service. • Third, all services provided by each tache in the VAS chain begin to contend with CRBT service. 4.4.1.4 Mobile Phone Game Service User characteristics There is a group of data from the famous mobile phone game web site http://game.joyes.com and other mobile phone game companies, which investigate mobile phone game users through questionnaires. Although these data cannot illustrate the true situation of all users, they are still representative. © VAS CHINA Project [FP6-2004-IST-3-015774] 49
  • 49. Summary Report Fig. 11 illustrates the distribution of mobile phone game users from the perspective of age. From this figure we can see that mobile phone game users younger than 16 and elder than 35 years old account for only a small part of the total mobile phone game users. Youth between 19 and 22 years old constitute the majority of mobile phone game users. Age st r uct ur e of m l e phone gam useryounger t han 16 year s obi e s ol d 16 - 18 year s ol d 1% 4% 19 - 22 year s ol d 34% 23 - 25 year s ol d 1 22% 11% 26 - 30 year s ol d 27% 2% 31 - 35 year s ol d 0% 10% 20% 30% 40% el der t han 35 year s ol d Figure 11 Age distribution of mobile phone game users Fig. 12 shows the distribution of mobile phone game users from the point of view of education degree. Here we can see that undergraduate students occupy the major part of mobile phone game users. The education period of most of the users is from senior high school to undergraduate. Only 7% of users’ education level is lower than senior high school or higher than undergraduate. © VAS CHINA Project [FP6-2004-IST-3-015774 50
  • 50. Summary Report Educat i on of m l e phone gam user s obi e <=j uni or hi gh school Seni or hi gh school ( i ncl udes 4% t echni cal secondar y school 18% Juni or col l ege 33% 1 Under gr aduat e 45% 2% M er ast 0% >=doct or degr ee 0% 20% 40% 60% Figure 12 Education of mobile phone game users Fig. 13 displays the distribution of mobile phone game users from the point of view of income. I ncom of m l e phone gam user s St udent s e obi e Less t han 500 R B Yuan M 25% 501- 1000 R B Yuan M 16% 14% 1001- 1500 R B Yuan M 18% 10% 1501- 2000 R B Yuan M 1 9% 2001- 3000 R B Yuan M 6% 1% 3001- 5000 R B Yuan M 0% 4% 5001- 10000 R B Yuan M M e t han 10000 R B Yuan or M 0% 10% 20% 30% N i ncom o e Figure 13 Income of mobile phone game users From this figure we can see that 25% of users are students. That means the expenses on playing game are provided by their family. 30% of the users whose income is less than 1,000 RMB Yuan, and 50% of the users whose income is between 1,000 RMB Yuan to 3,000 RMB Yuan. © VAS CHINA Project [FP6-2004-IST-3-015774] 51
  • 51. Summary Report Generally speaking, low-income users are the main customers of mobile phone games. If the price of mobile phone game is too high, it will influence the users’ choice. Market requirement Because the screen of mobile phone is small, and the color, voice and memory is also limited, the game that is beneficial for intelligence is welcome and occupies the major part from the perspective of contents of the games, as shown in Fig. 14. D st r i but i on of m l e gam cont ent i obi e O her t ypes t 1% 14% Acct i on game PR gam G e 46% 17% Si m ant gam ul e Gunni ng game 12% 10% Benef i t f or i nt el l i gence game Figure 14 Distribution of mobile game content Current circumstances The main characteristics of the mobile phone game market in China are as follows: • First, the mobile game market is still in the initial period, but it develops rapidly. • Second, the good revenues of the mobile phone game service will stimulate the VAS chain to develop more mobile phone games. Mobile phone game can be divided into in-line game, SMS game, WEB game and downloading game. Their market share in 2004 is illustrated in Fig. 15. © VAS CHINA Project [FP6-2004-IST-3-015774 52
  • 52. Summary Report M ket shar e of m l e phone gam i n 2004 ar obi e 12% SM gam S e 25% W gam AP e BR / KJAVA gam EW e 63% Figure 15 Market share of mobile phone game in 2004 4.4.1.5 WAP Services User characteristics • First, WAP users are of younger age. According to the research in [1] wireless surfing is largely related to the user's age. Because of the complexity in operating the service on the mobile phones,younger users can handle it more easily. Moreover, the experience of schooling and the age are often relevant. Those who got master or higher degrees were mostly born in the 1970s, and they are more apt to using the wired computer,with less consideration on wireless surfing.Therefore, WAP users involve less of this group of people. • Second, WAP users’ income is mostly at medium level. 45% of WAP users are those with an income of 800--3000 RMB. In addition, 36.39% of WAP users are students with no income,and 10.64% are those whose income is above 3000 RMB. This implies that those who have been categorized as high-end users by the operators according to income level are neither the main force of WAP service actually nor are they the main target customers of VAS services. Market requirement The charge for WAP service includes two parts: the charge for surfing and the charge for service. Since most of the users will meet difficulties in operating the mobile phone when using the service they have to resort to Monternet / © VAS CHINA Project [FP6-2004-IST-3-015774] 53
  • 53. Summary Report Mutual Vision for help. However, most of the helping service is not for free which negatively affected the user's preference for WAP. In fact about 80 percent of users hope that the help service is free. But the network operators are charging for most of their services currently. The users seem to have great expectations for free service. The research outcome is shown in Fig. 16. Expect ai on degr ee of f r ee W cont ent s AP 60, 00% O y vi si t i ng f r ee w nl eb 50, 28% st at i on 50, 00% 40, 00% 35, 44% D t car e w her t he on' het cont ent s ar e f r ee or 30, 00% not D t know w e t he on' her 20, 00% f r ee cont ent s ar e 9, 64% 10, 00% 4, 52% Tr y t hei r best t o f i nd 0, 00% f r ee cont ent s 2004 Figure 16 Expectations of free WAP contents Current circumstances In general, WAP service has gained a remarkable popularization nowadays. The popularity of different WAP services is illustrated in Fig. 17. © VAS CHINA Project [FP6-2004-IST-3-015774 54
  • 54. Summary Report U ng f r equency i nvest i gat i on of sever al W ser vi ces si AP 50, 00% 46, 59% images and r i ng dow oadi ng nl 40, 00% chat i ng on l i ne m l e phone BBS obi 30, 00% m l e phone gam obi es 20, 00% 12, 80% 12, 20% 47% 11, 10, 78% new br ow s se 10, 00% 4, 80% 1, 08% r evei vi ng Em l f r om m l e ai obi 0, 00% phone ot her 2004 Figure 17 Using frequency investigations of several WAP services From Fig. 17 we can see that mobile phone images and ringing tone downloading is still the most popularly used service for nearly half of the users, the concrete amount is 46.59 percent. Right after that is the online chatting. Since chatting through SMS is already quite common, users now tend to spend more time on connecting to MSN or OICQ via WAP. Moreover, WAP chat-room gains a popularization of 12.80 percent. It is also very amazing that WAP BBS reaches the third position with the amount of 12.2 percent, whereas as the main force for mobile phone entertainment, mobile phone games get only the fourth position with the share of 11.47 percent. After that is 10.78 percent for browsing news, 1.08 percent for email receiving on mobile phone and 4.08 percent for others. 4.4.2 The Demand Trend of Mobile VAS Market The mobile telecommunication market includes markets for operators, EPs, SP/CPs, and VAS providers etc. No matter how much the technology develops, the ultimate goal is to provide functions and services for individuals, satisfying the increasing demand of users as their experience of consumption grows. Therefore, through knowing the end users’ present situations, their future preferences can be estimated. Moreover, the knowledge of how the users will make the decision for using a service and their ability for paying the service will also provide very important information for the decision makers in the VAS value chain. © VAS CHINA Project [FP6-2004-IST-3-015774] 55
  • 55. Summary Report 4.4.2.1 Changes in Demand In general, the changes in users’ demand on mobile VAS lie in the following aspects: • End users are switching their attention to the terminal from the exterior design for function providing • Users’ integrated demand is increasing,with less attention to the voice service than before. • Users’ concept for fashion is changing from fashionable terminal to fashionable services. • There is still a large market space for the demand of entertainment and MMS communicating using the mobile terminal. • For the relatively developed value-added services such as SMS,the crucial factors for service extending are service quality and standardization,as well as reasonable price. • For the developing service such as MMS, WAP and GPS etc,the crucial factors for service extending are accurate position of service value, generalization of terminal and the ability of network services. 4.4.2.2 Concrete Analysis Now we will make a further analysis by looking through the sample data. We take the demand of data service for example. Beijing Shanghai Shenzhen Wuhan Chengdu Kunming Mobile phone SMS 93. 3% 95.7% 98.8% 96.6% 98.8% 91.9% Mobile phone lottery 8. 0% 4. 3% 43.0% 18.2% 17.6% 11. 3% Mobile phone stock 8 .0% 18.8% 16.4% 28.4% 16.4% 8.1% Web SMS 26.7% 38.2% 23.6% 29. 5% 43.6% 41.3% Mobile phone E-mail 43. 3% 57.0% 50.3% 51.1% 50. 3% 31.9% Mobile phone 26.0% 46.8% 38.8% 19.9% 28.5% 31.9% information ordering Mobile QQ 28.7% 54. 3% 23.6% 34.7% 43.0% 40.0% Mobile phone online 39.3% 44.6% 52.7% 44.3% 66.1% 43.1% game Web browsing 50.0% 62.4% 29.1% 38.6% 60.0% 25.6% Color messages/Color E 29.3% 53.2% 18.2% 23. 3% 31. 5% 18.1% Mobile phone 8.7% 22.0% 6.7% 9.7% 4.8% 2.5% online shopping Mobile phone pictures & 54.0% 65.6% 49.7% 49.4% 49.7% 74.4% ring tone downloading Travel services 10.0% 1.1% 7. 3% 19. 3% 7. 3% 31. 9% Case= 150 186 165 176 165 160 Table 3 Mobile VAS used by high-end users © VAS CHINA Project [FP6-2004-IST-3-015774 56
  • 56. Summary Report As the data in Table 3 shows, besides SMS, mobile phone E-mail and web browsing are also in common use for high-end users, and other services such as downloading data are popular too. In addition, users show considerable interest for mobile phone online games. The research also shows that some of the high-end users are not so interested in the currently provided services but they show great interest in some of the newly exploited VAS services. Table 4 illustrates the interest toward 3G VAS services of high-end users. © VAS CHINA Project [FP6-2004-IST-3-015774] 57
  • 57. Summary Report City Beijing Shanghai Shenzhen Wuhan Chengdu Kunming Total Case= 150 186 165 176 165 159 1001 Transmitting images to 15.9 14.9 14.6 15.8 17.1 14.1 15.4 friends or relatives Web browsing 14.6 15.8 13.6 15.2 15.6 13.3 14.7 Transmitting information 14.3 14.7 14.4 14.8 16.0 13.1 14.6 with videos E-mail receiving and 14.3 15.7 13.3 14.5 15.2 13.2 14.4 sending On line music 12.5 15.4 13.6 15.0 14.8 12.1 13.9 Video phone 12.1 14.3 13.9 14.9 15.3 12.2 13.8 Internal Email transmitting 12.6 15.0 13.6 14.0 14.1 12.1 13.6 Emergency location 13.5 13.9 12.3 12.5 14.3 14.1 13.4 Customer relationship 13.0 14.2 13.4 13.4 14.5 11.8 13.4 management Online translation 11.9 14.5 13.2 13.5 14.2 11.0 13.1 Film on demand 12.5 13.7 12.1 13.4 15.1 11.4 13.1 Internal document sharing 11.8 14.3 12.6 13.5 13.6 11.4 12.9 Movie or TV foreshowing 11.2 14.4 12.2 13.4 14.2 10.9 12.8 Online virus killing 11.1 14.0 11.5 12.7 14.4 10.8 12.5 Video program ordering 11.0 13.6 12.3 13.1 13.7 10.2 12.4 Online interactive games 10.9 13.6 11.9 13.1 14.0 9.6 12.2 Online shopping 11.1 14.3 11.2 11.4 13.3 9.7 11.9 Mobile picture QQ 10.5 14.3 11.3 11.9 13.4 9.4 11.9 Internal training 10.5 13.1 11.4 11.8 13.0 10.0 11.7 Broadcasting 10.6 13.4 11.9 12.0 12.1 9.6 11.7 Navigation 11.9 13.0 10.7 9.8 12.1 10.8 11.4 Information ordering in 10.6 12.6 10.3 10.1 11.8 9.5 10.8 shopping center Mobile phone stock 9.2 12.2 10.4 11.2 13.2 7.7 10.7 Instant monitoring of 10.3 12.4 10.4 9.7 11.8 9.2 10.7 posting goods Remote medical treatment 9.0 10.5 10.0 11.8 8.8 10.0 Mobile phone lottery 7.4 11.9 9.9 10.9 12.0 7.0 9.9 Remote education 9.1 9.1 10.3 11.5 9.6 9.9 Table 4 The interest degree (%) of high-end users in VAS provided by future 3G network © VAS CHINA Project [FP6-2004-IST-3-015774 58
  • 58. Summary Report Through analyzing the data displayed in Table 4 we can see that transmitting images to friends or relatives is the most popular service for high-end users. Furthermore, web browsing as well as email receiving and sending are also services that users expect by means of mobile phone. Through comparing with the data of year 2002, we can see changes in users’ demand. Quite different from the result abroad, in the year 2002 Chinese users are more inclined to messaging services but not so interested in entertainment services such as games and video etc. But in the year 2003 videophone and other video services have gradually gained their popularities. Fig. 18 illustrates the reasons why the high-end users are not satisfied with the services currently provided. The recording capability is bad! The feeling is bad! 3.6% Unreal message 3.6% The receiver’s mobile phone doesn’t support! 14.3% The line is often broken off! 32.1% The contents are too few! 25.0% The screen of mobile phone is too small! 10.7% The transmission speed is too slow! 71.4% The operation is too complicated! The price is so expensive! 64.3% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% Figure 18 Reasons why high-end users are not satisfied with current mobile VAS The data in Fig.18 show that transmitting speed, price, and complicated operation needed are the primary obstacles for extending the mobile data services. As a matter of fact, users are not so unsatisfied with the online content as was estimated. © VAS CHINA Project [FP6-2004-IST-3-015774] 59
  • 59. Summary Report 4.4.3 Conclusion By analyzing main mobile value-added service end users and their market demands we can see that mobile value-added services have reached huge market space in China and have great market potential. With the development of the technology and economy, mobile VAS will have a very bright future in China. 4.5 Ministry of Information Industry Strictly speaking, the Ministry of Information Industry (MII) (http://www.mii.gov.cn/mii/bmjs.htm) is not a part of the value chain. However, in China, MII plays a very important role in the whole information industry and influences each entity in the VAS value chain heavily through stipulating regulations and laws. On the one hand, MII ensure the fair developing environment for the value chain. On the other hand, each entity in the value chain should abide the regulations stipulated by MII. MII was organized in March 1998. It guides the macro development of the information industry and supervises the Chinese telecommunication market. In the following we introduce the duties of MII from the perspective of market and the departments of MII which are related with the introduction of mobile VAS. 4.5.1 Duties The main duties of MII can be summarized as follows. • Studying and drafting the development strategy, guidelines and policies, as well as the general plan of the national information industry; revitalizing the electronic and information products manufacturing industry, communication industry and software industry; promoting the popularization of information technologies in the national economy and community service. • Drafting the laws and regulations for the electronic information products manufacturing industry, communication industry and software industry; and issuing the administrative rules; MII is responsible for the enforcement of the administrative laws and the supervision of the law enforcement. • Planning and managing the national public communication networks (including local and long-distance telecommunication networks), broadcasting and television networks (including wireless and cable networks), military and private networks. • Constituting the technical policies, systems and standards for the electronic information products manufacturing industry, communication industry and software industry, and the technical systems and standards for the transmission networks of broadcasting and television networks. MII is responsible for the authentication of network equipments and terminal devices, guiding the surveillance and management of electronic information products. © VAS CHINA Project [FP6-2004-IST-3-015774 60
  • 60. Summary Report • Distributing and managing the common resources, such as the radio frequency, the location of the satellite orbit, access network number and domain address etc.; Authorizing the radio stations and supervising radio uses; coordinating and dealing with the issues regarding electromagnetic interfering; organizing the implementation of the radio regulation according to the corresponding laws; • Supervising the telecommunication and information service market; granting the operation licenses; ensuring the fairness competition; prescribing the manner and charging methods for network interworking and interconnection • Constituting the tariff policies for telecommunication and information services, and determining the tariff standard for the basic postal and telecommunication service and supervising its enforcement. • Guiding and propping up the development of information industry depending on the policies of industry and technical development; guiding the adjustment of enterprise structure, product structure and industry structure, as well as the constructing and reconstructing of the enterprises. • Joining the relevant international organizations on behalf of China, signing the inter-governmental protocols, organizing the foreign economic and technological cooperation and exchange, and dealing with the relevant matters among the governments. • MII is responsible for the information statistic and distribution related to information industry. 4.5.2 Departments MII is divided into several departments, and each department has its own responsibilities. Policy and Regulations Department It is responsible for studying and drafting the comprehensive policies and important reform scheme, organizing the drafting of the laws and regulations of information industry and administrative rules, working in administrative law- enforcing supervision and administrative reconsideration and drafting the open policies for communications. Overall Planning Department It is responsible for studying and drafting the medium and long-term development plan and strategies of revitalizing the manufacturing industry of electronic products, communication industry and software industry. In addition, it is also in charge of coordinating the construction of basic telecommunication networks, broadcast and television networks and various private communication networks, promoting the development of the public and private networks, service and manufacture industry in harmony, and preventing from the repeated construction. It is also responsible for managing the country’s build budget and funds, instructing the technology import and the © VAS CHINA Project [FP6-2004-IST-3-015774] 61
  • 61. Summary Report utilization of foreign capitals, as well as organizing the design of technical standards. Scientific and Technical Department It is responsible for constituting the scientific and technological development plan and technical policies, following and studying the international information technology development trend. In addition, it organizes, coordinates the constitution of the numbering plan of the public telecommunication network systems, and the constitution of the technical systems and standards of the broadcast and television transmission networks; In addition, it coordinates the important scientific research projects, and promotes the industrialization of the scientific findings. It is also responsible for the quality supervision of electronic information products, managing the standards, measurements and information of electronic information technologies. Telecommunications Administration Bureau (TAB) This department is responsible for studying and drafting the telecommunication development plan, policies and measures. It supervises the telecommunication and information service according to the corresponding laws, maintains fair competition, and protects the interests of country and users. In addition, it is also responsible for examining, approving and granting the licenses of communication and information services; and supervising the service quality and price. Moreover, it constitutes the rules and guarantees the execution of the rules for interconnection and interworking of different telecommunication networks. It is in charge of the distribution and management of the number resources and Internet domain name and address, and the international coordination. It is also accountable for the authentication of the network equipment interconnection and interworking standards and the management of network terminals entering networks. And finally, this department is also responsible for organizing the studies of network and information safety and security problems related to the national telecommunication network, and putting forward the countermeasure. TAB consists of: • Development Planning Division: It’s responsible for establishing the overall telecoms development strategies, policies and regulations. • Network Communication Division: Its responsibilities include administering the communication number resources allocation and management, overseeing the usage of the Internet domain name, address and so on. • Interconnections Management Division: It’s responsible for supervising the interconnection between telecom networks and establishing the settlement regulations. • Market Management Division: It’s responsible for the market admittance, ensuring the fare competition and efficiency. © VAS CHINA Project [FP6-2004-IST-3-015774 62
