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					                                                     Index
Abstract.........................................................................................................................8
Introduction..................................................................................................................9
1. Introduction of mobile value-added service market........................................14
    1.1.      Introduction of mobile value-added service .......................................14
         1.1.1. Definition and category of mobile value-added service..............15
         1.1.2. Mobile value-added service industry-chain analysis ..................20
         1.1.3. Business model of mobile value-added service............................21
    1.2.      Development of global mobile value-added service market...........24
2. Analysis of mobile value-added service chain in China ..................................26
    2.1.      Service Providers and Content Providers...........................................27
         2.1.1. SINA Corporation (NASDAQ: SINA) .........................................28
         2.1.2. SOHU Corporation (NASDAQ: SOHU)......................................32
         2.1.3. TOM.com ........................................................................................33
         2.1.4. NetEase............................................................................................35
         2.1.5. Tencent ............................................................................................36
         2.1.6. Mtone ..............................................................................................37
         2.1.7. KongZhong Corporation...............................................................38
         2.1.8. Linktone ..........................................................................................40
    2.2.      Mobile operators ...................................................................................41
         2.2.1. China Mobile Communication Corporation ...............................42
         2.2.2. China United Telecommunications Corporation ........................43
    2.3.      MII (Ministry of Information Industry) .............................................44
         2.3.1. Duties of MII ..................................................................................45
    2.4.      Equipment Manufacturers and Terminal Manufacturers ................45
    2.5.      End users................................................................................................46
    2.6.      Conclusion .............................................................................................46
3. Analysis of China’s mobile communication and value-added service
    market ..................................................................................................................47
    3.1.      The scale of China’s mobile communication market and
              development prediction ........................................................................47
         3.1.1. The scale of China’s mobile communication market......................47
         3.1.2. Comparative advantages of China Mobile and China Unicom .....49
         3.1.3. The prediction of China mobile communication market ...............50
    3.2.      The development scale of China’s mobile Value-added Services
              market and development prediction ...................................................53
         3.2.1. SWOT analysis of China’s Mobile Value-added
                     Services development.....................................................................53
         3.2.2. The scale of China’s mobile value-added Service market..............58
         3.2.3. The prediction of China’s mobile value-added services market....60
         3.2.4. The factors influence on the development of
                     China’s mobile Value-added Service market...............................62

                                                                1
                 3.2.4.1. Economic Environment ...........................................................................63
                 3.2.4.2. Political Environment ..............................................................................67
                 3.2.4.3. Technical Environment ............................................................................70
     3.3. Conclusion ....................................................................................................72
4.   Analysis of China’s SMS market .......................................................................74
     4.1.      Introduction of the development of China SP SMS market..............74
     4.2.      Market share of SMS market in China...............................................76
     4.3.      Factors influence the development of Chinese SMS market ............78
     4.4.      User characteristics...............................................................................79
     4.5.      Conclusion .............................................................................................79
5.   Analysis on China’s MMS market ....................................................................81
     5.1.      Introduction of MMS service ...............................................................81
     5.2.      MMS market share in China ...............................................................81
     5.3.      Factors influence the development of MMS market .........................85
     5.4.      User Characteristics..............................................................................86
     5.5.      Conclusion .............................................................................................86
6.   Analysis on China’s IVR market .......................................................................88
     6.1.      Introduction of IVR service .................................................................88
     6.2.      Category of IVR service .......................................................................89
     6.3.      Positive and negative factors influencing the development of IVR..90
     6.4.      Analysis of China’s IVR market..........................................................90
     6.5.      Conclusion .............................................................................................93
7.   Analysis of China’s Mobile phone game market..............................................94
     7.1.      Introduction and Category of mobile phone game ............................94
          7.1.1. Text game ........................................................................................94
          7.1.2. Graphic game .................................................................................96
     7.2.      The limitation of the mobile phone used as a game platform ........97
     7.3.      The development of global mobile phone game market....................99
     7.4.      China’s mobile phone game market..................................................100
          7.4.1. The scale of China mobile phone game market ........................100
          7.4.2. The market share of mobile phone game in China ...................102
          7.4.3. Advantages of development in China’s mobile phone game
                   market ...........................................................................................104
          7.4.4. Problems in China’s mobile phone game market .....................104
     7.5.      User Characteristic .............................................................................105
     7.6.      Conclusion ...........................................................................................106
8.   Analysis of China’s WAP market.....................................................................107
     8.1.      WAP service in China .........................................................................107
     8.2.      The scale of WAP market in China....................................................108
     8.3.      User characteristics............................................................................. 111
     8.4.      Conclusion ........................................................................................... 112
9.   Individualized Ringing Tone Service............................................................... 113
     9.1.      Problems of the development of the Individualized Ringing Tone
              service................................................................................................... 114

