China has over 1 billion mobile subscribers, with the three main carriers (China Mobile, China Unicom, China Telecom) dominating the market. 3G adoption is still low, accounting for under 10% of subscribers. SMS and basic feature phones are still widely used, even among youth. The market is fragmented across China's 31 provinces, and most users are prepaid with little subscriber data available. Mobile internet use is growing rapidly along with larger phone screens. Future revenue growth is expected from mobile data and applications, though monetization remains a challenge.

1. China Market Overview a human inspired presentation TM November 2011 Private & Confidential Growth & Emerging Markets LLC; 2010(c) Presented by: Alyn Watkins, Managing Director – Asia Pacific [email_address]

2. Subscribers a human inspired presentation TM 4 China is the world’s largest mobile market in terms of subscriber numbers. Between 2003 and 2008, subscriber numbers grew 170% from 269mln to 618mln users. In June 2011 (or 1H10) numbers grew to 906mln. By the end of 2011 numbers are forecast to surpass 1bln subscribers. Mobile usage penetration rates have grown from 35% in March 2007 to 50.5% in September 2009 and reached 54% in 2010. Source: Operator Reports Mobile Subscriber Numbers, 2003-June, 2011

3. Market share a human inspired presentation TM 5 In 2008, the central government directed the restructuring of the telecommunications industry created three main state owned operators China Mobile , China Unicom , and China Telecom , hereafter, CMCC , CU , and CT respectively. In June 2011, CMCC subscribers totaled 616.8miln representing a 68% market share, followed by CU with 181.6mln and 20%, and mobile operator newcomer CT with 108.3mln and 12%. Source: Operator Reports Mobile Subscribers By Operator, June 2011

4. 3G in China a human inspired presentation TM 6 3G adoption in China is slow. By June 2011, CMCC had 35million, CU million, and CT 21.5million. The combined total was 80.5 million or 8.9% of total mobile subscribers. China was late in adopting 3G with licenses only being issued in January 2009. Network CAPEX spending in 2009 and 2010 by China’s operators will be an estimated USD41bln. CMCC was issued with the home-grown and immature TD-SCDMA standard, CU received WCDMA, and CT CDMA2000. Subsequently, China is the only nation with all operators using different 3G standards. Source: Operator Reports 3G Subscriber Numbers, June 2011

5. Featurephones dominate in China a human inspired presentation TM 7 Featurephones still dominate Smartphone usage is highest among China’s urban 15-24 year olds. However, 71% of people in this age group still use 2G feature phones where SMS and mobile internet are key functions of communication. Smart Phone vs. Featurephone, 1H 2010 Source: Nielsen, 2010 Sophisticated Mobile Youth Despite China’s subscribers being more than 90% 2G based with 71% of youths owning featurephones, China’s youth is more sophisticated and ‘tech-savvy’ than their UScounterparts when utilizing the full array of features and services offered. Features used in the last 30 days, 1H 2010

6. SMS a human inspired presentation TM 8 SMS is still the key mode of non-voice VAS communication in China. Slow 3G take-up and continuing growth in 2G subscribers means SMS will dominate non-voice VAS data in the short to mid term. In 2010, a total of 806 billion SMS’ were sent and CMCC controlled 88% of this SMS traffic. Unicom 80 Billion Telecom 15 Billion Source: Operator Reports, 2010 Mobile 711 Billion China SMS Traffic 2010

7. Pre-paid dominance a human inspired presentation TM 9 A majority of subscribers are pre-paid. In June 2010, total pre-paid customer numbers totaled 71% or 558mln. This figure is distorted by CMCC with 83% of its 460mln users being pre-paid. This presents a significant challenge for operators and brands to obtain basic information on subscribers. Of the 558mln pre-paid subscribers, 321mln are un-registered users, meaning that no identification was supplied during purchase of the SIM card. Without possessing even basic demographic user behavior, operators and brands lack the base from which to build knowledge and offer targeted services in the future. Prepay mobile SIMs are also common amongst 14-25 year olds. 85% of Total Subs Millions Unregistered Subs Millions Unregistered as % of Total Subs Mobile 552 230 41% Unicom 157 88 56% Telecom 75 3 4% Unregistered Users Per Operator, 1H 2010