  • 62. Summary Report • Devices License Management Division: Its responsibilities include administering the examination and certification of the telecoms equipments. • It’s responsible for monitoring the service quality of the operators, SPs and CPs. • Administrative Office Local telecoms administration bureaus in each province are responsible for the governance of the telecoms industries in local areas. Their main functions include: performing the telecoms relevant policies and regulations of the nation, making overall plans of the local telecoms networks, managing the telecom services and devices licensing issues, supervising the service quality and price in local areas. Electronic Information Products Management Department This department is responsible for studying and drafting the medium and long- term development plan, policies and measures for the electronic information products manufacture industry and software industry; guiding the structural adjustment of the products; organizing and coordinating the development and production of the important system equipments and some basic products, such as microelectronics products; working out the guidance for investment; and promoting the popularization and application of the electronic information technology and products. Foreign Affairs Department This department is responsible for organizing and joining the international organizations of the information industry; organizing and coordinating the signing and implementation of the inter-governmental agreements; dealing with the relevant communication and information matters among the governments; studying the foreign economic and technological cooperation policies of the information industry; managing the external cooperation and exchanges; and examining, approving and managing the abroad projects. Radio Management Department This department is responsible for regulating the radio resources, utilizing the radio resources in a reasonable way. It is responsible for managing the radio stations and radio supervision, coordinating and dealing with the issues regarding electromagnetic interfering; organizing the implementation of the radio regulation according to the corresponding laws; coordinating the position of satellite orbits, and managing the radios involving foreign countries. Beside the above departments, MII has also the • Department of Economic System Reform and Economical Operation, which is mainly responsible for studying and drafting the enterprise reform scheme, guiding the reform, reorganization, reconstruction and administration of the enterprises. © VAS CHINA Project [FP6-2004-IST-3-015774] 63
  • 63. Summary Report • Department of Economic Adjustment and Communication Reckoning, which constitutes and guarantees the execution of the financial rules of communication. • Department of Personnel, which is responsible for the general personnel works and training. © VAS CHINA Project [FP6-2004-IST-3-015774 64
  • 64. Summary Report 5 Mobile Value-Added Services After a closer look to the VAS situation in China as well as to the value chain and their members we focus now on VAS services. We start with a quick look at pricing strategies and price models for mobile VAS followed by a more detailed investigation of the popular services and continue with emerging services. An analysis of the development trends in China closes this part. In the second part we discuss some selected new services in more detail and have a quick look at upcoming VAS technologies. The chapter closes with a brief discussion of international developments. 5.1 Pricing of VAS Services At the fourth VAS CHINA workshop Stanley Gu, Consulting Director of eShip, gave an introduction to pricing of mobile VAS. Basically, 7 kinds of services are distinguished: SMS, MMS, WAP, Java, IVR, CRBT, streaming media (mobile TV). The price structure for these categories consists of two parts: communication fees and SP fees (content, application). China Mobile traffic and function fees: • from 0.1 RMB for SMS to 5 RMB for CRBT (per month) or 20 RMB for Mobile TV, • volume based (WAP: 20 RMB for 1st MB, 10 RMB for next MB) or • time-based (0.15 – 0.5 RMB per minute for IVR) The price model of China Unicom has a similar structure; there is no big difference in pricing. Also China Netcom and China Telecom apply the same structure, except that they do not provide MMS, mobile TV or Java-based services. China Mobile’s pricing strategy is that innovative VAS are only available to high-end brands (e.g. GoTone) and that customers are offered mostly 3 price levels to select from. China Unicom, China Telecom and China Netcom have simple pricing strategies: • one price per category, • lower pricing compared to CMCC Note: Price levels are government controlled. Note: VAS pricing strategy may change according to the market condition and business strategy of the operators. © VAS CHINA Project [FP6-2004-IST-3-015774] 65
  • 65. Summary Report As mentioned above, in addition to the traffic and function fees users have to pay information fees. Operators help SPs to collect fees from subscribers. For this SPs have to pay • 15% to China Mobile • 12% to China Unicom • 20% to China Telecom and China Netcom All services information fee shares are similar, fees might be different in different provinces. The following list gives an idea of average prices for SP information services: • SMS: 0.5 RMB, • MMS: 1 RMB, • WAP: 5 RMB per month, • Java/BREW: 5 RMB, • IVR: 1 RMB/minute, • CRRBT: 3 RMB, • Mobile TV: 10 – 20 RMB per month According to regulations the mobile operators set the maximum price for a service, for instance to protect subscribers. 5.2 Popular Services Currently, SMS, MMS and the Individualized Ringing Tone can be seen as the most popular value-added services in China. In the following, we analyze these services one by one in detail. 5.2.1 Short Message Services (SMS) Development of SMS At present, SMS is the most primary and mature basic mobile VAS. After the swift and violent development for several years, it has formed a large scale market running and driving greatly the development of the mobile VAS market in China. According to the statistics from CMCC and CUCC, the number of short messages sent in 2001 was 19 billion. And the number broke through 200 billion in 2003 and reached 220 billion after two years’ fast increase at the speed of 373% and 144%. And in 2004, it reached the order of 300 billion. Fig. 19 illustrates the increase of the number of SMS from 2001 to 2004. With the increase of the amount of mobile phone users, we predict that the number of SMS sent will still keep increasing in the future. © VAS CHINA Project [FP6-2004-IST-3-015774 66
  • 66. Summary Report 350 4 373.70% 300 300 3.5 250 220 3 2.5 200 2 150 90 1.5 100 114% 1 50 19 36.36% 0.5 0 0 2001 2002 2003 2004 number of short messages(billion) annual growth Figure 19 Increase of SMS in China from 2001 t0 2004 With the increase of the SMS amount, SPs have maintained a high speed increase in revenues. According to statistics, the SP’s revenues got about 1.7 billion RMB Yuan in 2002. And in 2003, the SMS market grew vigorously; its scale doubled and reached 3.4 billion RMB Yuan. In 2004, the government and network operators put out a series of policies to rectify the SP’s SMS market, and it is estimated that the growth rate of the SP’s SMS market will begin to slow down, however it will still keep at a high level in the future. Fig. 20 depicts the SP’s revenues from SMS. 6 4,4 1,5 4 3,4 100% 1 1,7 2 0,5 29,41% 0 0 2002 2003 2004 shor t message i ncom of SP( bi l l i on) e annual gr owt h Figure 20 Growth of SP revenue SMS market share From the perspective of the network operators’ revenues, the market share of CMCC is bigger than that of CUCC, and the user level of UMCC is higher than that of CUCC. In 2003, the number of mobile users of CMCC and CUCC © VAS CHINA Project [FP6-2004-IST-3-015774] 67
  • 67. Summary Report shares 65% and 35% respectively, and the income market share of CMCC and CUCC are 86% and 14% respectively. Due to the restriction of the network overcast scope, the limited roaming ability and the problems in cooperation with SPs, CUCC still has a great disparity with CMCC in SMS contents and the quality of services. The SMS ARUP value of CUCC is relative low. From the perspective of the SP’s market revenues, the result is illustrated in Fig. 21. LTON ZhangMen 4% 4%et Ease N O her s t 7% TOM 39% 8% Sohu 9% Si na Tencent 12% 17% Figure 21 Market share among SPs in 2003 From this figure we can see that Tencent and Sina belong to the highest level. Sohu, TOM and NetEase belong to the second level. In deed, through the active strategies for buying and selling, the revenue increase is very fast. Moreover, among the current 1000 SPs, ByAir and LinkTone are also the senior SPs besides the first 5 top companies. In 2003, the market share of the two companies both reached 4%. Current SMS profit method Usually, SMS service mainly charges information fee. Users may choose either charging by month or charging by times, each mode has different charging rate. The telecommunication operators charge the users monthly. After wiping off the SMS channel cost (which are paid by SPs to telecommunication operators) and some bad account, SPs and the telecommunication operators share the profit at a ratio of 85:15. Conclusions According to the above analysis, the features of the SMS market in China can be summarized as follows: © VAS CHINA Project [FP6-2004-IST-3-015774 68
  • 68. Summary Report • China SMS market is gradually falling into the mature phase from the developing phase. It has become the main body of the mobile VAS market. SMS has a large market scale and long product life circle. In the next few years, SMS will still keep steady increase and high market. • The key factors affecting the SMS market development of the mobile operator will change to the extent and depth of the cooperation with SPs, the strength of prompting new services, the scope of the network covering and the roaming ability. • Currently there are more than 1000 SPs competing in the SMS market, however, only 7 SPs share the main body of the income. In other words, the SMS market is concentrated. • Now cheapness, supported by most type of terminals and high revenue of SP in SMS are the main factors stimulating the development of SMS. On the contrary, the limited carrier capability, complex input method, irregular conduct of industries and the short term behavior harmful to users are the factors restricting the development of SMS. 5.2.2 Multimedia Messaging Services (MMS) Development of MMS Because MMS products and the terminals supporting MMS are relative expensive for the moment, whereas the target users are to some extent young people who have no or only low income, and moreover, the demand on MMS has not been elaborately analyzed during the development of MMS products, the number of MMS users is still low. Scaled market for MMS has not formed yet. MMS in China is still in the starting phase. Whether the MMS market can develop rapidly mainly depends on the popularization of mobile phones with MMS functions. According to statistics, the number of users with MMS phone had reached 500 thousand in 2002. With the declination of the product cost of MMS mobile phone and the constantly emergence of new preferential policies promoted by CMCC and CU, the price of MMS mobile phones has dropped to less than 2000 RMB Yuan presently and MMS mobile phones are gradually popularized. At the end of 2003, the number of users possessing MMS phones has increased to 15 million, and the popularization rate is 5%. In 2004, the numbers reached 50 million and the popularization rate is 17%. From the perspective of the market scale, 150 million MMS were sent in 2003 through CU and CMCC, and the total market scale is 200 million RMB Yuan. With the popularization of MMS mobile phones and the acceptance of users to this service, the number of MMS sent in 2004 broke through 600 million, and the market scale reaches 600 million RMB Yuan. © VAS CHINA Project [FP6-2004-IST-3-015774] 69
  • 69. Summary Report MMS market share From the point of view of the mobile network operators, the user market share of CMCC is 95% and 83% in 2002 and 2003 respectively, which is much higher than the market share of CU. But in 2003, the user market share of CU has increased remarkably. The main reasons are, on the one hand, CU has made great efforts on promoting the CDMA 1x services; on the other hand, the 2.5G services of CMCC are still in a starting phase. The advantages of having large amounts of users have worked yet. From the perspective of the SPs, there are more than 30 major MMS SPs currently in China. Among those, KongZhongWang involved in the MMS service relative early, and has the largest market share of 20%. Since 2003, other companies have devoted also more investment into MMS services. Five companies, including KongZhongWang, TOM, Sina, NetEase and Sohu take up 75% of the MMS revenues. In other words, the MMS market is relatively concentrated. Fig.22 illustrates the MMS market shared by SPs. MMS profit method The charging mode of MMS is the same as that of SMS. Users may choose either charging by month or charging by times, each mode has different charging rates. The telecommunication operators charge the users monthly. After wiping off the MMS channel cost (which are paid by SPs to telecommunication operators) and some bad account, SPs and the telecommunication operators share the profit at a ratio of 85:15. Tencent others KongZhong 3% 14% 20% Linktone 3% 21CN 5% TOM 19% SOHU 8% NetEase SINA 12% 16% Figure 22 MMS market shared by SPs in 2003. © VAS CHINA Project [FP6-2004-IST-3-015774 70
  • 70. Summary Report Conclusions As a summary, the MMS market in China has the following features: • The MMS service in China is still in the starting phase. It operates only in a small scale for the moment. Nevertheless, the MMS service has already shown an enormous development potentiality. • The MMS market is relatively concentrated. As far as network operators are concerned, CMCC occupies a much higher market share than CU. And considering SP, KongZhongWang, TOM, Sina, NetEase and Sohu have occupied the majority of the MMS market. • The increasing demand on the multimedia information, the diversity of service content and the reducing of charge will be the main factors accelerating the development of MMS. On the contrary, the high charging fees and the high price of mobile terminals are the main reasons hindering development of MMS. 5.2.3 Individualized Ringing Tone Service Development scale of Individualized Ringing Tone Service IVR has a very large potential market. Currently, positive factors influencing its development are as follows: • Potential penetration rate is high because IVR service is not limited by terminal device, and it can be used on any mobile phone; • IVR service can improve the network operators' utilization rate of their devices, as it may use the bandwidth at leisure time of basic data service; • IVR service is accessed by user in a voluntary mode, this decreases the users' complain; • Voice is relatively direct, strong emotional and meets the need of individualization; • IVR service has very interactive; • A large potential market because of the 200 million mobile phone users in total in China; At present, factors hindering the development of IVR include: • Chat service without the assistant of music, graph and words is not colorful; • Price rate is still high, • shortage of product contents, industry application and the experience of developing IVR; • The low value for keeping and sharing. Individualized Ringing Tone service is a service that replaces the normal ringing tone with sweet music or greetings. It is harmonized with the current individualized trend in the telecommunication consumer market. Since its development in Korea in 2002, CMCC and CU had planned to introduce it to China. And in 2003, after a hard work, CMCC and CU put it into trial commercial use by calling it as “colorful ring” and “cool ring” service, respectively. After more than one year’s trial and commercial use, this service © VAS CHINA Project [FP6-2004-IST-3-015774] 71
  • 71. Summary Report has been widely accepted and loved in these areas. The number of users increases greatly. In many areas, the system capacity of the network operators can even not satisfy the increase of user numbers. There are two main reasons for the Individualized Ringing Tone service to be approved by the market. One is that the service is not limited by the terminal. All types of mobile phones can use this service. The other is that the service spreads itself in an initiative way, therefore its influence is great. These two features happened to coincide with that of SMS. Thus, compared with other mobile VAS, the Individualized Ringing Tone service has a larger market capacity and will be popularized faster. According to the increasing speed of the Korean market, the number of the Individualized Ringing Tone users has reached 10% of the total mobile users after one year. Referring to the development plan of the mobile network operators in China, the users of this service will reach 30 to 35 million, which is about 10% of the total mobile users in 2004. Due to the high increasing speed, especially in the costal developing provinces, where the increased user number on each day can reach several ten thousands, it is difficult to estimate the market scale of this service. A conservative estimation of the monthly income of the mobile network operators can be close to 200 million in the last months of 2004. Operation mode of the Individualized Ringing Tone service The industry chain of the Individualized Ringing Tone service includes telecommunication operators (CMCC and CUCC), device manufacturers, SP/CPs and end users. The network operators lie in the leading position of this industry chain. They charge the end users monthly. The charging income includes information fee and channel use fee. The channel use fee is obtained by the network operators exclusively. And the information fee is shared by the networks operators and the corresponding SP/CP at the ration of e.g., 15:85. Hence, the networks operator can always win no matter the users change their ring tones frequently or not. Problems during the development of the Individualized Ringing Tone service In order to get a rapid market development, breakthrough in richening the ringing tones must be achieved. On the one hand, the network operators should prepare a suitable running platform for this service. On the other hand, SPs or CPs should make hard efforts on developing diverse types of ringing tones. The latter is important in the long run, however, there are also some problems. First, the copyright of the music is one of the awkward faced by the Individualized Ringing Tone service. The network operators and SPs have already begun to pay attention to this problem. Some SPs have already set up © VAS CHINA Project [FP6-2004-IST-3-015774 72