                                                             2
    9.2. User Characteristics................................................................................... 115
    9.3. Conclusion .................................................................................................. 116
Conclusion ................................................................................................................ 117
References .................................................................................................................121




                                                              3
List of Figures

Figure 1   The migration route of wireless data service……………………………17
Figure 2   Industry Chain of mobile value-added service…………………………..21
Figure 3 The ARPU (Average Revenue Per User) of global main mobile
           telecommunication market……………………………………………….25
Figure 4   The mobile phone user scale of China……………………………………51
Figure 5   The market scale of mobile telecommunication industry in China……….52
Figure 6   Market scale of the whole mobile value-added service industry in China..59
Figure 7   Percentage of the value-added service in the whole mobile
           telecommunication market………………………………………………..59
Figure 8   Market scale of the whole SP mobile value-added service industry
           in China……………………………………………………………………61
Figure 9   Mobile value-added service revenue and its share in the whole mobile
           service market in China…………………………………………………...63
Figure 10 The total sending number of China’s SMS service from 2001-2004……...75
Figure 11 Market revenue of SP from SMS in China………………………………...76
Figure 12 Market share among SPs of SMS market in China in 2003……………….77
Figure 13 Market share among SPs of MMS market in China in 2003………………82
Figure 14 The penetration and scale of China’s MMS handsets……………………...83
Figure 15 The China’s MMS market scale……………………………………………84
Figure 16 The scale of IVR service market in China………………………………….92
Figure 17 The market share of IVR service by SPs in China………………………….93
Figrue 18 The market scale of mobile phone games in Europe……………………….100
Figure 19 The scale of mobile phone game market in China from 2003 to 2005……..102
Figure 20 Market share of mobile phone game in China in 2004……………………..103
Figure 21 Market share of different types of mobile phone games in China in 2004…103
Figure 22 The development of China’s WAP market from 2003 to 2005……………...110
Figure 23 Investigations of using frequency of several WAP services
           in China in 2004…………………………………………………………….111




                                         4
List of Tables
Table 1 Mobile value-added services used by users…………………………………65
Table 2 The interest degree of high-end users in Mobile value-added services
        provided by future 3G network......…………………………………….66




                                          5
Abbreviations

AOL     American On-Line
ARUP    Average Revenue Per Unit
BREW    Binary Runtime Environment for Wireless
CDMA    Code Division Multiple Access
CMCC    China Mobile Communication Corporation
CP      Content Provider
CRBT    Coloring Ring Back Tone
CUCC    China Unicom Communication Corporation
DVB-H   Digital Video Broadcast-Handheld
EP      Equipment Provider
GDP     Gross Domestic Product
GPRS    General Packet Radio Service
GSM     Global System for Mobile communication
HTML    Hypertext Markup Language
IM      Instant Messaging
IMF     International Monetary Fund
IP      Internet Protocol
IVR     Interactive Voice Response
J2ME    Java 2 Micro Edition
LAN     Local Area Network
LBS     Location Based Service
MII     Ministry of Information Industry
MMS     Multimedia Messaging Service
MNO     Mobile Networks Operator
PDA     Personal Digital Assistant
PoC     Push-to-talk over Cellular
R&D     Research and Development
SIM     Subscriber Identity Module
SMS     Short Message Service
SP      Service Provider
TP      Terminal Provider


                                      6
UM     Unified Messaging
URL    Uniform Resource Locator
VAS    Value Added Service
VoIP   Voice over Internet Protocol
VPN    Virtual Private Network
WML    Websit META Language
WAP    Wireless Application Protocol
WTO    World Trade Organization