8. Market fragmentation a human inspired presentation TM 10 Although China currently has 906 million mobile phone users divided between 3 main operators, these users are located within China’s 31 provinces and municipalities. CMCC , CU , and CT have subsidiaries within each province totaling 93 subsidiaries. Operator subsidiaries, despite high level directives issued by HQ in Beijing, are mostly in control of their own budgets and purchasing decisions. This is why finding a reliable aggregator / gateway partner in China is essential. Snapshot Geography China’s mobile users are located in 31 provinces and municipalities covering 9.6 million sq km Examples Beijing > Shanghai = 1,069km Shanghai > Guangzhou = 1,190km

9. Mobile web a human inspired presentation TM 11 As of June 2010, there were 277 million mobile internet users in mainland China. The dramatic increase in mobile internet user numbers has been influenced by the proliferation of handsets able to access the internet via GPRS but also an increase in handset quality and screen size. Since early 2009, CMCC, CU , and CT have adopted aggressive pricing strategies for handsets in both 2G and 3G market segments which has resulted in increased sales of ‘mobile internet phones’. Between June 2008 and June 2009, the size of mobile internet phone screens increased dramatically from only 12% with 240 pixel screen in 2008 to 46% in 2009. Larger screen encourages users to browse the internet more often and with greater ease, thus increasing mobile broadband users. Mobile Internet Phone Screen Size June 2008 Mobile Internet Phone Screen Size June 2009

10. Data & applications a human inspired presentation TM 12 At present, China’s 3G era is in its infancy and only represents 3.2% of subscribers. 2G applications such as games, colour ring back tones ‘CRBT’ (MMS), games, and music dominate data download activities in China. CMCC has identified mobile internet and downloadable data as a key future revenue stream and has developed its own mobile application store, ‘MMarket’, launched in August 2009. In July 2010, it was announced that in the space of one year, CMCC’s MMarket has gained 11mln users and reached 40mln downloads. Given the various handset models and capabilities available to CMCCs 2G and 3G users, CMCC has signed up 50,000 registered developers, offering 20,000 applications. Such high volumes of developers and applications complicate management even further. CU has been slow entering the mobile application market. With its prime 3G handset being the iPhone, CU does not control application transactions and download. In addition, 3G roll-out costs have hit CU at the expense of such service development. 1H 2010 profit was down 62% as a result. Because of this, CU has announced that the launch of its app store will be delayed indefinitely. CT has actively promoted its 3G application store. However, at present the application store has on average 10k downloads per week. The above factors mean that a high number of data downloads are still conducted via SMS / WAP.

11. Summary a human inspired presentation TM 13 Opportunity

12. About the author a human inspired presentation TM 14 Alyn Watkins is GEM’s Managing Director, Asia / Pacific , overseeing operations and business development activities. He successfully launched GEM’s first China based mobile advertising campaign and continues to develop and expand business in the region. Prior to joining GEM, Alyn spent many years working for a UK consultancy assisting VC funded technology startups and stock-listed MNC’s enter and expand in the China market. Alyn’s expertise is in the mobile communications sector. He has represented companies engaged in mobile advertising, mobile messaging, mobile broadband, handset middleware and UI software, personal information management (PIM), and customer experience management solutions (CEM). In each instance he successfully negotiated and concluded local partnership agreements and secured product trials with target customers. Alyn is active in the UK business community and ICT sector in China and has attended UK ministerial / high level UK-China ICT events with major China operators e.g. general managers of provincial branches of China Mobile, Telecom, Unicom - provincial entities employing tens of thousands of staff - Huawei, ZTE etc alongside the likes of Vodafone, BT, ARM etc. Alyn holds a masters degree in Chinese Business and International Relations from the University of Sheffield. He speaks, reads, and writes fluent Chinese. [email_address]