  • 72. Summary Report effective cooperative mechanisms with copyright providers in order to obtain the copyright of music. Second, a large amount of CPs/SPs entered the Individualized Ringing Tone service market. The competition among CPs/SPs is furious and lacks diversity. The several top SPs proving Individual Ringing Tone service through CMCC include Tencent, LongTengYangGuang, Sina, TOM, GuenShiYiDong and ZhangShangLingTong. The major SPs providing the service through CU include ShenZhenXinFei, ShijiKaiXuan, BeiTianZongHeng, JinPengKeJi and HuaYouShiJI. These SPs take up the most market shares. In general, the resource of ringing tone is scarce at present, and ringing tones reduplicate to each other and short of novelty. Third, currently the Individual Ringing Tone service adopts the access number of the portal sites of the mobile network operators. The end users can download the ringing tones only through the portal sites of the mobile network operators, even though most of the SPs/CPs have their own portal sites. The SPs/CPs do not have their access number. This weakens the enthusiasm of SPs/CPs for popularizing the Individualized Ring Tone service, and may hinder the development of the Individualized Ringing Tone service. Fourth, how to support the Individualized Ringing Tone service is a problem for the network operators at present. The solution of using intelligent network may make full use of the existing network resources, and may employ the service quickly. However, this method will take up too much relay trunks. Another solution is using exchanges and separate IP. This can avoid taking up too much relay trunks. Nevertheless, all exchanges need to be updated, which is a great project hard to control and to manage. Conclusions The market features of the Individualized Ringing Tone service in China can be summarized as follows: • The market of the Individualized Ringing Tone service has rapidly entered into the growing phase from the introduction phase, and the market requirement expands rapidly. • Because of the rapid development of the Individualized Ringing Tone service, the equipment capacity of network operators is becoming the bottleneck of its development. • The good outlook of this service makes now all actors in the information industry chain working hard to compete for the service market. 5.3 Emerging Services With the development of the infrastructure of mobile networks and mobile terminals, many mobile value-added services are now emerging in China. © VAS CHINA Project [FP6-2004-IST-3-015774] 73
  • 73. Summary Report Mobile phone game service is one representative of these emerging services in China. 5.3.1 Mobile Phone Games Mobile game is a service that combines mobile terminal and game product to provide convenient and portable game services to consumers. Currently the mobile phone games can be divided into the following 3 categories: (1) Embedded games Early mobile phone games such as greediness snake in Nokia series belongs to the embedded games. These games were provided as add-ons. The deadly limitation of this kind of games is that their content is not rich enough. The content cannot be updated and therefore can not bring new feeling and experience to users. (2) SMS games SMS games are similar to the early network games in Internet. The word MUD attracted many game players. With the development of networks, SMS guessing game, witty asking and answering game entered the SMS game market quickly. The advantage of SMS games is that almost all mobile phone support it. However, the time delay of this kind of game is too long and their recreation feature is not strong enough. (3) Application platform games (downloaded games) Currently, this kind of games includes games supported by the KJava/Brew technology. This form of mobile game contributes to the terminal manipulators, SP/CP and network operators. To sum up, the mobile phone games can be already embedded in the mobile phones, or based on some networking platforms such as SMS, WAP, BREW, J2ME. So far the mobile phone games are mainly based on mobile terminals with the operating system of Symbian, Linux, WinCE and PalmOS. The contents of mobile games include sports, adventure, guessing game, pet, RPG (role playing game) etc. The games can be single player or multi-players. The games can be played online or downloaded in advance. In general, the features of the mobile phone game can be summarized as follows: • 60% of the users expect setting up a mobile game community; • 87% of the users know there are build-in games when they buy a mobile phone, and think this is an important factor influencing their choice of mobile phone; • Adventure games take up 47%, and it is very popular; • The average game time lasts 20 minutes; © VAS CHINA Project [FP6-2004-IST-3-015774 74
  • 74. Summary Report • 58% games are played at home; • 88% of the users take the quality of games as an important factor influencing their choice of game; • Download information of female players is three times as much as downing information of male players, 87% female player are interested in classical games; • 78% of mobile game users are male; • 73% players know exactly the price of mobile game,and understand the requirement of the price and game quality. Development scale of mobile phone games With the development of data services based on CMCC’GPRS and CU’CDMA1x, the mobile phone game service begins to become an important part of the 2.5G data service. It becomes also a battlefield of CMCC’ Java and CU’s BREW platform. The mobile phone game service will be the competition focus for service platform, application software download and various other services based on Internet. For the moment, more than 300 mobile phone CPs are cooperating with CMCC. Among them more than 15 CPs are relative mature, including Mtone, Linktone and XunLong etc. Recently, the amount of CPs cooperating with CU has increased greatly. ChengDuSiWei and ZhiLe Software belong to the top companies. From the perspective of market scale, it is estimated that 500 to 600 million RMB Yuan can be reached in the year 2004. Market share of mobile phone game service According to the transmission method, mobile phone games can be classified into embedded games, SMS games, WAP games and downloaded games. The statistics show that currently the SMS games share the main part of the whole mobile phone games in china. Its market share is about 63%. With the increase of the number of WAP users, the market share of WAP games increases to 25%. Due to the great development of mobile devices, the market share of KJAVA/BREW games increased gradually to 12%. Fig. 23 illustrates the market shares in 2004. © VAS CHINA Project [FP6-2004-IST-3-015774] 75
  • 75. Summary Report W gam AP es 25% SM gam S es 63% BREW KJAVA / gam es 12% Figure 23 Market share of mobile phone game platform in 2004 On the other hand, according to the favorite degree of the mobile phone users, games beneficial for intelligence take up the main part of the market, although the ratio is declining. This may be related to the disadvantages of small screen, limited color, sound and memory of mobile phones. Fig. 24 depicts the types of games and their market shares. act i on gam es ot her s 14% 1% Benef i ci al f or PR gam G es i nt el l i gen 17% ce gam es 46% si m at i on ul shoot i ng gam es games 12% 10% Figure 24 Market shares of different types of mobile phone games Operation mode of mobile phone game services In the current telecommunication industry environment in China, no CP is yet the leading actor in the mobile phone games domain. The mobile network © VAS CHINA Project [FP6-2004-IST-3-015774 76
  • 76. Summary Report operators occupy the hinge place in the whole telecommunication industry chain. Because the upriver in the value chain of mobile phone games are lots of weak and small scale game developers, and there is no marketing channel at the downriver to share the income, the mobile network operators have a large profit space. Mobile game industry can be regarded as the combination of traditional game industry and mobile industry. Mobile game industry chain can be disassembled into eight entities, as shown in Fig. 25. The first four entities in the chain are similar to the traditional game industry. The main participants include big movie and entertainment companies, video and PC game developers/publishers, and emerging game developers/publishers. The last four entities are relative to nowadays mobile industry. The main participants include the mobile network operators, mobile portal site providers and mobile terminal manufacturers. According to the analysis of the influence of each entity in the industry chain, the future operation mode of mobile phone game services may be: operator leading mode (such as NTT DoCoMo); mobile device manufacturer leading mode (such as Nokia or Sony-Ericsson etc.); mobile game CP leading mode (such as In-Fusio); mobile platform provider leading mode (such as GaoTong). Mobile game content Mobile game Mobile games Mobile game authorization development publish collection providing Mobile portal Mobile Mobile game terminal Marketing, charging and providing channels manufacturer custome service Figure 25 Mobile game industry chain Problems in the Chinese mobile phone game market Although the mobile phone game market have experienced a fast development in China, some problems have already been observed in the Chinese market: (a) Incompatibility of the platforms for mobile phone games There are various platforms of mobile games now in China. Therefore it is difficult to develop various versions of games to fit the various platforms. Furthermore, the time for developing the games for different platforms will be much longer and the cost will become greater. At the same time, it is also difficult for the customers to choose the right version for her or his mobile phone. It is possible that they will refuse to play the game due to the confusion. © VAS CHINA Project [FP6-2004-IST-3-015774] 77
  • 77. Summary Report (b) Low popularization rate of data service The market of the mobile data services have been improved after the introduction of GPRS and CDMA network. However, compared with the data service market abroad, the data service is not popular enough in China now, which will restrict the development of mobile phone game service. (c) Limitation of technology If the handset can support mobile wireless games, its hardware must have strong processing and storage capability. However nowadays, normally the dynamic memory of mobile phone is less than 5MB, which will prevent the performance of multimedia required by mobile wireless games. (d) Market regulation The high profit of mobile phone games will attract a lot of new comers on the whole value-chain of mobile phone games. However, this can also lead to cruel competition. Disorderly competition will hinder the development of mobile game. (e) Chinese traditional opinion Chinese traditional opinion does not encourage paying excessive attention on playing games. Most parents oppose their children to play mobile games. They believe playing game have a negative influence on their children. This traditional opinion will depress the market of mobile phone game in China. Advantages for developing mobile phone game market in China Although it has shown several problems hindering the development of the Chinese mobile phone game service, there are still some positive factors which will promote the development of the mobile phone game service in the Chinese market. (a) Support from mobile network operators The mobile phone game service is promoted strongly by the mobile network operators. The operators present various methods to attract users to use this service. (b) Support from ISP ISPs such as SINA, SOHU begun to pay more attention to mobile game market than before and plan to enter the mobile game market. They will expand the market through their effect on mobile game market. (c) The low threshold to mobile game market It is relative easy for new entrants to come into the mobile phone game market because the requirement on capital and technology are relative low. In addition, there will be enough talents in this field such as producing new games and new business model for the mobile game service. © VAS CHINA Project [FP6-2004-IST-3-015774 78
  • 78. Summary Report (d) Huge market in China There have been 300 million mobile phone clients until May 2004, which provide a good opportunity to develop the mobile phone game service. Conclusions In short words, the market features of mobile games can be summarized as follows: • The market for mobile games in China is still at the beginning of its introduction phase; however, it increases very rapidly. • Due to the positive income outlook, each entity in the industry chain will make great efforts in developing mobile game services. • The mobile phone game service will be the competition focus for service platform, application software download and various other services based on Internet. Currently, the challenges faced by the handset manufactories is to establish a uniform platform for mobile phone games, improve the performance of mobile terminals on supporting multimedia, decrease the price of mobile terminals, expand the market and achieve the win-win mode with operators, SPs and CPs 5.3.2 Interactive Voice Response (IVR) For many SPs, IVR means new commerce opportunity. From short message to voice, it is another development of wireless space. The big SPs, such as NetEase, SINA, Tencent and SOHU have entered this market. The competition in the domain of voice VAS was started. Currently, the network operators and SPs are making efforts to finding a good development mode of IVR service. Generally speaking, the IVR market is not normative yet at present. However, the idea for network operators to develop IVR is gradually clear. And the managing mechanism is almost mature. Unlike other services such as SMS, network operators are making great efforts to standardize the IVR market though putting forward some short-term policies. These policies include heightening the threshold for SP to enter the IVR market, limiting the highest price of service and so on. In addition, for the moment, lots of mobile IVR products are put forward, but the kind and the content of these products were consubstantial: mainly concentrating on entertainment. Therefore, the development of this service is limited. Mobile IVR is developing rapidly under the effort made by the network operators and SPs. The market scale is increased by geometric series. It was estimated that the mobile IVR market scale exceeded 200 million RMB Yuan in 2003 in china, and reached 1500 million RMB Yuan in 2004. © VAS CHINA Project [FP6-2004-IST-3-015774] 79
  • 79. Summary Report IVR market share From the perspective of mobile network operators, CMCC takes up the major market share. The market scale of CMCC is increased by geometric series. In 2003, CMCC’s IVR revenue exceeded 200 million RMB Yuan, and in 2004 it reached 1300 million RMB Yuan. According to an investigation of Mckinsey, 60 million users of CMCC are the target users of IVR service. CUCC hang behind CMCC in IVR. Although it put forward the service named “10158 hearing the short message”, the high level action of this service has not been formed. The planed service named “CUCC color voice” has been put forward, nevertheless did not popularize. From the perspective of SPs, the IVR market is highly centralized. TOM, SINA, Rock Mobile, Unihub and Tencent have taken up 97% IVR market share. In the first quarter of 2004, the revenue of TOM is 44 million RMB Yuan, the revenue of SINA is 19.2 million RMB Yuan and Tencent 6.8 million RMB Yuan. As illustrated in Fig. 26, TOM has the largest share, it occupies almost 50% of the market. Then is SINA by 19%. Rock Mobile and Unihub are the SPs that early entered mobile IVR, and each takes the market share 12.5% and about 9%. Tencent has the advantage of user resource, although it entered this market later than others, its service increase rapidly. It takes up the market share about 7%. Tencent, 7% others, 3% Unihub, 9% TOM, 50% Rock Mobile, 12.50% SINA, 19% Figure 26 Market of IVR shared by SPs IVR profile mode Just like other services, IVR service is charged for communication fee and information fee according to service time. The telecommunication operators charge the users monthly. After wiping off the MMS channel cost (which are paid by SPs to telecommunication operators) and some bad account, SPs and the telecommunication operators share the profit at a ratio of 85:15. © VAS CHINA Project [FP6-2004-IST-3-015774 80
  • 80. Summary Report Conclusions In general, nowadays the market features of IVR in China can be summarized as follows: • IVR is still in the high speed shaping phase, and a large IVR market, which can be compared as a gold mine, is waiting for digging. • The market is relative centralized. Concerning network operators, CMCC takes up a much higher market share than CUCC. And with regarding to SP market, TOM, SINA, Rock Mobile, Unihub and Tencent have occupied the majority of the market. • Nowadays, the developing of IVR is faced with four main negative factors: the high price of this service, being short of applications, fuzzy operate and being short of innovation. 5.3.3 LBS (Location-Based Service) LBS is a kind of value-added service provided by mobile telecommunication networks. By utilizing the position technology and other related technologies, the location information of a mobile phone (longitude, latitude) can be obtained, and be provided to individual customers or other persons or communication systems. Based on the location information, a serious of services can be achieved. (a) LBS solutions Table 5 illustrates the major solutions of LBS currently from the perspective of precision, request for terminals, needed changes in the networks, the scale of client groups, the amount of investments as well as the cost on maintaining the service. Here we can see that each solution has both advantages and disadvantages. Solutions Cell-ID A-GPS TOA/TDOA Precision range (m) Cell radius of area <550 5~50 50~100 Request for terminal x √ √ Changes in network small middle large Client group all limited limited Investment lowest higher highest Maintain cost low high high Table 5 Comparisons of LBS solutions © VAS CHINA Project [FP6-2004-IST-3-015774] 81
  • 81. Summary Report (b) Location terminal of LBS The prerequisite for a user to use the LBS services is that he or she must have a mobile terminal supporting the positioning function. In other words, the users must either have a mobile phone with a STK card supporting the positioning function or a GPS card, or other terminals with positioning function (such as PDA etc.). The terminal can also be a mobile phone supporting OTDOA. (C) Carrier of LBS There are multiple ways to carry the location information and realize the LBS services. So far, the LBS service can be realized through MMS, SMS, telephone, WAP, WWW, and JAVA. Prospect of LBS The LBS service is a special service based on mobile networks. With the help of the 3G mobile networks, a broader range of LBS can be obtained. Following are three categories of LBS. (a) LBS on handset Based on handsets with positioning function, a lot of LBS services can achieved, examples include SMS query, map services, handset guide, track of weakness and region alarm. These services can be realized through SMS, WAP, JAVA, BREW and MMS etc. (b) LBS on private car The main purpose of using LBS on car is for navigation. At present, the car navigation is do welcomed in China. However, the method for navigation realized by GPS receiver, simplified GIS engine, and map data has its own limit. For example, the high cost of the equipment caused by strong performance requirement on process and storage, as well as the limited resource for map sharing and the difficulty in dynamic updating of the map. Nevertheless, the problem can be resolved with the help of the mobile network operators. With the increase of the automobile market, the mobile network operators have paid more and more attention to LBS. (c) Enterprise use There are many cases on this aspect, including manage of material flow, track on staff (track on postman) etc. Problems of LBS Although the LBS service has a bright future in the Chinese market, there are still some technical problems which may restrict the development of LBS. (a) The precision of location Currently, the best location technology with regard to precision is GPS. However, it cannot locate under deeply indoor room environment. If located by © VAS CHINA Project [FP6-2004-IST-3-015774 82