                                      7
                                   Abstract
Abstract

After several years developing, the mobile phone is changing its image from a voice
communication device to a personal communication, information and entertainment
terminal, and meanwhile Mobile Value-added service has become a hotspot in the
field of telecom wireless industry. Along with the progressing of Mobile
Value-added service technology, both the amount of mobile users and the
requirement of the users on different kinds of value-added services ascend greatly.
So far, more than 4/5 mobile phone users use value-added service. Since 1998 when
mobile value-added service has been first introduced into Chinese market, it
developed with amazing speed in the following years. This report describes the
development of mobile value-added service market in China. This report first
presents the general introduction of mobile value-added service, and its industry
chain. Furthermore, the analysis of China’s mobile communication market and
value-added service market will be introduced. Finally, I will expand the different
market of mobile value-added service in China.




                                         8
                                          Introduction
Introduction

For some time now, wireless service providers try to aim to make the mobile phone
into something more than just a kind of tool for voice communication. The idea of
having access to the world of information right there is just in people’s pocket,
independently of where you are, what you are doing and what time it is. It has been
one of the strongest driving forces in the telecommunication industry. One of the
reasons for this is that the fierce competition in the mobile voice communication
segment, which has been cutting profit margins. Therefore, the mobile operators
have been forced to continuously to seek the new ways of differentiating their
products. The value-added services (VAS) emerge at the right moment.


Mobile value-added service was introduced into Chinese market relatively late due
to two reasons: one is before 1998 there were less than 10 million 1 mobile
subscribers in China; the second is both mobile operators and officials believed that
value-added service is an European success story-not suit for Chinese market
situation and won’t be success in China. And the first value-added service
technology came to Chinese market was SMS (Short Message Service). After
absorbing the success experiences from Europe, SMS was ignited into Chinese
awareness by local idea. In 2000 during the Sydney Olympic Games, some small
Chinese Internet enterprises offered to send “good news” messages when Chinese
won medals. Then SMS service was success and also proved that there are real
business opportunities with value-added service. The word “SMS” became the most
high frequency used word during that time. After the success of SMS service, more
mobile value-added service such as MMS (Multimedia Messaging Service), IVR
(Interactive Voice Response), and mobile phone games etc., applications and
services have been introduced for mobile phone in China. China’s mobile
value-added service market began rapid development and in 2004, there were over

1
 “China Wireless Value-added Service Market Report 2004”, issued by iResearch Inc. 2004
(www.iresearch.com.cn)

                                                     9
                                           Introduction
300 million subscribers, 30 million SMS were sent per month and still continue to
grow. 2 At the same time, mobile operators are eager to take more benefit from their
subscribers via value-added service. Now there are several mobile value-added
service offered in China:
       SMS (Short Message Services)
       MMS (Multimedia Messaging Service)
       IVR (Interactive Voice Response)
       JAVA downloading services (games)
       Individualized Ringing Tone Service
       LBS (location-based services)


As SMS is a learning value-added service process, the process on how the other new
value-added services technologies are getting into market is also developing. This
process is a complicated process which including the factors such as regulations,
government’s policy, standards, tariffs, tests, trials and so on. VAS is a learning
process for every organization and for Chinese organizations as well. It affects
Chinese society and culture a lot. Continuously more new global value-added service
technologies are getting mature. Here are a few examples: 3
       Push-to-talk over Cellular (PoC) service; ”walkie-talkie” service, which will
       enable many other new services when combined with existing value-added
       service technologies such as messaging, location-based services, or when taken
       as an element into applications such as mobile phone games, enterprise
       applications.
       TV broadcast to mobile based on DVB-H which will enable a series of new
       innovative applications via mobile network.
       Payment solutions which use mobile phones.



2
 “China Wireless Value-added Service Market Report 2004”, issued by iResearch Inc. 2004
(www.iresearch.com.cn)
3
    Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile Value-Added Services in China”

                                                      10
                                  Introduction
How to combining existing value-added service with new VAS technology is a
challenge and also is the opportunities for Chinese telecom industries.


