2. The World’s Third Largest Mobile
Market Is Growing Rapidly
MII forecasts 25 million
new mobile subscribers
in China in the year 2000
Cellular penetration in
mainland China is now
about 3.8% overall
The low penetration rate
suggests a strong
potential for growth
Analysts estimate 10%
cellular penetration by
2004
3. The China - US Agreement on
Telecommunications:
WTO does not mean China will fling open its
doors to foreign competition in the primary
telecommunications services sector
The China – US accord does not require the MII
to issue new licenses
Foreign ownership of PRC mobile carriers will
still be limited both by % of ownership and
geography
4. Limitations on Foreign Cellular
Investments
In 2001 - 25% foreign ownership of cellular carriers in
Shanghai, Guangzhou, Beijing
By Jan. 2003 - 35% foreign ownership in 14 cities:
Chengdu, Chongqing, Dalian, Fuzhou, Hangzhou,
Nanjing, Ningbo, Qingdao, Shenyang, Shenzhen,
Xiamen, Xian, Taiyuan, Wuhan
By 2005 - nationwide foreign ownership, limited to 49%
CTHK received special State Council authorization to
sell shares to public investors overseas
5. Rumored Potential New Domestic
Players
China Telecom (fixed-line)???
China Netcom???
The People’s Liberation Army???
6. Caveat: Don’t Believe Everything
You Read!
It Is Unlikely That
More Than 3 or 4
Mobile Licenses Will
Be Issued Over the
Next Few Years
7. The Likely Impact of WTO
Increase overall economic demand in China
Promote transparency, fairness and efficiency
in telecommunications regulation
And …
11. There Are Far More Mobile Phones
Than PCs in the PRC
Only 9, 000,000 internet
surfers share 3,500,000
PCs with internet
connections
CTHK has 18,000,000
mobile subscribers in its
6 provinces of operation
Unicom had 5,000,000
mobile subscribers at
year end 1999 in all of
mainland China
12. CTHK Mobile Data on SMS Platform
VAS now represents only 2% of total revenue
Subscribers can obtain stock quotes, sports
scores, weather reports and pay their mobile
telephone bills
13. 2.5G WAP and GPRS
Wireless Applications
Protocol (“WAP”) trials
are underway in
Guangzhou, Hangzhou
and Shenzhen
General Packet Radio
Service (“GPRS”) trials
with equipment providers
are underway in
Guangdong, Zhejiang
and Fujian
14. Results of 2.5G Wireless Data
Trials to Be Announced in
May 2000
15. Challenges to E-commerce in China
Banking standards to support e-commerce
transactions are lacking
Limited secure infrastructure (SSL, SET)
No credit profiling mechanisms
Limited use of credit cards and high card fees
AND …
17. GPRS Technology Will Enhance the
WAP-phone Experience
Over GPRS packet-
switched wireless
networks, transmission
speeds will improve from
the current 9.6 – 14.4
kbps to as fast as 115 –
150 kbps
Mobile data transmission
speeds similar to a PC
with an ISDN connection
18. Some Advantages of M-commerce
Embedding the “private key” in mobile SIM
card allows use of mobile handset to send out
encrypted payment confirmations for secure
transactions – the “wireless wallet”
Corporate (B2B) customers and retail (B2C)
consumers can access corporate VPNs and
use e-mail for common services provided
globally
19. Personalized and Localized WAP
Content
Available technology will
enable your mobile
network to find you
(unless you turn off the
function, or don’t wish to
be found)
This could save lives in
emergencies, and it
presents business
opportunities …
22. 3G W-CDMA Will Enable Broadband
Mobile Internet Commerce
3G licenses are currently
due to be issued in
China in 2002
Up to 2 mbps stationary
and 300 – 500 kbps
mobile data transmission
speeds (8x as fast as a
typical PC modem
connection)
23. 3G Broadband Mobile Voice, Data
and Video
May One Day
Provide an Affordable
and Popular Platform
for E-commerce in
China!
Editor's Notes
Share my personal views about M-commerce as it is developing in China, and will mention some of the initiatives in this field being pursued by CTHK.
Try to reserve a few minutes for questions at the conclusion of the slide presentation.
Official estimates of subscriber growth have historically been overly conservative.
The same is true about estimated market “saturation points”. Shenzhen has surpassed the 30% penetration level, previously considered by some to be the saturation point, but subscriber growth has continued as strong as ever.
The USTR has publicly announced many of the details of the agreement reached between China and the U.S. in the area of telecommunications.
Much about the agreement has been misconstrued in the press.