  • 82. Summary Report network technology, the precision is much worse. Currently, there is no better solution regarding the location precision. (b) The collection and organization of information LBS services provide the location information finally for the end users. The information includes various electronic map and POI information. In China, there are do various data of electronic map which are not consistent with each other. How to manage and organize this data, e.g., how to synchronize the map data, is a difficult and costly work for network operators and SPs. (c) Vector map browser The LBS provides real time guide service. In case that the map is downloaded through the networks, the data should not be too both for the cost and the speed reasons. The vector map is one of the solutions involving this consideration. However, this method is closely related to the data format used in the GIS systems. But currently there is not a standard data format among the various GIS systems developed by different companies. The heterogeneous GIS systems limit the range of the service coverage. Of course, this problem can be solved by supporting different vector map browsers. However, this solution requires that the handset have high capacity on processing and storage which will increase the cost. Challenges The keys of LBS service are location and geographical information (GI). They supplement each other. The location expressed by longitude and latitude is no sense to common use. But if the longitude and latitude are combined with GIS, the information about place, landmark, orientation can be expressed, which can be understood by human beings. Therefore, in order to be able to provide the LBS service better, we care for not only how to obtain the location of the mobile terminals through the positioning system, but also how to transform the location information to GI, for example, map, the route searching and so on. (a) Challenges to terminal manufactory It is important for terminal manufactories to design and produce the equipments that can support GPS, CellID-RTT and A-GPS network. And the equipments must have high capacity on calculation in order to support vector map and need faster response capability. (b) Challenges to SPs For SPs, it is very difficult to provide GI service themselves. SPs need to consider how to connect to mobile network operators providing the location navigation service, what GIS they should use, how to maintain map data, how to develop the LBS services and how to expand the market. If each SP invests his money to establish a platform for GIS and maintain the platform alone, they will meet many difficulties that cannot be overcome. Therefore, network operators act in a leading role in the LSB service market. © VAS CHINA Project [FP6-2004-IST-3-015774] 83
  • 83. Summary Report 5.3.4 Streaming Media Streaming media is a service supporting the media transmission in streaming. Streaming media service is mainly oriented to GPRS/EDGE, and UMTS wireless packet networks providing high network bandwidth. According to the resources of streaming media, streaming media can be divided into audio and video services. The characteristic of streaming media is that it is not limited by time and location. With the advent of 3G network, the streaming media service becomes more attractive. At present, this service is just at the trial phase in China. Prospect of streaming media The streaming media service can be used in the following aspects; it will have a bright market future. (a) Information This kind of services includes information of finance, news, and real time sport news, weather. The client can get a large of information as long as it visits a portal site. The client can also get the information through subscription. The content is transmitted by streaming. (b) Entertainment Entertainment includes downloading and playing online cartoon, audio, video, TV games. This kind of service includes also services like the mobile phone game and watching TV on mobile phone. (c) Telecommunication Telecommunication includes MMS, video phone and teleconference, which makes communication with each other more easily, interesting and comfortable, and makes life more colorful. (d) Supervision Supervision includes the public traffic supervision and family supervision. The management department of public traffic can watch the real time situation of high ways and the main streets through traffic supervision. The situation of the specific range of the roads and the location of different kinds of road services can also be supervised. Provided the digital camera is set up and connected to the Internet, the family and office can be supervised through PCs or mobile terminals. Limiting factors Although streaming media has a wide application field, there still exist some factors limiting the spread of streaming media. Among these factors, technology, network bandwidth, mobile terminals and the type of services are most representative. © VAS CHINA Project [FP6-2004-IST-3-015774 84
  • 84. Summary Report (a) Technology At present, the technology of streaming media is not quite mature yet. Especially the QoS (Quality of Services) problem for media transmission has not been solved properly. In addition, the intellectual protection right is also a hard problem for using the streaming media service. With the technical development in the field of mobile network and terminal, streaming media will applied spreader. (b) Network bandwidth Since audio and video media needs lots of bandwidth for transmission, the network bandwidth of mobile networks becomes one of the key factors for the development of mobile streaming media service. With the advent of 3G mobile networks, more and more mobile streaming media services can be realized. (c) Mobile terminal Currently there are some new mobile phones with video function on the market, but the use time of battery is too short and the price of the mobile phones is also too high. Moreover, it needs time to see high quality video mobile phone on the market. (d) Type of services Although the mobile networks can provide wireless streaming media service, the type of the services that can used by end users is still limited. Lots of new models of audio and video games are needed. Due to the limitation of the mobile terminals, short, simple and individual games are needed. It is an important problem that what kind of audio games and video games should be provided. How to provide and deploy the games is also a hard task. 5.3.5 M2M (Machine to Machine) M2M service needs data transmission from one machine to another machine at a high speed. The network bandwidth of GSM/GPRS network is relative small, which restricts the spread and development of M2M applications. But with the advent of 3G mobile networks, the development and popularity of M2M services becomes possible. The terminals that will be used for communication from man to man in the future are only 1/3 of the whole terminal market. The most communications will be from machine to machine. In the world, the quantity of machines is 4 times of the quantity of man, which means a potential huge market for M2M service. M2M belongs to the service aimed at equipments. Nearly all equipments in the daily life possibly become potential service object. For example, automobiles and the related parts, such as gas stations, electronic measure meters, elevator and charging equipment for parking, as well as the parts used at home can all © VAS CHINA Project [FP6-2004-IST-3-015774] 85
  • 85. Summary Report transmit and receive data. The life style will be changed due to this service is clear. Prospect of M2M service Generally speaking, the M2M service can be used in the following two aspects: (a) Supervision This kind of services includes collection of the industrial data, for example, traffic, water conservancy, reconnaissance, electric power, environment protection and weather data. In addition, supervision, such as supervision of vehicle, remote overloading, overpressure etc., belongs also to this kind of services. Moreover, supervision of equipment status, like informational home electric appliance, boiler, machine tool, project of water conservancy etc., is also studied and applied in the context of M2M service. (b) Maintenance Maintenance means remote maintenance and dealing with emergency, such as automatic and remote diagnosing and fixing the elevator failure. It includes also remote patrol, and collection of event data of an accident. From the above analysis we can see that M2M service has a close relationship with the daily life. There will be more and more cases where M2M is used. Therefore M2M service will have a prosperous future both in China and in the world. 5.3.6 Other Emerging Services Besides mobile phone games, mobile phone E-mail, web browse, urgency location, images sending, mobile QQ are also becoming more and more popular in China. 5.4 Analysis of the Development of Mobile VAS in China China mobile telecommunication network is becoming the largest mobile communication market in the world. According to VASC report [1] at the end of 2003, mobile phone users reached 268.69 million in China, and mobile phone penetration rate reached 20.92 per hundred persons. According to the MII reports, the mobile phone users has reached 329.9 million in November 2004 in China, and it will break through 700 million in 2010. Regarding to the operator’s revenue, the gross mobile industry revenue is 215.5 billion RMB Yuan in the year 2002, 242.5 billion RMB Yuan in 2003, and 264.8 billion in 2004 respectively. It is estimated that the revenue of mobile communication © VAS CHINA Project [FP6-2004-IST-3-015774 86
  • 86. Summary Report will reach 380 billion RMB Yuan in 2006, and will break through 500 billion RMB Yuan in 2010. 5.4.1 Development Features The features of the development of mobile VAS currently in China can be summarized as follows: • After several years’ development at a high speed, both the number of mobile VAS users and the income level have already reached a large scale. And at the same time, the increasing speed becomes lower gradually, but still higher than that of other services. Therefore, the income of mobile VAS shares an enlarging part in the whole income of the mobile communication income; • The income structure of mobile VAS is relative simple. The income of SMS occupies the majority. With the development of other VAS, the income proportion of SMS will drop gradually; • Whether the mobile VAS market will enlarge is influenced by diverse factors. The interaction and usability are the internal foundations, and the price of mobile terminals and services are the important external factors. At the same time the scale of user groups is an important factor when determining the investment to the whole industry chain. • With constant progress of technology and the development of mobile VAS market, services such as MMS which incorporates together characters, pictures and videos will experience a great development. 5.4.2 Development Structure of Mobile VAS At present, the development of each service is extremely uneven in China. Fig. 27 illustrates the number of users of different services in the year 2002, 2003 and 2004 in China. Here we can see that the SMS service has the largest scale. In 2002, SMS subscribers account for 92.3% of the total mobile VAS users, for 94.7% in 2003, and for 96% in 2004. © VAS CHINA Project [FP6-2004-IST-3-015774] 87
  • 87. Summary Report Unit:million 40000 35000 33400 number of mobile users 30000 26800 number of vas 25000 20661 users 20000 18400 17664 14840 number of SMS 14060 15000 users 8265 10000 7630 number of WAP 3500 users 5000 175 630 1200 0 150 number of 0 MMS/color E 2002 2003 2004 Figure 27 Number of mobile VAS users Figure 28 shows the revenue shares of different services. According to the statistics of iResearch, the mobile VAS market for SPs is basically the SMS market in 2002, and the amount is 1700 million RMB Yuan. In 2003, although the mobile VAS based on 2.5G market has begun, the SMS market still kept a high speed increase, and accounts for 77% of the VAS market of SPs. In 2004, the SP VAS market scale reached 7900 million RMB Yuan, among which 52% are income of SMS. The proportion of SMS in the whole VAS market has declined, whereas the proportion of MMS has increased. 9 8 unit: billion 0.6 7 1.6 6 0.8 5 0.3 0.8 4 0.3 0.23 0.2 3 2 4.1 0 3.4 1 1.7 0 2002 2003 2004 SMS MMS WAP IVR wireless game Figure 28 Revenue structure of mobile VAS market in China © VAS CHINA Project [FP6-2004-IST-3-015774 88
  • 88. Summary Report SMS After the rapid development in the past several years, the traditional SMS will maintain its increasing trend. However, the increase rate will decrease year by year. The market will be mature in 2008. At that time, almost all mobile phones will support MMS service, and 3G service will be mature. The price advantage of SMS will be lost with the price decreasing of MMS. The traditional SMS communication, which is “person to person” communication, will enter into “person to machine” or “machine to machine” mode. In the future, SMS will be used in the field that needs little information exchange, such as text messaging services (e.g., joke, storiette, small pieces of knowledge and weather report etc). Its strong interactive capability can provide virtual space, in which users can use a virtual ID to communicate with others and express their emotion freely. SMS games and SMS chat will contribute the most profit of SMS service. MMS The MMS service will increase at a high speed in the next years, and it will take up parts of the SMS market. Technological speaking, the MMS service will support single direction high quality information transmission. Its target users' age will between 25 and 40. The key successful factor is the integration of high quality information source. CRBT CRBT service was provided in Korea one year earlier than that in China. Users of CRBT service reached 33-35 percent of mobile phone users in 12 months, and it reached 70 percent in 24 months in Korea. With regard to the development of CRBT in Korea and its similar service features with SMS, CRBT service will be the next killer application in China following SMS in the field of mobile data valued-added service field. The number of users will reach 80million, its penetration rate will be 20%, and its market scale will be 5 billion RMB Yuan. In 2008, CRBT service will gain its highest penetration rate, and 85 percent mobile users will use this service. 5.5 Selected Mobile VAS Services BUPT is very active in the development of VAS services. Some of the developments are in practical use; others are still in a prototype stadium. 5.5.1 M2M in China Yuhong Li, BUPT, provided an overview of M2M VAS in China. She started her presentation with a detailed look at the Huawei M2M networking model for © VAS CHINA Project [FP6-2004-IST-3-015774] 89
  • 89. Summary Report industry and big enterprises. It includes components for enterprises and for telecommunication companies. An M2M Service Gateway converts service carrier protocols, traffic collecting and supervising, QoS negotiation. Potential application areas are: • Advertising: e.g. no. of parking places • Traffic information • Sensor data collection • Ehealth • Epayment • Media transfers It is, however, still unclear whether the model has been put to practice. The presentation continued with further sample M2M applications in China: • Home-school connection has been deployed in Urumchi: pupils carry a school badge with RFID, at the school gate the RFID tag is read, a notification is sent to parents via SMS • WIIS (Wireless Industrial Information Support), promoted by Chongqing Mobile provides remote monitoring and control • Beijing Railway Information Wireless Transmission System, based on EMIP (Ericsson M2M intelligent Platform) • Biao Qi: Environmental monitoring and management, already in use in several provinces such as Hunan, Henan, Sichuan Based on the analysis of the sample applications a gross M2M System Framework Model was derived, identifying the major technical components and their connections. Communication is mainly built upon GPRS and SMS; MMS, WAP and 3G are under consideration. Qualifications for deploying M2M: • No special license for M2M services is needed Future M2M • Home: intelligent control and management • Facility management 5.5.2 Sample VAS Services Prof. Liao introduced the mobile intelligent network System-CMIN02™ as a basis for some VAS that have been developed by BUPT and that are run in Hainan province. The VAS examples from Hainan province included: • Colored Ringback Tone CRBT • Coloring Echo Background Tone CEBT • Coloring Ringback Download CRD © VAS CHINA Project [FP6-2004-IST-3-015774 90
  • 90. Summary Report • Personal Information Management PIM (cell phone address book synchronization,), • Mobile Payment MP CRBT When performing a call to a particular number the caller gets an individual ring tone that has been selected by the callee. This is a “standard” VAS application provided by mobile operators at a fee of 5 RMB per month. CEBT During a connection background music is played. The participants can select different sounds by pressing a number. They can also control volume by pressing according buttons. CRD A caller can download the ringback tone of the called site and use it automatically as his own ringback tone. PIM A user’s cell phone address book is automatically updated with the user’s backend address book that is maintained on a server of the mobile operator. The backend address book can be accessed and maintained by using a Web application. As a prerequisite terminals have to be OMA DM compliant terminals (OMA SyncML and its inherent security concepts). MP The mobile operator maintains an account for each user as an electronic wallet (max. 100 RMB). This wallet can be used for electronic payments then. As a sample application a cinema eTicket service has been implemented, using 2- dimensional barcode tickets and a mobile reader. Cinemas can rent the service and reader equipment from the mobile operator CMCC. All services were shown in a live VAS demo. 5.5.3 Mobile Virus Killing More and more viruses (100+ today) for mobile phones are detected. The NetQin prototype monitors Symbian cell phones (S60 series) in real-time and supports repair of infected files. It is intended as a VAS (free of charge for start, updates are charged). As future work Dr. Zou envisages firewalls and waterwalls (info leakage) for mobile terminals. 5.6 Mobile VAS Technology Issues At the second VAS CHINA workshop Luliang Jiang presented new technologies for VAS from Nokia’s perspective. He gave a quick overview of SIP (Session © VAS CHINA Project [FP6-2004-IST-3-015774] 91
  • 91. Summary Report Internet Protocol), OMA DRM (Open Mobile Alliance’s Digital Rights Management) and location technologies for LBS. 5.6.1 SIP SIP is a signalling protocol for Internet conferencing, telephony, presence, events notification and instant messaging. More information can be found under http://www.sipforum.org/ or http://www.ietf.org/html.charters/sip-charter.html . 5.6.2 OMA Digital Rights Management OMA DRM covers a strong market demand as content sales become more and more popular. OMA DRM is developed by representatives from the complete value chain. First specs are available from Nov. 2002. Specs include rights and constraints. OMA DRM is supported by device. DRM 2.0, which is currently under development, provides stronger security to protect premium content. 5.6.3 Location-Based Services (LBS) Basically, two technologies can be used for the positioning part of location- based services: GPS (Global Positioning System) or cell-based network positioning. Several technologies for cell-based positioning are available, providing different degrees of accuracy. Generally, cell-based positioning is less accurate than GPS, in particular compared to A-GPS. A-GPS over control planes is expensive and needs a lot of extensions on network and protocol level. Hence, a new technology is under study: user plane location/A-GPS that requires only minimal changes. 5.6.4 Importance of These Technologies for the Chinese VAS Market • LBS is very problematic as position is subject to regulation as well as digital maps. • DRM is not critical but not really implemented yet. • SIP enables parallel use of data and voice services (e.g. phone and game) According to Prof. Cheng SIP is preferred by China for NGN, not only for mobile services. 5.7 International Developments To get an idea of China’s position in the global developments of VAS, experiences and developments from the European perspective are included at this point. © VAS CHINA Project [FP6-2004-IST-3-015774 92