Problem Definition


With China joined WTO, lots of foreign companies have more and more interest in
Chinese mobile value-added service market. Chinese market is an reactive market,
so it is important and necessary for them to understand the situation of Chinese
mobile value-added service marekt. In order to enter the Chinese vas market, they
need to understand the specifics of this market, its rlues and regulations, entry
processes and requirements. In order to sell their services and applications, they have
to match make and localize their services and products for Chinese taste. The first
objective of this report is therefore to know what is the current situation of Chinese
mobile value-added service market. I will introduce each kind of mobile value-added
service which includes market scale, market share and market prediction of them in
China. All those ”information” is the most important tool for the new entrants who
want to enter Chinese market. In order to describe the Chinese mobile value-added
service market more effectively for the new entrants, I have the other related
objective in this report: what are the main factors which can influence the various
mobile value-added services in Chinese market. All those factors include the positive
factors which can be the driver of the development of the Chinese mobile
value-added service market, negative factors which can be the barriers of the
development of the Chinese mobile value-added service market. And the problems
of each mobile value-added services, market share of each services in China, user
characteristics will be included as well. I hope this report can help them to
understand the current situation of Chinese mobile value-added service marekt more
or less.




                                           11
                                   Introduction
The structure of this report


The structure of this report as following:
1. Introduction of mobile value-added service market. This chapter introduces the
   general mobile value-added service market which includes define and classify
   the mobile value-added service; analyses the industry-chain of mobile
   value-added, and also give a brief description on the development of global
   mobile value-added service market.
2. Analysis of mobile value-added service chain in China. This chapter analyses the
   mobile value-added service chain, which includes all the elements of the chain:
   Service Providers/Content Providers, mobile operators, Ministry of Information
   Industry, equipment manufacturers and terminal manufacturers, end users. There
   will be some case introduction when talking about the Service Providers/Content
   Providers and mobile operators.
3. Analysis of China’s mobile communication market and mobile value-added
   service market. This chapter discusses two markets: one is China’s mobile
   communication market, which includes the scale of China’s mobile
   communication market and prediction of China’s mobile communication market.
   The other market is China’s mobile value-added service market, which includes
   the scale of China’s mobile value-added service market and its development
   prediction. Moreover, the factors which influence on the development of China’s
   mobile    value-added    service   such        as economic   environment,   political
   environment and technical environment will be mentioned.
4. Analysis of China’s SMS market. This chapter analyses China’s SMS market
   which includes: introduction of the development of China’s SMS market, market
   share of SMS market in China, factors influence the development of SMS market
   and user characteristics in Chinese SMS market.
5. Analysis on China’s MMS market. This chapter analyses China’s MMS market
   which includes: introduction of MMS service, MMS market share in China,
   factors influence the development of MMS market and user characteristics.
                                             12
                                  Introduction
6. Analysis on China’s IVR market. This chapter analyses China’s IVR market
   which includes: introduction of IVR service, category of IVR service, positive
   and negative factors influencing the development of IVR and analysis of China’s
   IVR market.
7. Analysis of China’s mobile phone game market. This chapter analyses China’s
   mobile phone game market which includes: introduction and category of mobile
   phone game, limitation of the mobile phone used as a game platform, the brief
   description of development of global mobile phone game market, analysis of
   China’s mobile phone game market and user characteristic.
8. Analysis of China’s WAP market. This chapter analyses China’s WAP market
   which includes: introduction of WAP service in China, the scale of WAP market
   in China and user characteristics.
9. Individualized Ringing Tone Service. This chapter introduces individualized
   ringing tone service in China which includes: problems of the development of
   the individualized ringing tone service, user characteristics.
10. Conclusion. The general conclusion will be given in this chapter.




                                           13
                                     Chapter 1
1. Introduction of mobile value-added service market

1.1.     Introduction of mobile value-added service


Mobile value-added service is a new rapidly developing communication service
promoted by the continuous development & convergence of telecom technology,
computer science and Internet technology, also inspired by the enormous increase of
people’s information application requirement in the base of the high-level social
information structure. Featuring special characters like mobility, personality, security,
fashionableness and convenience without any time/space limitation, as well as the
abundant service such as SMS, Game, Mobile billing, position search and official
assistance etc., mobile value-added service can bring users with more convenient and
flexible telecom service, and take extensive business opportunity to different
enterprises, building this industry to be a more prosperous one.