It must be noted that China Telecom (Hong Kong) Limited received special authorization from the State Council to list on the SEHK and NYSE, exempting the Company from the foreign ownership restriction, in October 1997.
At that time, CTHK owned the mobile subsidiaries operating in Guangdong and Zhejiang provinces.
In 1998, CTHK acquired the Jiangsu Province mobile carrier, Jiangsu Mobile.
In November of last year, after a highly successful US$2.0 billion follow-on equity offering and US$600 million initial 5-year note offering, CTHK additionally acquired Fujian Mobile, Henan Mobile and Hainan Mobile, increasing its scope of coverage to 6 provinces and reaching a population of 350 million within its service area.
CTHK is 25% owned by public shareholders; of the remaining 75% stake, 57% is owned by China Mobile; and 43% owned by the fixed-line China Telecom system (also known as the Directorate General Telecom or “DGT”).
Many rumors have been circulating about possible additional players coming into the market in the next few years, but caution is advised.
In my personal view once again, China’s regulatory authorities are paying close attention to the experiences of other countries, and are unlikely to allow competition by more than 4 mobile carriers.
Allowing a greater number of primary carriers into the market might lead to unhealthy competition, inefficiency and the wasting of telecommunications resources.
The mobile telecom market phenomenon observed in North American and also in Europe, which may be a valuable lesson for Asia, is that increased competition and promotional activities by a limited number of competing operators causes the cellular the market to reach a “critical mass” or inflection point, beyond which the rate of growth rapidly increases.
Precisely where that critical mass or inflection point lies in relation to the mainland China mobile market and when it will be reached is open to debate, but the generally held view is that regulated competition in the market by a small number of players will result in a bigger market and subscriber growth for each primary operator.
To put it another way…
The China mobile market will grow to become a bigger pie, and each primary carrier will get a larger slice as the overall market continues to grow.
In the second-half of last year we saw a dramatic surge in the share prices of mobile telecom companies worldwide. One explanation for this general upward re-valuation of such companies is the expected benefits of mobile data and M-commerce.
Telephone networks worldwide are being upgraded from circuit-switched systems carrying principally voice traffic, to packet-switched systems carrying principally data traffic.
The volume of data traffic has been exploding, and it has been estimated that data traffic worldwide will represent 90% of overall network traffic by 2004. It is reasonable to anticipate, however, that the proportion of data traffic will be somewhat less in mainland China for some years to come.
Closer to home here in China, in 1999, new mobile subscribers exceeded new fixed-line subscribers in Guangdong and Fujian
This year, new mobile subscribers are expected to exceed new fixed-line additions over the entire mainland China market, even though fixed-line represents a substantially larger overall customer base.
Domestically produced 2G GSM mobile handsets are particularly popular in the China’s inland provinces, and now comprise about 5% of all handset sales in China. This proportion is expected to increase as quality improves.
Although the Chinese language represents a significant challenge to the manufacturers of WAP handsets which will enable users to access the internet, it is believed that many younger web-savvy Chinese will be comfortable keying-in Pinyin or English.
Analysts believe WAP handsets will be soon be available in sufficient number in China, at similar prices to current 2G handsets, to facilitate the broader rolling-out of WAP services at the appropriate time.
To quote the Finnish company, WapIT: “WAP signals a new era for the wireless industry. The mass-market handset is poised to become a true information appliance, bringing a multitude of meaningful information to the masses”.
Nowhere, in my view, will this be more true than in mainland China, where PC penetration and access to the internet is still very low relative to other parts of the world.
In near term, WAP services will be limited to pulling discrete bits of information off the internet, such as flight or theater schedules, bank account balances. True web surfing by WAP handset is still some time away.
Due to the high level of security of mobile networks, many believe the cellular handset will become the “wireless wallet” and “mobile credit card” and will be particularly well-suited to B2C e-commerce in China, where financial infrastructure for secure wired transactions is lacking.
Already, CTHK provides VAS over our SMS platform. Over every other type of information, our subscribers want current stock price quotations, but they can also obtain sports scores and weather reports, and even pay their mobile telephone bills provided they maintain a bank account in a banking institution which works with CTHK to provide such services.
Going forward, in a secure environment made possible by current cellular telephone technologies, because each mobile subscriber has a unique identity stored in the SIM card of his or her handset, the mobile operator will be able to customize services, content and functions based upon the personal profiles of individual users. You will have access to the services you need and want.
The so-called 2.5G technologies, WAP and GPRS, represent a significant source of revenue to mobile operators requiring minimal additional CAPEX.
GPRS will greatly increase data transmission speeds, enhancing the utility of handsets that access the internet.