  • 92. Summary Report 5.7.1 VAS in Germany Bernhard Holtkamp presented a brief overview of VAS in Germany. The key mobile operators are T-Mobile, Vodafone, O2 and eplus. There is a wide range of service providers that act as distributors for SMS and MMS, have specialized on particular VAS services (e.g. mobile advertising), or provide VAS services that are related to their core business. As examples for the latter category the VAS offers of Deutsche Bahn (German railway, see www.bahn.de), Lufthansa (German airline, see www.lufthansa.de) and Vodafone (www.vodafone.com) are discussed in more detail. These companies provide customer services like check in/reservation services or entertainment services. Vodafone also offers business services for fleet management and for M2M as well as mobile office services. Established technologies in the VAS domain are SMS, MMS, WAP, information download, cell-based location detection, WLAN and mobile Internet access. Upcoming technologies are Voice over IP (VoIP), video telephony, mobile TV and WIMAX. Established applications are • Notifications, messaging (SMS) • E-Mail • Ringtone and wallpaper downloads • Greeting cards (MMS) • Transport schedules, traffic situation (WAP) • Mobile Internet Portals (e.g. Vodafone live!, t-zones) • Mobile office (e.g. Vodafone, O2) • M2M (e.g. Vodafone, eplus) • Corporate fleet management Upcoming applications include • Music download (acceptance problems with pricing schemes) • Navigation and routing • Mobile TV, DVB-T/DVB-H • Mobile networked games • DMB (Digital Multimedia Broadcasting) Vodafone also provides enabling services to easily assemble VAS applications according to particular demands. Modules are available for SMS/MMS distribution, for mobile payment, for location-based applications and for e- ticketing. 5.7.2 M2M in Germany Bernhard Holtkamp presented some information on the M2M market in Germany. The presentation started with some market forecast figures from major market research companies like McKinsey, Forrester or Gartner. According to their forecasts the M2M market will quickly grow to a multi- billion dollar market in 2007 with 100 million M2M connections via mobile phones. © VAS CHINA Project [FP6-2004-IST-3-015774] 93
  • 93. Summary Report Key players on the technology sector are Siemens, SonyEricsson, Wavecom, Nokia/Aplicom and Wyless, providing M2M modules, platforms and/or networks. Among the key players on the service sector are Atos Origin, DEGEN, Echnaton, Komsa, Materna, Mobile solutions, Schlumberger and Siemens Communication. The main application domains are automotive, fleet management, transport/logistics, facility management, metering/reading and vending machines. Mobile operators T-Mobile and Vodafone offer special tariffs for M2M, even for international applications within Europe. The presentation ended with a closer look at the German TollCollect system (see www.tollcollect.de) as a flagship application for M2M. TollCollect is an M2M infrastructure that monitors truck traffic on German highways to charge truck-based transportation according to highway use. The system started operating on January 1, 2005. At that time more than 320,000 trucks were equipped with on-board units that report the truck’s id and position automatically to the TollCollect backend when entering or exiting a German highway. Until the end of 2005 this number has increased to almost half a million trucks. Within one year of operation the number of registered vehicles has climbed to about 730,000. The revenues from the charged fees for about 23 Billion highway kilometers driven by the monitored vehicles are in the range of 3 Billion Euros. In the discussion the role of M2M modules were as well discussed as the value chain for the TollCollect application. It also turned out that no general model for an M2M value chain could be identified so far. 5.7.3 VAS in Finland Mika Hongisto presented an overview of VAS in Finland. The presentation gave insight into mobile service revenues, trends and developments in Finland for business and consumer sectors (See references for more detailed information [3][4] [4]). Current and future market penetration of different technologies was discussed and some examples of current and future VAS services were detailed. Here is a short summary. Following are the mobile service classifications used in figure 29. Private Communication • Messaging (SMS, MMS, E-mail) • Push-to-talk, and other forms of private messaging Content services • Text-based content services and ringtones • 2.5G content services (WAP, MMS) • Downloadable applications and other content © VAS CHINA Project [FP6-2004-IST-3-015774 94
  • 94. Summary Report Data services • GSM-Data, HSCSD, GPRS, EDGE, UMTS, WLAN Figure 29 Mobile services markets in Finland 2002–2005 (M€) (Source: [2]) Private user trends in Finland • Mobile phone market penetration was 95% of population in 2004 (2002 men 90%+, women 80%+) • Phone market is saturated and revenue from private messaging services is staying stagnant due to price competition between operators (revenue from phone calls is decreasing) • The most important new features in private user sector are Colour display, GPRS/EDGE, WAP, MMS and Java functionality © VAS CHINA Project [FP6-2004-IST-3-015774] 95
  • 95. Summary Report Figure 30 The number of mobile terminals with colour displays, GPRS, WAP, MMS and Java in Finland (Source: [2]) 5.7.4 France Telecom Orange Mobile VAS Experiences Jacques Luo, France Telecom, presented a summary of experiences with VAS in France based on 3G services launched in December 2004. Today in France 4 networks are available: GPRS, 3G, EDGE and WiFi. Main services provided as commercial offers are • Video conferencing (wifi) • Video phone (UMTS) • Business Everywhere • Downloading • Mobile internet access • Video on demand • Mobile TV, more than 20 programs, DVB-H under test now • Push-to-talk service recently launched • Blackberry email service also launched Consumer market (03/2005) for Orange World, launched in 12/2004 • 40.000 users, young (<35), urban • high ARPU • multimedia users © VAS CHINA Project [FP6-2004-IST-3-015774 96
  • 96. Summary Report • 80% usage on Orange World • 50% usage of video: 10 videos/user x month • 40% usage video phone: 28min/user x month • most successful themes: news, sports, music, cinema • 25% usage mobile TV Business market (03/2005), launched in 09/2004: • 17,000 clients 3G enterprises • majority: business everywhere – 40 MB/user x month • Orange Intense Enterprises (synonym for Orange World): 17 MB/user x month Devices • PC cards • Mobile terminals, upcoming a device that can make use of all 4 supported networks Segments of services: • www/WAP – no specific services, • Kiosk – broad set of services, • Orange World – selected services of controlled quality Gallery services: similar to I-mode Service success factors: • Pricing is key • Strong brand • Easy to remember, easy to type name • Innovation • Up-to-date content Trends: • integrate communication channels • focus will be on services, not on bandwidth or other technology issues. • M2M is also considered as a growth market. © VAS CHINA Project [FP6-2004-IST-3-015774] 97
  • 97. Summary Report 6 VAS Market Entry Process in China Foreign candidate companies that intend to provide value-added services in the Chinese mobile communication market have to pass 3 phases: • Partnering with a Chinese company • Applying for a license as a service provider • Cooperation with a mobile operator These steps are mandatory due to WTO (World Trade Organisation) and Chinese market regulations. Phase 2: Apply for VAS License with MII for y multiple provinces or with Telecommunication Administration Bureau (TAB) for a single province Approval y granted? Foreign-invested telecom Business Operation Approval Examination and Approval granted? Opinion Value-added Telecom Services Operating y y Permit (5 years validity) Phase 1: Set up Foreign-Invested Phase 3a: Assure Telecom Enterprise, compliance with approved by Ministry mobile operator of Information infrastructure Industry (MII) requirements Test passed? Certificate y y European VAS Phase 3b: Contract Service Provider VAS provision with intends to enter mobile operator Chinese Market Provide VAS Services Figure 31 Overview of the VAS market entry process in China © VAS CHINA Project [FP6-2004-IST-3-015774 98
  • 98. Summary Report 6.1 Telecoms Regulations and Policies In the following we give a brief overview of regulations and policies related to mobile VAS provision. Background information, i.e. laws and regulations can to some extent be found under http://www.fdi.gov.cn , partly in English and partly in Chinese only. 6.1.1 Network Construction MII is responsible for the overall planning of the telecom network construction. Regarding to this aspect, the main regulation is: Administration Measures of the Telecommunication Constructions, which was issued by MII and National Development and Reform Commission on Feb. 2002. The following list of regulations is also related to different aspects of network construction. Telecoms Price • Notification for Performing Market Prices for Certain Services, issued by MII and the former National Planning Commission on Jun. 2002. • Regulation for Marking Telecom Service Prices Clearly, issued by MII and the former National Planning Commission on Jun. 2002. • Regulation of the Approval and Registering Procedures of the Telecom Service Prices, issued by the former National Planning Commission and MII on Aug. 2002. Telecoms Resource • Radio Administration Ordinance of People's Republic of China, issued by State Council of the People's Republic of China and Central Military Commission on Sep. 1993. • Notification of the Access Number Usage of the VAS covering multiple regions, issued by the Telecoms Administration Bureau of MII on Oct. 2002. • Notification of the 3rd Generation Public Mobile Telecom System Frequency Planning, issued by the Radio Administration Bureau of MII on 2002. • Provisional Administration Measure for the Telecom Networks Code Numbers, issued by MII on Apr. 2000 Market Admittance • License Administration Measure for Telecom Services Operation, issued by MII on Jan. 2002. • Administration Measure of the Telecom Devices Admittance, issued by MII on May 2001. • Administration Ordinance for Foreign Enterprises Investing in Telecom Enterprises, issued by the State Council on Dec. 2001. • Administration Ordinance for the Radio License, issued by the Radio Administration Bureau of MII on May 1999. © VAS CHINA Project [FP6-2004-IST-3-015774] 99
  • 99. Summary Report Services quality and Inter connection • Provisional Supervising Measure for the Telecom Services Quality, issued by MII on Jan. 2001. • Administration Ordinance of the Public Telecom Networks Interconnection, issued by MII on May 2002. 6.1.2 Regulations and Policies on FITEs According the stipulation of Chinese law, foreign investors who want to invest into telecommunication services must obey the correlative laws about joint ventures. These laws mainly include the following: • Provisions on the Administration of Foreign Invested Telecommunications Enterprises (外商投资电信企业管理规定)2002.1.1, regulation 333 • The Law of The Peoples Republic of China on Chinese-Foreign Equity Joint Ventures. • (中华人民共和国中外合资经营企业法) (2001.3.1) • Regulations for the Implementation of the Law of the People's Republic of China on Joint Ventures Using Chinese and Foreign Investment • (中华人民共和国中外合资经营企业法实施条例) 2002 • Provisional Rules for Investment in China by Enterprises with Foreign Investment (2001.9.1) • 《关于外商投资企业境内投资的暂行规定》 • Interim Provisions for Foreign Investors to Merge Domestic Enterprises 2003 • 外国投资者并购境内企业暂行规定 • Mainland and Hong Kong Closer Economic Partnership Arrangement 2003 • 《内地与香港关于建立更紧密经贸关系的安排》 • Mainland/Macao Closer Economic Partnership Arrangement • 《内地与澳门关于建立更紧密经贸关系的安排》2003 • Regulation on Telecommunications of the People’s Republic of China 2002 • 中华人民共和国电信条例 • Regulation on Internet Information Service of the People’s Republic of China • 互联网信息服务管理办法 2000 FITEs that operate cross-border telecom business must be carried out through an international telecom gateway office that has been established with the approval of the relevant State Council Information Industry Department. FITEs that violate this regulation will be fined between 200,000 RMB and 1 Million RMB if the situation is not corrected within a limited amount of time. If the situation is not remedied in the set time period the Operating Permit for Telecom Business and the FITE Approval Certificate will be cancelled. A FITE that provides fake or counterfeit evidence of qualifications or documents of confirmation will levy a fine between 200,000 RMB and 1 Million RMB and the FITE Approval Certificate will be cancelled. © VAS CHINA Project [FP6-2004-IST-3-015774 100
  • 100. Summary Report FITEs that operate telecom services that violate telecommunications regulations or other related laws or administrative regulations will be punished in accordance with the law. 6.1.3 Commitments to WTO Regarding VAS According to Report of The Working Party on The Accession of China, the arrangement open to foreign Telecommunication Value-added services include following: • Electronic mail • Voice mail • On-line information and database retrieval • Electronic data interchange • Enhanced/Value-added facsimile services • (Including store and forward store and retrieve) • Code and protocol conversion • On-line information and/or data processing (including transaction processing) Foreign service suppliers will be permitted to establish joint venture value- added telecommunication enterprises, without quantitative restrictions, and provide services in the cities of Shanghai, Guangzhou and Beijing. Foreign investment in joint venture shall be no more than 30 per cent. Within one year after China's accession, the areas will be expanded to include Chengdu, Chongqing, Dalian, Fuzhou, Hangzhou, Nanjing, Ningbo, Qingdao, Shenyang, Shenzhen, Xiamen, Xi'an, Taiyuan and Wuhan and foreign investment shall be no more than 49 per cent. Within two years after China's accession, there will be no geographic restriction and foreign investment shall be no more than 50 per cent. 6.2 Phase 1: Partnering with a Chinese Company Since China’s joining of WTO on December 11, 2001, as the 143rd member the Chinese communication market is stepwise opened for foreign companies. © VAS CHINA Project [FP6-2004-IST-3-015774] 101
  • 101. Summary Report Approval y y granted? Foreign-invested telecom Business Operation Examination and Approval Opinion Principle Chinese investor (min 30 percent share) must Phase 2 Examination - be a lawfully-established (90 days) company - have the appropriate funds and specialized staff - meet the industry-specific requirements stipulated by MII Submit application to The minimum registered The minimum registered Telecommunications capital of the foreign capital of the foreign Submit application Administration Bureau invested telecom enterprise invested telecom enterprise to MII (TAB) of the target must be RMB 1 Mio. must be RMB 10 Mio. province y Provide VAS across several n provinces? Set up Foreign- Max 50 percent share of Invested Telecom foreign company Enterprise VAS offer must match with Find Chinese WTO classification list VAS Partner (2001 or 2003?) Legal Basis: - Telecommunications Regulations of the PRC European VAS - Administrative Regulations on Service Provider Foreign-Invested Telecommunications intends to enter Enterprises Chinese Market - Administrative Regulations on Internet Content Services - Measures for the Administration of the Telecommunications Service Operating Permit Figure 32 Phase 1: Setting up a FITE © VAS CHINA Project [FP6-2004-IST-3-015774 102
  • 102. Summary Report 6.2.1 Foreign Investment Telecommunications Enterprises (FITE) for Value-Added Services For value-added services the third step of opening has already been reached and foreign companies are allowed to found nationwide joint enterprises and hold up to 50% shares. According to WTO agreements for mobile communication and data services the second step of opening has been reached that allows foreign companies to found joint enterprises in the cities Chengdu, Chongqing, Dalian, Fuzhou, Hangzhou, Nanjing, Ningbo, Qingdao, Shenyang, Shenzhen, Xiamen, Xi'an, Taiyuan and Wuhan. The shares of foreign companies should not be more than 35%. In a third step this will be extended towards nationwide joint enterprises and hold up to 49% shares by the end of 2006. If the foreign companies invest in telecom enterprises to provide nationwide VAS, the registered capital must be more than 10 million RMB. If the foreign companies invest in telecom enterprises to provide VAS within a certain province, the registered capital must be more than 1 million RMB. Foreign investors which will invest in telecom companies to provide VAS in China must have good reputation for providing VAS. SPs must have a customer services systems, sound technical capability and market risk controlling capability. The managers of the SPs must have more than one year's experience in the field. 6.2.2 FITE Registration Process Generally speaking, there are four steps to found a FITE and apply for a VAS license: • An applicant submits the project proposal or feasibility study report and other related certificates to the Management Department of Information Industry (Department of Overall Planning). After passing the examination, the applicant will get an approval position paper. • The applicant submits contracts used to establish a FITE to MofCom. After passing the examination, the applicant will get the approval document from MofCom to establish the FITE. Foreign companies must obtain the "approval for foreign capital invested company" to invest in telecom services in China. Only after obtaining this approval from MofCom, the primary local partner could apply for the license to provide telecom services. • The applicant has to apply for a license to the Management Department of Information Industry (TAB) . • Finish the enterprise registering procedure in the Bureau of Industry & Business Administration. The content of the application must include the following sections: • the name of partner and basic situation, © VAS CHINA Project [FP6-2004-IST-3-015774] 103
  • 103. Summary Report • the total investment, • registered capital, • the ratio of investment, • the business category applied for and • the time limit of joint venture. The content of the feasibility research document must include the basic state of joint venture planning to establish, the service item, prospect of service, development plan and the analysis of investment benefit of the business. According to the “Regulation on Internet information services”, which was issued by the State Council, companies should get the approval of corresponding departments for providing information services on news, press, education, health care, medicine and medical appliances. 6.3 Phase 2: Getting a Service Provider License In principle, founding a FITE and applying for a VAS licnese are subsequent steps. In practice, however, the company will often only be set up if it gets a license. Hence, FITE set up and VAS license application is often intertwined. As the requirements on and the process of founding a FITE have been discussed in the preceeding section, we focus now on the license application part. We first discuss the process and have then a look at the current licensing situation. 6.3.1 VAS License Application Process MII is in charge of the examination and approval of all the primary telecommunication services. • The company must apply to the local Telecom Administration Bureau for the license to provide value-added services within a single province. • The company must apply to MII for the license to provide value-added services covering multi-provinces. • Neither MII nor operators do charge for the license © VAS CHINA Project [FP6-2004-IST-3-015774 104
  • 104. Summary Report Prepare Application as Apply for VAS VAS Service License with MII Provider Formal application primary information about the company finance information business feasibility study technical report certification of the company’s reputation ... Preliminary Supplement Examination (15 n (within 30 days) days) passed? Foreign-invested telecom Business Operation Examination and Approval y Opinion Set fine and Correct Data? n deny application Business feasibility study for 3 years can be provided later than the rest of the application y input ------- this time is not counted MII Evaluation (60 days) Phase 1 Approval granted? Value-added Telecom Services Operating Permit y (5 years validity) Phase 3 Figure 33 Phase 2: Applying for a service provider license The VAS license, a company can apply for is defined in a service classification list that has been defined by MII. This list exists in two different versions: the original version from 2001 and a revised version from 2003. To apply for a VAS license, the applicant must provide detailed information consisting of: • formal application signed by the legal representative, • the primary information about the company, © VAS CHINA Project [FP6-2004-IST-3-015774] 105
  • 105. Summary Report • finance information, business feasibility analysis report, • technical report, • certification of the company's reputation. Telecom Administration Bureau (TAB) should finish the primary examination within 15 days since they receive the applications for providing value added services. If the application material is not complete, telecom administration departments will inform the applicant to complete the material. After the material is complete, telecom administration departments will inform the applicant formally. TAB should finish all the examinations within 60 days since they acknowledge the completeness of the application material and make the decisions to approve or reject the application. MII should approve or reject an application to form a foreign-invested value- added telecommunications company within 90 days. Practice, however, seems to look different. The times are often exceeded by the request for additional information. After the approval of the application, the applicants must have the legal corporation qualification before they can get the licenses for providing VAS. For a rejected application, TAB should inform the applicant formally and clarify the reasons. For unqualified application material, the applicants must complete the material within 30 days since they receive the notice. Else the application will be treated as being disclaimed. If the applicants are found to provide false information, the relevant applications will not be approved and the applicants will not be allowed to apply for providing telecom services within 3 years. The period of validity of the license is 5 years. The notification clarifies the differences between the new version of the VAS license and the old one, such as the serial number, coverage of the license, the period of validity and so on. On April 15, 2004, MII promulgated a “Notice on the Relevant Issues Concerning Regulating Short Message Services,” or the SMS Notice, requiring, among other things, that mobile carriers only provide SMS network access to those SMS providers who have obtained relevant services licenses. © VAS CHINA Project [FP6-2004-IST-3-015774 106
  • 106. Summary Report 6.3.2 Licensing Situation So far over 16 000 Service Providers got licenses granted. Among them are 831 with domestic licenses, the rest is limited to province level. The number of FITEs that have applied for VAS licences was 18 in November 2004. First, only two FITEs, UNISK and hl95, got a “Value-Added Telecommunication Services License”. Until June 2005 22 FITEs had applied for licenses and so far the number of accepted licenses has increased to four: • SK Telecom • Microsoft • Hong Kong Honglian 95 • ESPN Star Sports. Recently, UK based Monstermob entered the Chinese VAS market by buying the Chinese service provider ATOP. The main reasons for applications have not been approved vary from case to case. Examples of these reasons include: • Wrong shareholders of the applying company • Wrong license type (some licences are only available for domestic companies) • Inadequate entry fee (one million RMB for local and 10 million RMB for countrywide services) • Not following joint-venture regulations correctly • Not following telecom regulations correctly 6.4 Phase 3: Cooperation with Mobile Operators VAS service providers can only offer their services through mobile operators. Hence, a close cooperation between mobile operators and service providers is mandatory. Thus, mobile operators are key elements in the VAS value chain in China: • CU’s (China Unicom’s) U-Magic BREW: 13.5 Mio RMB in 2004 Technical support, 200 development companies, more than 800 BREW applications • CMCC’s (China Mobile Communication Organisation) Magic Box: 1000+ mobile games, 1.33 Mio. Registered users, 10 Mio. Java handsets Mobile operators regulate the VAS market to a significant extent: • They determine VAS service fees. • They select service providers according to their service portfolio they want to offer. • They exclude service providers who do not generate sufficient revenues (less than RMB 10,000 per year or the bottom 5 percent of SPs). © VAS CHINA Project [FP6-2004-IST-3-015774] 107
  • 107. Summary Report • They monitor service contents and service quality. • They control service access and billing. Hence, cooperation between SP and mobile operator includes the passing of conformance tests and the negotiation of contracts for service provision. Apply for Compliance Testing with Mobile Operator Mobile Operator Compliance Testing Test passed? Certificate y y Revenue sharing: Provide VAS 85 (SP) - 15 (CMCC) Services or 80 (SP) - 20 (CU) Figure 34 Phase 3: Partnering with a mobile operator 6.4.1 China Mobile China Mobile issued "Monternet cooperation information service provider self- discipline treaty". The treaty covers the problems customers have complained about before. Its aim is to create a fair, efficient platform for the value added services. China mobile has revoked the licenses of some SPs who did not meet the requirements since last year. China Mobile is also considering improving the cooperating models such as its revenue-sharing scheme with SPs. © VAS CHINA Project [FP6-2004-IST-3-015774 108
  • 108. Summary Report 6.4.2 China Unicom China Unicom (CU) also adjusted its business cooperation model with SPs. In 2005, China Unicom has issued the following items: • China Unicom will provide 3 months' favouring period for new SPs. • The cooperation with the last ten percent of the SPs will be cancelled according to the revenue. • SPs will not be allowed to apply for certain service if the SPs have ever been revoked the license for that service within the past half years. China Unicom uses Qualcomm’s BREW platform as the basis for VAS provision. Hence, SPs have to make sure that their services are compliant with BREW. A description of the compliance test process can be found under http://brew.qualcomm.com/brew/en/developer/resources/bd/ext_test.html . In addition to BREW compliance testing operator specific requirements must be fulfilled. 6.4.3 How to Become a VAS Partner of China Unicom VAS of China Unicom is mainly based on CDMA (Code Division Multiple Access) service. China Unicom provides nation wide and local network services. The headquarters is responsible for nation wide services while local Unicom corporations handle local ones, respectively. For VAS services the communicating fee belongs to China Unicom. The collected information service fee will be shared between SP/CP and China Unicom according to a fixed rate which is currently 80 percent for the SP and 20 percent for China Unicom. SPs can cooperate with China Unicom in the following services: U-Info, Uni- Info, Music Street (10159) (voice chatting and information consulting), Music Street (10155) (information ordering), U-Mail, U-Magic, U-Map, SP’s qualification of admittance Necessary qualification: • National wide: license to provide Value-added Services covering multi- provinces • Local network: license to provide Value-added Services Relevant copyright and permission a. For those services which contain content such as news, publishing, education, medical treatment and health care, leechdom, medical treatment equipment and BBS service etc. SPs should accord with the © VAS CHINA Project [FP6-2004-IST-3-015774] 109
  • 109. Summary Report scope of business license and the requirement of service kind in the license to provide Value-added services covering multi-provinces. b. Qualification of other services Securities market service: The permission of stock exchange Ring service: The permission of copyright management department such as the musician copyright association etc. c. Services other than those above should provide testifying material of legal service-providing How to present the material a. Applying method: SP should apply for the permission via the submitting system on the internet b. Materials needed Materials needed when applying for the first time is illustrated in Table 6. No. Content Note Application form of Fill the form via SP online 1 connection qualification serving system Corporation business Scan and upload the 2 license colorized original copy License to provide Compe- Scan and upload the 3 Value-added services tency colorized original copy covering multi-provinces applying Download the format 4 material Cooperation plan document, describe the details and then upload Download the format Obligation of document and upload the 5 connecting information colorized scan copy of the security original copy after signed and stamped. Service Fill the form via SP online 6 Service application form applying serving system material Download the format 7 Service project document, describe the details and then upload Download the format 8 Customer serving plan document, describe the details and then upload © VAS CHINA Project [FP6-2004-IST-3-015774 110
  • 110. Summary Report Accessories needed to Download the format 9 be uploaded for the document, describe the services details and then upload Certification of the validity of the information resource, if Scan and upload the 10 the services applied colorized original copy involve contents like ring, news, securities etc. Table 6 Materials needed during the application CP/SP can track the applying state shown in the competency and the service applying of the online system. Applying time limit: 9 workdays from applying procedure finished to application approved During the competency applying and the service applying, if the application is rejected and handed in the second time, the time limit should be recalculated. Qualification examinations Other than the materials mentioned above, SP/CP should: a. Support 10109696 customer service system if they apply for Uni-Info service. b. Provide service supporting website if they apply for U-Info service. c. Obey the administrative measures of China Unicom d. Be provided with capabilities as below: - The corporation should have certain scale, can provide durative personnel、bankroll、environment etc. for service developing、process maintenance、customer service etc which are needed for VAS service. - The services should be distinctive, innovative, applied, maneuverable and can be popularized within the whole network. - The corporation should have the resource and capability and sales plan to do the market popularization. - The corporation should be competent in technology developing and customer service providing. - The corporation should be provided with sound customer service system which can satisfy the requirement of China Unicom’s relevant services on customer service. e. restrictions - The service applied is too homogeneous. - The corporation had seriously disobeyed the rules and left negative impact when cooperating with China Unicom on other services. © VAS CHINA Project [FP6-2004-IST-3-015774] 111
  • 111. Summary Report - The connecting resource is exhausted, such as for the U-Info and U-Mail service, the channel’s bearing capacity is limited. A1 SP The t i me The t i me St at e of St at e of l i m t of i Q i f i cat i on ual l i m t of i appl yi ng appl yi ng handl e appl yi ng handl e SP Appl y f or a account SP Subm t t he i SP Subm t t he i appl i cat i on of appl i cat i on qual i f i cat i on of ser vi ce W t i ng ai 2 f or 2 W t i ng f or ai handl i n W ki ng or W ki n or handl i ng Begi n Begi n g days g days Appl yi ng f or Appl yi ng f or Q i f i cat i on ual ser vi ce 6 handl i ng W ki ng or Q i f i cat i ual Appl i cat i on of days on 7 Handl i ng t he ser vi ce i s W ki ng or appl i cat i on of passed days ser vi ce Appl i cat i on of qul i f i cat i on i s passed The G t he et appl i cat i on qual i f i cat i on , of ser vi ce of connect i on i s passed D ed eni A2:I D ed eni Figure 35 Procedure of application for qualification and services © VAS CHINA Project [FP6-2004-IST-3-015774 112
  • 112. Summary Report The pr ocedur e of si gni ng cont act and ser vi ce t est i ng A2 SP St at e of cont act Si gn t he cont act O i ne nl exam nat i on i SP The t i m l i m t of e i onl i ne exam nat i on i SP St at e of exaam nat i on i Appl i cat i on of qual i f i cat i on has been I passed I I : Appl i cat i on of ser vi ce has been passed , The Chi na Uni com 1、 U - i nf o ni W t i ng f or ai Fi r st , ar r ange t he : 12 working days exam nai on i t est i ng connct i on ; 2、 U i nf o, U m l , st eam m a: - - ai edi Send t he 10 w ki ng days or exam ng i cont act t o SP M c st r eet , U - i nf o usi ni 3、 and new ser vi ces: 8 exam ng i w ki ng days or W t i ng f or ai Fi ni sh Not 4、 U m gi c, LBs E- - ai SP C i r m or not onf conf i r m on ai ( of f l i ne pass, deni ed buseness: 7 w ki ng days or conf i r m t he cont act pr ocedur e) Si ng he O i ne nl SP cont act and exam nat i on i SPC i r m or onf seal i t not conf i r m t he cont act The C na Uni com hi Passed and conf i r m t he 4 w ki ng or onl i ne cont act i s si gned days exam nat i no i Fi ni sh t he cont act or f ai l Fi ni sh ( onl i ne deny pr ocess) The Chi na Uni com make t he m hod of et count ( t he f ee i ng ( of f l i ne ) ocess) pr and col l ect t he dat a 3 wor ki ng days appr oved The Chi na Uni com conf i r m t he ser vi ce i s upl oaded The i nf or m of t he Uni - i nf o The ser vi ce i s ser vi ce wi l l be sent at l aunched f i ni sh , 8, 18, 28, on ever y m h, ont one week l at er , t he ser vi ce l aunched Figure 36 Procedure of service testing and contract Pricing Users will be charged for two kinds of fees, communicating fee and information service fee. Basic pricing models include: 1. Pricing according to count of using the service © VAS CHINA Project [FP6-2004-IST-3-015774] 113
  • 113. Summary Report 2. Pricing according to special events 3. Fixed fee per month 4. Pricing according to the time lengths 5. Pricing according to the service package Counting China Unicom provides the counting service to SPs. If it is counted by China Unicom, SPs keep the statistic of data themselves and check it with China Unicom. If the difference of the data is less than 5%, Unicom statistic data is used as counting standard. If the difference exceeds 5%, the two parties must check it again and find the cause, resolve it based on the fact capabilities. Charge The income sharing models: For every sort of VAS, the communicating fee belongs to China Unicom. The collected information service fee will be shared between SP and China Unicom after deducting 8% bad debts. Settlement The nationwide VAS will be settled down by the parent company and locale VAS is settled down by local company branches. © VAS CHINA Project [FP6-2004-IST-3-015774 114
  • 114. Summary Report S The time S The procedure of The state of P limit of P settlement settlement settlement paymen If not pass , The information is t cancel upload to online syste m The China Unicom sends the Before the 8 th day of the bill of settlement to sp next month Waiting for Sps confirm the bill and 2 th sps ’ Before the day download it , then send it 5 of the next month confirming with invoice to China Unicom S confirmed P S 3 th checking The Unicom confirm Before the day P 0 check failed the bill of the next nonth Confirm the Before the bill of Confirm paymen 5 th day of settlment t the third mont h paying Before the 2 th day of Handeling 8 the third the payment mont h Confirm the bill is paid paid finish Payme nt cancel Figure 37 Settlement procedure © VAS CHINA Project [FP6-2004-IST-3-015774] 115
  • 115. Summary Report 7 VAS CHINA Project Networking The project consortium took efforts to establish relationships with the key players in China’s VAS market: the Ministry of Information Industry (MII), the two mobile operators China Mobile (CMCC) and China Unicom (CU), major service providers and the VAS China Committee (VASC). The roles of these players are briefly sketched in the following: MII: regulates the information market Mobile network operators CMCC and CU: • leaders and organizers of value chains, • have VAS departments, • 6/8 percent of revenues from VAS CMCC/CU in 2003 and 2004 (means that VAS increases at same speed as mobile communication in general), • 168/70 Mio subscribers (Oct. 2003), SPs/CPs: • 11,000+ licenses (June 2004) for service providers in general, • major players: TOM Online, SINA (important partner of CMCC), SOHU, NetEase, Tencent, Linktone, Mtone, KongZhong VASC: acts as a bridge between ministry and industry 7.1 Ministry of Information Industry At the 5th VAS CHINA workshop in September 2005 the project met with representatives from MII. Mr. Lu Jianwen works in the Telecommunication Administration Bureau as the Director of the Division of Market Management. The Telecom Administration Bureau provides license needed for telecommunication business and deals with market access. The bureau is one subsidiary of the Ministry of Information Industry. Mr. Wang Jiachao works in the Department of Overall Planning as the Director of the Division of Foreign Economic and Trade Cooperation. The department deals with regulations and approves applications for join-ventures. In preparation of the meeting a set of questions from the project consortium was collected and passed on to the MII officials. These questions addressed the current status of the opening process of the Chinese telecommunications market as well as the licensing process. In the meeting they tried to answer these questions. © VAS CHINA Project [FP6-2004-IST-3-015774 116
  • 116. Summary Report Mr. Wang started with a summary of the current status in the opening process of the telecom sector. According to the introduction of the official, China has opened the telecom market to foreign capitals step by step according to area, proportion of foreign capital and services types based on the WTO commitment. The “Closer Economic Partnership Arrangement” (CEPA) between China mainland, Hong Kong and Macau has been signed separately in 2003. At present, the area limitations for VAS services have been cancelled and foreign companies can have 50% ownership in VAS companies. Mobile voice services and data services have been opened in seventeen cities to the foreign investment up to 49% ownership. Fixed telecommunications have been opened in, Shanghai, Beijing and Guangzhou to 25% for foreign ownership. Maximum foreign ownership is and stays at 50% according to law. MII deals only with the telecom sector and cannot change general regulations. The following three principles are to be followed when applying the license. • Keep in line with general law of joint-ventures. The law is issued by the Ministry of Commerce • Follow the Chinese promise to CEPA contract • Follow the regulation of telecommunications and FITEs To set up a FITE the first thing to be done is to research regulations and law on joint-ventures. A book dealing with the matters has been published in last November “supervision and regulation”. Currently it is only available in Chinese. Lu Jianwen comments that after a FITE has established a joint-venture and has received the required licenses, it is in the same position as any domestic Chinese company. Formally, it takes 60 days to get telecommunications license for VAS. The first it is needed to get permission to found a joint-venture to apply for the license. See regulation 19 in MII website for more information. Only Chinese companies or joint-ventures can provide the material for applications. If the joint-venture has not been established the Chinese partner provides the required material. There needs to be trust between the Chinese partner and the foreign investor for this to happen. The reasons for rejecting the license vary from applying a wrong license (some of the licenses are available only to Chinese companies), unsuitable shareholders in the joint- venture or Chinese company, insufficient investment (1 000 000rmb for local, 10 000 000 for domestic) and other mistakes in following the regulations. Regulation 333 is also important and is dealing with domestic and foreign issues. MII is only dealing with telecommunication services. Different ministries deal with broadcasting and news. Regulation on internet information services, issued by congress. State council news committee permission to deliver news. To be able to deliver sports you need a license from sports bureaus (well not © VAS CHINA Project [FP6-2004-IST-3-015774] 117
  • 117. Summary Report really for sports, but works as an example). It is necessary to have permission from the corresponding ministry when providing content services. Therefore it is necessary to have distinction between domestic companies and joint- ventures. Telecommunication ministry cannot provide licenses for domains of traditional ministries. Microsoft MSN has a license for information services. ESPN is able to broadcast sports. The entering fee of 1 000 000 RMB for local and 10 000 000 for domestic services are required to guarantee security. It is the same fee for Chinese and foreign companies. Legal system in is not up to date to handle credibility of companies otherwise. MII does not believe that the entry free is an obstacle in the process as there are 16 000 license holders. On the other hand, there is no information what funding channels are used to provide the required entering fee. MII publishes in Chinese, English translations are only available from third parties. Iinformation provided by MofCom is also not translated by the government. Regulations can be changed by the ones that have issued them. For example, originally only new joint-ventures could apply for license. A modification was made so that it is now possible also for existing joint-ventures to apply for a license. There seems to be some kind of change going with regulations and telecom sector. Although the opening has been finished in the VAS-sector iterative changes to regulations are to be expected. 7.2 Mobile Operators In order to establish relationships to key players in the VAS market the project consortium met with the VAS representatives of the mobile operators at the very beginning of the project. 7.2.1 China Mobile During the kickoff meeting we met with Mr. Ma Li from Data Service Department that is in charge of VAS activities within CMCC. Mr. Ma gave a presentation covering • Market • VAS • Next steps The key issues of his presentation are listed below: • Market has increased in 2004 by 21.3 percent. Mobile services will be more and more related to the Internet and appear as personalized and customized multimedia services. • Total revenues were 1,923 Mio RMB, representing a market share of 60 percent © VAS CHINA Project [FP6-2004-IST-3-015774 118