Our subscribers’ needs will remain our primary focal point. It is also reasonable to assume that the needs of Chinese mobile subscribers may be different from the experiences of carriers operating in markets in other countries.
Generally mobile users are not concerned which technology they use (and many may not even know), provided they get the quality of services they require.
May 17 is currently the target date for announcing the preliminary results of 2.5G trials now underway in the domestic market.
In my personal view, e-commerce in China is likely to develop most rapidly in two very different markets: 1) one the one hand, I believe there is great potential in China for e-commerce involving large enterprises buying and selling commodities in large quantity domestically and internationally through e-commerce verticals – this is beyond the topic of my talk here today – 2) the other area of great opportunity, in my view, lies in M-commerce involving small consumer purchases where payments are made pursuant to pre-arrangements between the subscriber’s bank in cooperation with the mobile wireless operator. Such a format will be driven by some of the challenges facing the China market identified in this slide.
Even 2G digital mobile handsets provide a relatively high level of security. Each Subscriber Identity Module (“SIM”) card comes equipped from the factory with a 32-bit Electronic Serial Number (“ESN”), and is later assigned a 10 digit Mobile Identification Number (“MIN”) which it transmits when the handset logs onto a network. Additionally, the sequence of transmitted numbers is randomly scrambled by means of a security feature known as frequency-hopping. Finally, to further ensure that your “wireless wallet” stays secure, virtually all handsets may be programmed to require entry of a PIN number which the owner pre-determines in order to unlock and use the handset.
These are all further reasons why the mobile handset is quite likely to become the internet access device most preferred by Chinese. Additionally, unlike accessing the internet on your PC, you won’t need to boot-up to access the web on your mobile handset.
WAP is simply a global protocol/language which allows computers to talk and deliver data to mobile devices.
Many of China’s ICPs such as Sohu, Sina, Alibaba, and Netease are beefing-up their WAP content to carry over mobile operators’ portals once WAP services are rolled-out on a large scale.
Wap handsets, such as the Nokia 7110 now manufactured in Dongguan, will be plentiful and prices are in line with current 2G handsets.
Current WAP-phone transmission speeds of 9.6 – 14.4 kbps will be boosted to 115 – 150 kbps through the use of GPRS technology, as is now being offered by some carriers in Japan, the U.S. and S. Korea.
With GPRS technology, m-commerce will become quite convenient, even for those of us with the shortest of attention spans!
Mobile operators may further enhance their relationship with subscribers by serving as keepers of the “private key” allowing secure m-commerce transactions, with the mobile handset serving as a “wireless wallet” or “electronic credit card”.
Mobile operators may become Wireless Internet Service Providers (“WISP”s), as internet portals become common interfaces which may be accesses by mobile handsets as well as PCs and other devices.
Handsets can be manufactured with a built-in function that enables mobile networks to locate your whereabouts to within a narrow area. I have heard that the U.S. Congress may require all handsets sold in the U.S. to include this feature for emergency situations – but don’t worry – users can switch off this function when, for whatever reason, they do not wish to be found.
The capability of personalizing WAP-based content, and of delivering content within localized areas, offers new advertising and commercial opportunities for merchants, and the possibility of additional revenue sources for mobile operators …
Mobile users walking down the street near this enterprising merchant, might receive a Short Message about a 50% off sale on Rolex watches. Do you think they are fakes?
A restaurant on the block might send you a message offering a 30% discount on a dinner for two, if you arrive within the next 10 minutes. The possibilities are endless.
You will see real excitement about mobile data and m-commerce when mobile networks around the globe start rolling out GPRS-enabled handsets and infrastructure, allowing mobile users to access rich WAP-based content from the internet and engage in secure m-commerce transactions at a high rate of transmission speed.
3G wide-band CDMA technology is very different from today’s narrow-band CDMA technology, and more compatible with today’s GSM networks – or so the engineers tell me.
Just a brief comment on CDMA. Narrow-band CDMA is often referred to in the press as the dominant mobile standard in the U.S., which is not true. In fact, I recently read that CDMA represents only 14% of the U.S. cellular market. Worldwide, GSM still holds the lead as the dominant mobile technology.
Clearly the momentum is building for mobile data and m-commerce in China. The technological issues are only one piece to the puzzle, however, as market needs will play a key role in the timing of 2.5G and 3G technology roll-out.
The opportunities for China’s domestic primary mobile carriers, as well as for foreign carriers and investors longer-term, are many – there is every reason, in my view, to be very positive about the future of mobile data and m-commerce in mainland China.
Thank you.