  • 118. Summary Report • Revenue sharing with SPs is on a 15/85 percent basis • 55 WAP SPs provide 400 services • VAS revenues are mainly based on SMS, WAP, ring tone downloads. VAS offer also includes MMS, handset wallet, push mail, games, wallpapers, video clips, banking and e-payment, mobile security services (stock quotes, transactions), video on demand, music on demand and others. • CMCC has some 800+ ISPs (Internet Service Providers) for SMS etc. CMCC has set up MISC (Management Information Services Center) to manage SPs to guarantee quality of services. CMCC also provides SMS and WAP protocol specifications as well as sample solutions on the Monternet web site. Service offers are based on a Java platform from Motorola. • Monternet portal has 17 Mio users 7.2.2 China Unicom Also during the kickoff meeting we had a meeting with Mr. Shu Kesi, Vice Manager Cooperation & Development Division Value Added Service Department, and Linda Yu Zheng, Coordinator within International Cooperation Office. Mr. Shu gave an overview of CU VAS activities. The key issues of his presentation were: • They contribute 8 percent of revenues in 2004, for 2005 more than 10 percent are expected • CU provides a broad range of VAS services. Most important is SMS, followed by WAP (which has been recently upgraded from version 1.2 to 2.0) and ring tone and picture downloads. Subscribers in the age of 16 to 25 use VAS. • More than 400 SPs get most of their revenues from CU. The revenue sharing model is 80/20. 200 more SPs have passed CU compliance tests. • There are many foreign investment SPs, mainly from the US. In the mobile game sector some are also from Korea and Japan. • Service offer is based on BREW from Qualcomm. 7.2.3 GD Unicom Lai Weiguo, China Unicom Guangdong New Services R&D Center, presented the people of Guangdong department. GD has four different departments. Ma Jian introduced members of the VAS-China project and gives the VAS-China project introduction. Discussions were in Chinese. Nie Bo gives a presentation of Guangdong Business operation, including overview, development of the new services, introduction of popular new services and introduction of the new enterprise applications. The local branch of China Unicom in Guangdong, Guangdong Unicom was founded in July 19 1994. © VAS CHINA Project [FP6-2004-IST-3-015774] 119
  • 119. Summary Report GD provides the communication platform and billing services for SPs. SPs provide value added services to the subscribers via the communication platform. The most popular services are IVR services, voice chat, information providing and services on demand CRBT subscribers have reached more than 1.5 million, 15% of the total subscribers. Broadband is the next big thing. Enterprise applications focus on SME and industries, such as security, public security, traffic, education, fishery, medicine and so on. New services are under development: clairvoyance (video feed from surveillance camera), push to talk (ptt), enterprise CRBT, mobile secretary, mobile office, SMS interactive platform, mobile mailbox, LBS, etc… 7.2.4 GZ Mobile GZ Mobile has over 10 Million customers, representing a market share of 70 percent. • VAS revenues was more than 2,000 Mio RMB or 22 percent of total revenues. • The main services of VAS include SMS( 50%), WAP, MMS, ringback tone, KJAVA, IVR and location service. • GM provides network, portal and billing service for SPs, SPs provide technical platform, application and content. The rate of revenue-sharing is 15/85. • More than 300 SMS SPs provide more than 9000 services. • More than 200 WAP SPs provide more than 4000 services. • More than 100 MMS SPs provide more than 1000 service. • More than 100 KJAVA SPs provide more than 4000 services. Main services include CDMA, GSM, VAS, 193, IP phone, 165 and private line. These services are based on CDMA1X technology. GD has 7.38M customers with, • more than 170 SMS providers provide more than 3000 services • 127 WAP services providers provide more than 300 services • more than 43 crbt providers provide about 5000 ring tones • there are more than 50 ivr providers 7.3 Service Providers To get a deeper insight into the VAS value chain the project also started to contact service providers. As TOM Online is one of the biggest SPs for CMCC as well as for CU a meeting was arranged for the second VAS CHINA workshop. 7.3.1 TOM Online Craig Watts, International Business Development Director, gave an overview of TOM. The key issues of his presentation and the following discussion are listed below: © VAS CHINA Project [FP6-2004-IST-3-015774 120
  • 120. Summary Report • Introduction of TOM (no. 23 worldwide regarding visitors, no. 1 in China on wireless content) • Users between 15 and 23 • 61 Mio paid users in 4Q2004, ARPU (Average Revenue Per Unit) 0.5 $ • Fun channel, entertainment with content from within Tom Group • Close cooperation with handset makers • TOM needs SP and CP license • Cooperation with operators: working relationships and contracts for each product line for each province (35 provinces), different strategies at headquarter and provinces • Idea of master SPs common in Korea, in China possible but still unclear • Trial for new VAS: at province level (SP and CMCC) first pilot, then limited trial, then presentation to headquarter of other provinces 7.3.2 Biao Qi Century Data Communication Technologies Biao Qi was set up in 2001 and started with M2M applications. Main subject is environment protection. Biao Qi is the leading company in China in this sector and has contributed many standards. They are working under the leadership of the environment ministry. GPRS of CMCC provided the basis for wireless M2M applications. The first problem to be solved was the terminal problem on the data collection side (high voltage environment, high temperatures etc.). Hence, cooperation with Texas Instruments was started. In 2002 the first environment monitoring system in China was set up in Hebei province, measuring and monitoring all kinds of pollution using GPRS as a communication basis. The system works stable due to the high reliability of Biao Qi products. Similar systems have been installed in different locations in China (Hubei province, Beijing, Tianjing, Inner Mongolia); others are to follow. Other application domains are • Water business management • Oil extraction supervision • Coal safety supervision (e.g Shanxi province: 280 coal mines in Taiyuan monitored via GPRS after CNC’s failure of connecting the mines via fiber lines) • City electricity monitoring (< 10 KV) • Air- conditioning supervision • Elevator and boiler operational conditions The systems are operated by the various customers. © VAS CHINA Project [FP6-2004-IST-3-015774] 121
  • 121. Summary Report Latest breakthrough is the miniaturization of the embedded M2M module to 6 x 4 x 0.3 cm that open sup new application fields. The terminal has a proprietary operating system. On the strategic side Biao Qi is authorized ISP and ICP by MII for nationwide service provision through CMCC, formed an alliance with IBM and CMCC for wireless telematic technology, obtained the “Certification for Production” for network terminal unit, got a “Certification of Beijing high-tech enterprises” from BSTC and set up its own R&D center. Currently they are cooperating with China Metering Instruments Association, the MII Software and Microelectronics, HP and Microsoft to work on future network connections for data collection. HP and Microsoft granted 500 Mio RMB for the development of a public utility service platform. MII intends to set up a platform for centralized maintenance and help on industry machines. It is expected to have hundreds of millions of terminals to be connected to this platform. The business model is to get a monthly fee from the user who connects; part of the fee goes to CMCC. 7.3.3 Tencent Tencent is a pacemaker in China’s internet-based instant messaging industry. The vision is “To be a top Internet Company”. Tencent has been able to maintain 300% growth rate in revenue and became the largest casual game portal in China in August 2004. Currently, 10% of the revenue comes from mobile VAS services. For time being, Tencent does not have foreign content providers but they are looking for new partners. Tencent gave a demonstration of QQ show, their interactive chat platform aimed for young people where one can buy clothes and accessories with real money to customise their virtual personality. These virtual personalities represent the chat users in interactive chat rooms. 7.3.4 Linktone Ma Yan gave a brief overview of Linktone. Major focus areas in VAS are personalised media, games & entertainment and information & communication. Linktone has around 8 million monthly users and they promote products through big brands companies, e.g. McDonalds and Coca Cola. They have more than hundred people in sales force to promote services to local operators. The marketing is done to the operators and not to the customers. Linktone has been the fastest growing wireless service provider in 2003 and utilises CMCC’s billing system with 80% revenues from it. Subscription model is monthly fee of 10RMB and 1-3 RMB per downloaded song. WAP services are growing fast but they do not have LBS services yet. © VAS CHINA Project [FP6-2004-IST-3-015774 122
  • 122. Summary Report The new services are driven by mobile operators or device manufacturers. Operators initiate trials and invite SPs to participate on a local level. For example, they had trial for coloured RBT in co-operation with Sony Music 2 years ago in Shanghai for three months. Infrastructure was provided by operator, service developed by SP and customers got free subscription. Top ten service providers have two different licences, one license for each operator. 7.3.5 A8 Music Group Tom Tang gave described of development process of China’s Value-added services from A8 Music Group perspective (in Chinese with English slides). The process has five different phases: budding period, underway babyhood, crazy growing boyhood, perplexed youthood and mature period. Attachment is enclosed Status and challenges of traditional music industry in China • Severe piracy --according to IFPI Piracy Report ,China has one of the highest piracy rates in the world, reached 90% • Lack of motivation, China’s music production can’t meet the demand of the market. The average consumption of new songs is only 1/40 of American’s. National music industry is facing survival crisis • Wireless data business grows rapidly and music business is flourishing. Revenue proportion which was 15% in 2001 now has increased to 30% • The revenue of China’s wireless data business related with music in 2004 is : 2.4billion RMB • The revenue of wireless data business related with music in February, 2005, is 360 million RMB • In 2005, the revenue of wireless music in the global market will reach 5 billion US dollars. in china over 4 billion RMB Currently A8 Website is an online music website whose daily visit volume is over 2.5000000. China music alliance invested by A8 Limited and founded by former president of Warner Music China, is the godfather of China’s original music. 7.4 Related Organizations Besides the VAS value chain members there are some other institutions or organizations that are also related to the VAS market. 7.4.1 VAS Committee China (VASC) David Zhu gave a brief overview of VASC (see slides and www.newtele.com). It is under the MII departments Telecom Administration, Planning, and Policy. It was founded in 2002 and has meanwhile 500 members from ministries, © VAS CHINA Project [FP6-2004-IST-3-015774] 123
  • 123. Summary Report telecom operators and mainly service providers. VASC provides a platform for members and an advisory function for MII on policies. The annually organized VASC Forum is well accepted (800 attendants in 2004). The last forum held in September 2005 in Beijing has more than tripled, having about 3,000 attendants. VASC has been founded to decrease the gap between enterprise leaders and political decision makers, and to create a vigorous market environment for the telecom value-added services. VASC is not needed for applying the VAS license as it is not part of the applying process, but it can provide information and consulting services for service and content providers. 7.4.2 EU Chamber of Commerce Jari Vaario gave an introduction speech on behalf of EU chamber. 550 European companies are joining forces through over twenty Working Groups to help industry to operate inside China. Vaario is chairing European Union Chamber of Commerce IT & Telecom Working Group that includes several European telecom, consultant and lawyer companies. Patrick Horgan, Managing Director of the company APCO and Vice Chairman of the EUCC IT&T working group, gave an expert opinion on foreign investment in China’s VAS telecom sector. His organisation advises companies how to deal with regulated sectors of the Chinese economy and how to engage with the Chinese government. He has carried out consultancy for companies that are interested to provide VAS services in China, including equipment vendors, e-Commerce companies, software development companies and operators. 7.4.3 DVB Project PARTAKE Prof. Ji, BUPT, gave an overview of the PARTAKE project. PARTAKE is an EU SSA, funded in the IST-3 call of FP 6. DVB considered as promising market in combination with VAS also for handset TV. Potential VAS range from information supply over data downloads to distance learning. In China DVB is already industrialized on the level of technical infrastructure and devices. PARTAKE aims at investigating long term research collaboration in the area of converging systems. Objectives include a demonstration day in Beijing, a 2 days workshop and training activities in Europe for BUPT staff. Related projects, presented at PARTAKE workshop in June 2005: © VAS CHINA Project [FP6-2004-IST-3-015774 124
  • 124. Summary Report • CISMUNDUS (finished in FP5): define relevant service scenarios for DVB-T and UMTS • INSTINCT (ongoing): to provide basis for convergent services, i.e. DVB-T and GPRS/UMTS): e.g. telco portal for DV-T content stream selection • SAVANT(FP5-IST): convergence of fixed line and mobile content transmission for content delivery over different networks • DVB & MHP Interactive TV services of German broadcasters: to support interactive broadcast based on MHP • GMF4iTV – Generic Media Framework for interactive TV (IRT, ongoing): enable interaction on moving objects using PDAs connected to Set-Top- Boxes Chinese presentations: • ZTE: OPIUM project presentation, but no concrete information on interests • China Telecom: Fixed-Mobile Convergence evolution strategy related to network convergence and terminal convergence • Shanghai Jiaotong University: standardization work on DVB-T • BUPT – MUSE Concept and toolkits for convergence services 7.4.4 eShip At the fourth VAS CHINA workshop Stanley Gu, Consulting Director of eShip, gave an introduction to pricing strategies and price models of mobile VAS in China. The essentials of his presentation are included in section 5.1. 7.4.5 International Financing Investment Consultancy Company Ltd. (IFIC) Ben Yan gives presentation of IFIC (in Chinese with English slides). International Financing Investment Consultancy Company Ltd. (IFIC) is a consultancy company specialising in providing high-class mergers and acquisitions (M&A) in Mobile, Internet and New Media Industry. IFIC was established in Nanjing, Jiangsu Province, as a joint effort by venture capitalists and investment bankers in 2001. IFIC has offices in Shenzen, Nanjing and Beijing. IFIC consists of professionals with backgrounds in project management, capital networking and investment analysis. IFIC’s services include: providing consultancy for enterprises on financing through venture capital or IP, and assisting enterprises in company mergers, acquisitions or selling. IFIC is a member of the VAS Committee of the Chinese Association of Communications Enterprises (www.newtele.com) IFIC is specialised on M&A and does not provide consultancy to found joint- ventures. According to the previous track record, IFIC has handled one acquisition for a European company. © VAS CHINA Project [FP6-2004-IST-3-015774] 125
  • 125. Summary Report Edwin Liu showed interest in providing information of Chinese SME companies for European industry players. It is possible to acquire a “shell” company that already has a license and provides entry to the VAS market. These shells may be bought with relatively low prices, but the prices increase with license portfolios. Several licenses may be necessary in providing VAS services. © VAS CHINA Project [FP6-2004-IST-3-015774 126
  • 126. Summary Report 8 Conclusion Within less than one year the consortium of the VAS CHINA project has spent substantial efforts to map the entry process for mobile value-added services in China. The results fixed in this report have been achieved during a series of monthly workshops and related preparatory works. The kickoff meeting in March 2005 provided an initial view on the Chinese mobile VAS market (MVAS; also referred to as wireless VAS (WVAS)) and related regulatory issues. This picture has been subsequently refined, based on inputs from various sources, e.g. Web research and discussions with value chain members. Thus, the simple perception of a tremendously growing telecommunications market has been turned into a deeper understanding of the Chinese VAS market and its mechanisms. A key service in China as well as in other markets is SMS. This service is widely accepted by the user. Other services like ring back tones are moving towards this status. Chinese players, like their foreign counterparts, also experiment with a growing variety of VAS services, like location-based services or payment services to name a few. However, like in other VAS markets, the silver bullet is not yet in sight. Hence, a consolidation process among Chinese service providers is under way. The opening of the Chinese VAS market to foreign players as agreed upon when joining WTO in 2001 took place but market entry was difficult for foreign companies in the past. As a consequence of the past situation until now about 16,000 Chinese companies and only 5 foreign invested enterprises got service provider licenses granted. Some more FITE applications are currently processed. This could change as MII is changing policies towards an easier market entry for FITEs: while in the beginning MII required that only newly founded FITEs could apply for a license now it is also allowed that existing FITEs apply for licenses. Although the market entry process steps are defined as described in this report it was not so easy for foreign companies in general and for European SMEs in particular to figure out how to proceed. We expect that our efforts will contribute to ease this process for this clientele. A further step to ease the entry process would be access to information about Chinese service providers. This could improve matchmaking activities between Chinese and foreign service providers. An appropriate partnering would not only give European SMEs a chance to enter the Chinese market but would also enable Chinese companies to export attractive VAS services to Europe. © VAS CHINA Project [FP6-2004-IST-3-015774] 127
  • 127. Summary Report The upcoming 3G license issuing in China will provide a basis for a substantial increase of VAS service portfolios. As UMTS is already in an early market stadium in Europe partnering between Chinese and European companies could lead to win-win situations for mutual benefit. © VAS CHINA Project [FP6-2004-IST-3-015774 128
  • 128. Summary Report 9 References [1] Value-added Service Committee (2005): “Research report on the development of the Chinese Telecommunication Value-added Services”. Value-added Service Committee, China Association of Communication Enterprises, February, 2005 [2] Alahuhta P., Ahola J. & Hakala H. (2005): “Mobilizing Business Applications”. Technology Review 167/2005, Tekes. [3] Snellman, K. (2003): ”Mobiilipalvelut Suomessa”. Liikenne- ja viesintäminiesteriön julkaisuja 24/2004 [4] Kallio, P. (2004): “Emergence of Wireless Services – Business Actors and their Roles in Networked Component-based Development”. VTT Publications 534 © VAS CHINA Project [FP6-2004-IST-3-015774] 129
  • 129. Summary Report 10 Sources Chapters 1 and 2 have been taken from the project proposal. Chapters 3 and 4 have been taken from BUPT Process Reports (Deliverable 1). The descriptions of SINA (section 4.2.1), SOHU (section 4.2.2), TOM (section 4.2.3), NetEase (section 4.2.4), Tencent (section 4.2.5) , Linktone (section 4.2.6) and Mtone (section4.2.7) are extracted by BUPT from the web sites referred to in each corresponding section. The description of KongZhong (section 4.2.8) is a translated version (by BUPT) of their Web site referred to in the corresponding section. Sections 5.1, 5.2, 5.3 and 5.5.3 have been taken from BUPT Process Reports (Deliverable 1). Sections 5.4, 5.5 and 5.6 are taken from the Condensed Reports (Deliverable 2) of the VAS CHINA workshop meetings. Section 6.1 is taken from a BUPT Process Report, the rest of chapter 6 is a merger of Condensed Reports and BUPT Process Reports. Chapter 7 has been taken from the Condensed Reports of the project workshop meetings. Chapter 8 has been provided by Fraunhofer ISST. Figure 1 is taken from the project proposal. Figures 2, 26, 27, 28 are drawn by BUPT according to the data received from VASC. Figure 3 is from BUPT. Figures 4, 5 and 6 have been provided by VTT. Figures 7and 9 are taken from the corresponding mobile operators’ Web sites (BUPT). Figure 8 has been provided by BUPT. Figures 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25 and tables 1, 2, 3, 4 are taken by BUPT with permission from the VASC report [1]. They are re-drawn and translated from Chinese into English. Figures 29, 30 are taken by VTT from [2]. © VAS CHINA Project [FP6-2004-IST-3-015774 130
  • 130. Summary Report Figures 31, 32, 33, and 34 have been provided by Fraunhofer ISST. Figures 35, 36 are translated by BUPT from China Unicom’s web site. Figure 37 has been provided by BUPT. Tables 1, 2, 3 and 4 are taken by BUPT with permission from the VASC report [1]. Tables 5 and 6 are taken from BUPT Process Reports. © VAS CHINA Project [FP6-2004-IST-3-015774] 131
  • 131. Summary Report Acknowledgements The VAS CHINA project consortium would like to thank all companies and organizations for their cooperation to produce this overview of the VAS market entry process in China.. Special thanks are devoted to Esko Kippo, who has initiated the project, as well as to Alison Birkett, First Counselor, Head of Information Society Section of European Commission Delegation to China and Mongolia, and Juho Rissanen, TEKES, who served as observers of the project and provided many fruitful information and advice. We would also like to thank VASC for providing a lot of detailed information about the Chinese market and for helping to get in touch with many companies and organizations. Finally, we thank the Commission of the European Union and in particular Paulo de Sousa, Head of Sector, Mobile and Wireless, for their support to conduct this project. © VAS CHINA Project [FP6-2004-IST-3-015774 132
  • 132. Summary Report Appendix © VAS CHINA Project [FP6-2004-IST-3-015774] 133
  • 133. Summary Report A Project Consortium (Alphabetical Order) A.1 Beijing University of Posts and Telecommunications, BUPT, China Beijing University of Posts and Telecommunications (BUPT), founded in 1955, is now under China's Ministry of Education. BUPT is a key national university distinguished itself by its excellent teaching and research in the field of information and telecommunications, with engineering as its main focusand multidisciplinary combination of Engineering, Management, Humanities and Science as its main pursuit. It is one of the first 61 universities which are being built preferentially in the National Project "211". BUPT comprises 13 schools. Besides Graduate School, the university has School of Telecommunication Engineering, School of Computer Science and Technology, School of Information Engineering, School of Electronic Engineering, School of Automation, School of Economics and Management, School of Humanity Law and Economics, School of the Languages, School of Sciences, School of Continuing Education, School of Network Education, School of Software Engineering. In addition, there is a Library, a Department of Physical Education, an Information and Network Center and a Circuit Experiment Center. The student enrolment of all kinds at BUPT, at present, is 13,726, including 180 doctoral students, 1,053 postgraduates, 4,445 undergraduates, 308 three-year higher technical college students, 1,000 distance-learning undergraduates, 150 on-line postgraduates and 6,690 evening university and correspondence students. The students' quality and their achievements in competitions of all descriptions, both nationwide and Beijing-proper, and the graduates' employment rate are among the top universities in China. BUPT offers 17 undergraduate programs, 21 postgraduate programs, 8 doctoral programs and 2 post-doctoral programs, covering information technology, telecommunications, electronics, management and other various fields. BUPT boasts a strong teaching and research staff. Among the 800 full-time teachers, professors and associate professors account for over a half. BUPT has developed into an important research and development center in the field of information technology and telecommunications in China. It has achieved a lot in the fields of communication network, information processing, network management, information security, optical fiber communications, wireless communications, computer application, binary optics, artificial intelligence and robot. © VAS CHINA Project [FP6-2004-IST-3-015774] 135
  • 134. Summary Report Prof. Cheng Shiduan, Beijing University of Posts&Telecommunications, BUPT, China Shiduan Cheng is professor of The State Key Laboratory of Networking & Switching, and vice director of Academic Committee of BUPT. She graduated in communication engineering at the BUPT in 1963. From 1984 to 1987 and in 1994 she twice worked in Alcatel Bell, Belgium as a visiting scholar. She was involved in R&D on ISDN and B-ISDN. She became vice dean of the computer department of BUPT in 1987. From 1992 to 1999 she was the director of The State Key Laboratory of Switching Technology and Telecommunication Networks of BUPT and the head of The Switching and Networking Expert Group in 863 program, a national high-tech R&D plan of China. She has published more than 150 papers and several books. She has received the National Outstanding Young and Middle Age Scientist award in 1994. Currently her research interests cover IP network performance and QoS, management, measurement and new applications as well as wireless and mobile IP networks. © VAS CHINA Project [FP6-2004-IST-3-015774 136
  • 135. Summary Report A.2 France Telecom France Telecom is one of the word’s leading telecom carries, with customers presented at more than 220 countries and regions. It provides full telecom services covering fixed-line, mobile, Internet, data, cable TV, broadcast, satellite, etc. through the international brands Orange, Wanadoo, Equant, Globecast and so on. France Telecom recorded 46.1 billion euros revenue in 2003. France Telecom R&D Division is one of the world’s leading telecom research centers, with research activities covering all telecom fields, including fixed-line, Mobile, Internet, Broadcast, satellite and so on. It is the technology innovation hub for France Telecom group, keeping the group in a leading position through innovative services and applications. France Telecom R&D Division has about 4,000 researchers in 14 sites across the world currently. Eight of them are in France, two in the U.S., one in the U.K., one in Poland, one in Japan and one in China. France Telecom decided to set up the R&D center in Beijing at the end of September 2003, to serve the group’s development through providing innovative telecom services and applications by taking advantages of the rapid market growth and huge talent pools in China. The Beijing Lab will be based in the Zhongguancun area, the China’s “Silicon Valley”, in order to easily communicate with partners such as the universities, research institutes, Chinese Academy of Science, high-tech start-ups, etc. The Beijing Lab will work on six R&D domains which are either technically advanced or geographically easer to do in China than in any other countries in the world. The six R&D domains are: • Network and Systems (IPv6) • Innovations on usages, VAS and Multimedia Services • Mobile systems (TD-SCDMA, B3G and WLAN) • Mobile and Fixed Convergent Terminals • Emerging Open source (Carrier Grade Linux and Embedded Linux OS, etc.) • Language and speech processing (ASR, TTS, Spid, etc.) Through cooperation with universities, research institutes, academy of science, equipment suppliers, innovative start-ups, or participation in the Chinese standardization groups, France Telecom R&D Beijing will create IPRs to be either used by the company itself or by other operators worldwide. © VAS CHINA Project [FP6-2004-IST-3-015774] 137
  • 136. Summary Report France Telecom R&D in Beijing will employ about 100 people by the end of 2006, mainly researchers and engineers with above-master degrees. Dr. Yue Fei, France Telecom R&D Beijing Company Limited, China Dr. FEI Yue has been with France Telecom Research & Development Beijing as the 1st employee since it was founded in 2004. Now she is senior project manager in the Innovation, Multimedia and VAS Lab with special interests in wireless value-added service. Dr. FEI is project manger of several projects including EU project, VAS China and technical due diligence for foreign investors. Dr. FEI got her Ph.D. in Chinese Academy of Science in 1999. She was then worked in several famous international companies as telecom consultant before she joined FTR&D Beijing. © VAS CHINA Project [FP6-2004-IST-3-015774 138
  • 137. Summary Report A.3 Fraunhofer ISST, Germany Fraunhofer ISST is one of the 58 institutes of the Fraunhofer Gesellschaft, Europe’s largest organization for applied research. ISST was founded in 1992 and performs applied research in the domain of information and communication technology from its beginning. At the end of the year 2003, the Fraunhofer ISST had a total of 180 employees. The Fraunhofer Institute for Software and Systems Engineering (ISST) provides consulting to companies and public institutions in the conception, implementation, deployment and operation of long-term information and communications infrastructures. The development of technology for mobile personal digital assistants represents a major focus of research and development. Results of this work are deployed in practical projects like SmartWear (German Athletes Championships 2002, SmartSport Solutions for Bayer 04 Leverkusen or Hamburg Street-Wise). In September 2002 the German Fraunhofer Institute for Software Engineering and Systems Engineering ISST, Berlin/Dortmund, and the Chinese Institute of Computing Technology ICT, Beijing, founded the Sino-German Joint Laboratory of Software Integration Technologies SIGSIT. Since October 2002 they jointly work within SIGSIT on software integration technologies and a corresponding platform for intelligent personalized web services for the Olympics 2008 in Beijing. In a joint project the German Fraunhofer ISST and the Chinese ICT work since October 2002 on software integration technologies for semantic web service platforms. The work on user profiles, semantics description of web services and service management is integrated in FLAME2008, an integration platform for intelligent personalized web services for the Olympics 2008 in Beijing. These activities are now continued in the Sino-German COMPASS2008 project with ICT and Capinfo on the Chinese side and DFKI and T-Systems International as German partners. Dr. Bernhard Holtkamp, Fraunhofer ISST, Germany Dr. Holtkamp has been with Fraunhofer ISST since it was founded in 1992. For more than 10 years he was head of the information management department. Now he is deputy director of SIGSIT (Sino-German Joint Laboratory of Software Integration Technologies). SIGSIT was founded in September 2002 together by Fraunhofer ISST and the Institute of Computing Technology (ICT) of the Chinese Academy of Sciences in Beijing. Dr. Holtkamp is also project manager of institute’s China related projects FLAME2008 and COMPASS2008. Dr. Holtkamp got his diploma and Ph.D. in computer science from the University of Dortmund in 1982 and 1985, respectively. He was then with the University of Dortmund and worked as a research professor at the Naval Postgraduate School in Monterey, California, before he joined Fraunhofer. © VAS CHINA Project [FP6-2004-IST-3-015774] 139
  • 138. Summary Report A.4 Nokia Research Center / Nokia (China) Investment Company Ltd, China (Project Coordinator) One of the cornerstones of Nokia’s success is the strong investment in R&D. Nokia’s R&D expenditure has grown steadily, in 2003 reaching 3,760 million euros, or 12.8% of the net sales. At the end of 2003 there were 19,800 people working in R&D, nearly 40% of Nokia’s total workforce. Nokia has about 40 R&D centers in 11 countries. These centers are located in key growth markets such as China & India, and in countries that are technologically very advanced such as Japan & Finland. Nokia Research Center concentrates on the research end of the spectrum. This means that the NRC carries out a lot of exploratory research work, scanning, identifying and testing new technologies that could develop into Nokia’s core business in the future. NRC employs 1,200 people globally. Nokia Reseach Center’s focus areas in China - Research on 3G and Beyond 3G radio, core and IP networks and their performance - User interface research - Multi-modal user interfaces - Research on Chinese user interfaces - Chinese mobile applications and services - Technology exploration in China and other APAC countries - Research cooperation with Chinese top universities - Post doctoral program Dr. Jian Ma, Nokia Research Center / Nokia (China) Investment Company Ltd As Principal Scientist, Dr. Ma Jian is in charge of university relations in APAC region, as well as Nokia Postdoctoral Program. His main technical work focus is technology explorations scanning and identifying new or emerging technologies in this region. He has been working at Nokia since 1994, as engineer, senior engineer, project manager, and R&D manager in Finland and then in China. In last few years, as an IPv6 front runner in China, he set up first IPv6 research group in China in 1998, and has been actively promoting IPv6 in China. He also lead the Nokia China IPv6 R&D program which includes cooperation projects with China Education and Research Network (CERNET), BUPT, China Academy of Science, MII RITT and other university and industrial partners. He has hold 6 international patents and tens of patent applications in more than 10 countries, and published near 100 international publications and is co- author of two books in the areas of TCP optimization, QoS, IPv6, and Mobile © VAS CHINA Project [FP6-2004-IST-3-015774 140
  • 139. Summary Report IPv6, and mobile network and application. Currently he is running a Symbian /Serious 60 university cooperation program in this region. His main research interests are networking and mobile application related areas such as p2p networking, sensor networks, mobile gaming, home and rural networks, and ubiquitous networks. He received his B.Sc. and MS.C respectively in 1982 and 1987 from Beijing University of Posts and Telecommunications, and his Ph.D. in 1994 from the Department of Electronics Engineering of Helsinki University of Technology. He is also a guest professor supervising PhD and MsC students in both Beijing University of Posts and Telecommunications, and Institute of Computing Technology, China Academy of Science. © VAS CHINA Project [FP6-2004-IST-3-015774] 141
  • 140. Summary Report A.5 VTT Technical Research Centre of Finland VTT, Technical Research Centre of Finland, is the largest contractual R&D organization in the Nordic countries. VTT is an impartial expert organization that carries out technical and techno economic research and development work. VTT develops technologies both to improve the competitiveness of companies and the basic infrastructure of society, and to foster the creation of new businesses. VTT employs about 3000 people in all, of whom about 1600 are research scientists. The annual turnover of VTT in 2004 was about 210M€. VTT Electronics, one of the nine units, has a permanent staff of over 350 persons and offers a full range of technology expertise ranging from microelectronics to software engineering. The research fields of VTT Electronics comprise of embedded software, microelectronics, telecommunication systems and opto-electronics. Our services are used by electronics, telecommunications, process automation, mechanical engineering and instrumentation industries, among others. R&D projects range from industrial development projects to national and international joint research projects and to internal research projects. Participation in European research programmes is an important activity at VTT with current involvement in various Esprit, Acts, Esa and other EU projects. VTT Electronics main site is in Oulu, where it is located at the technology park and the University of Oulu campus area. The centre of microelectronics is located in Espoo. The research facilities in VTT Electronics are state of the art, including cleanrooms, BiCMOS process (0.5 micron), simulation facilities, commodity component parallel computing facilities etc. All our contract activities are executed according to a quality assurance process (ISO 9001 certified since 1993). VTT Electronics' research will bring strong expertise on software product quality, software process improvement and measurement, component based software engineering, knowledge management, development of product line architectures and middleware services for wireless applications, as well as the design and analysis methods needed in the embedded software development. VTT Electronics is also a leading Finnish R&D unit for wireless communications. We carry out research and development work on telecommunication products and their core technologies. Our R&D services are used by telecommunications and electronic industries in Finland and abroad. The Telecommunication Systems has contributed strongly to the R&D in developing 2nd, 3rd and 4th generation mobile communication technologies. Our work is guided by the vision of both research on the high capacity wireless communication system and research on short range communication (Ubicomm) technologies. Such topics as wireless services, multimedia communications and computing platforms are studied both on deep theoretical and practical implementation © VAS CHINA Project [FP6-2004-IST-3-015774 142
  • 141. Summary Report point of view. Millions of commercial products including Telecommunication Systems know-how have already been sold globally. Dr. Päivi Kallio, Technical Research Center of Finland, VTT, Finland Dr. Päivi Kallio received her Master's thesis in economics from University of Vaasa, Finland in 1995 and in information processing science from University of Oulu, Finland 2001. In September 2004 she finished her PhD at University of Oulu in information processing science. Since 2001 she has worked at VTT- Technical Research Center of Finland in Oulu as researcher, vice group manager and group manager of software architectures group; since January 2006 she has led the software business intelligence team at telecom cluster. Her research interest and topic of many scientific articles and journals include wireless service business and its technological aspects. Dr. Päivi Kallio has extensively researched wireless Internet and mobile applications business issues. Her recent works include "Business Models in Wireless Internet Service Engineering", "Wireless Internet Service Development", "Accounting and Billing of Wireless Internet Services in the Third Generation Networks", and her dissertation "Emergence of wireless service - business actors and their roles in networked component-based development". © VAS CHINA Project [FP6-2004-IST-3-015774] 143
  • 142. Summary Report Mobile Value-Added Services in China Summary Report of the VAS CHINA Project Funded by the European Union within the 6th Framework Program under contract number FP6-2004-IST-3-015774 March 2005 to February 2006 Editor Bernhard Holtkamp, Fraunhofer ISST, Germany Cover Design: Huang, France Telecom R&D, Beijing Bernhard Holtkamp and Peter Michatz, Fraunhofer ISST, Dortmund 1st edition, 2006 © VAS CHINA Project [FP6-2004-IST-3-015774 144