The industry believes that value-added services will provide a more comprehensive
solution to wireless services than the existing offering provided by current mobile
operators, especially with regard to data communication. SMS (Short Messaging
Services) constitute the starting point for the advanced value-added services and
hence also the starting point of the wireless data communication in the GSM system.
Value-added services can add to turnover in several ways, one is through extra
charges for VAS services, the other one is just by the fact that value-added services
such as SMS, WAP (Wireless Application Protocol), UM (Unified Messaging),
mobile commerce (m-commerce) and mobile banking (mbanking) cause the
subscriber to use the mobile phone more. The potential ability of value-added
services to decrease churn is a factor that does not directly increase turnover. Lose
the customers to competitors’ costs the operators’ money, and it is even more
expensive to win new customers.




                                           14
                                   Chapter 1
For now, SMS content services are the hottest cash and may in the more successful
cases contribute 10% of turnover of mobile business. But it is difficult to see the
SMS services reaches a higher level than that because the WAP is set to replace SMS
on implementation later. The mobile operators indicate that they believe the WAP
will attain a share of between 10% and 15% of mobile turnover in about three years.


Excluding the traditional Person To Person voice service, those service realized by
mobile terminals are all concluded to be the mobile value-added application,
including all sorts of service in living, business, research, entertainment,
management, and auto control field. There is no doubt that basic voice services are
fundamental to mobile phone usage, but there is nothing like value-added services
when it comes to increasing revenue per subscriber.



1.1.1. Definition and category of mobile value-added service


   SMS


   As a kind of value-added services, operators can see the revenue that SMS
   generates clearly. If a particular operator is not offering value-added SMS
   content services by now, they are sure going to launch them sooner or later.
   Practically every time a subscriber sends or receives an SMS, the operator
   receives revenue and the operators have clearly seen that by expanding on the
   SMS concept and also offering other content-based services. Then more calls
   will be made and additional revenue generated.


   There is a line of evolution of content-based SMS services. In the first phase, the
   subscriber just needs to enter defined codes on the handset to accessed
   information in a database. Operators call this kind of service as a “push” service.
   The second generation of SMS services improved on the previous on by asking
   the subscriber to sign up for recurrent SMS content services, known as “pull”
                                          15
                                Chapter 1
services. In the third phase, the content supplier become an active partner, for
instance this could be by accessing the private bank account to check the balance
and then pay bills from it.


Today the push services and interactive SMS services are becoming too
complicated to be handled exclusively through the mobile handset. The operators
have found this problem and solving it by offering the customer a platform where
the customer can order and customize these services. This has given rise to a new
breed of interesting convergence services that combine wireless services with the
Internet. These so-called mobile portals, dedicated homepages on the Web
basically, now are being launched by several mobile operators.


For the mobile operators, the most popular SMS pull content services are
customer services, which include telephone number enquiry, telephone bill
enquiry, and customized services such as downloadable, customized ringing
signals, icons and business cards. It shows that embarking on automated
customer services via SMS or WAP will be rewarding for the mobile operators,
not only because of the revenue it creates, but also because it reduces the heavy
costs concerned with manned customer support.


Many operators have indicated that the push SMS content services they have
launched have been successful so far. SMS services become easier to subscribe
to and demand little effort thereafter with the mobile portal added to this. From
the operator’s point of view, these kinds of SMS content services are valuable as
once subscribed to, it keeps on generating regular revenue to the operators.


IDC (International Data Corporation) has a survey to ask the mobile operators in
Western Europe what their main objectives were in implementing SMS. The
primary motive was to increase revenue streams per subscriber. However, the
second highest ranked objective was to lower churn.
                                       16
                                 Chapter 1

mBanking, mCommerce and UM


Most mobile operators see the possibilities in the provision of mBanking and
mCommerce. Only few of them are saying that they will not launch these kinds
of services but most are adding them at the same time as they launch WAP. At
one time, some operators have begun to offer UM services to their subscribers.
Most of operators plan to introduce it in the future even though most operators
do not have UM services today.


              Figure 1. The migration route of wireless data service



        GSM                           GPRS                       WCDMA



       CDMA                       CDMA20001X                    CDMA2000



         2G                           2.5G                         3G



        SMS                      SMS,MMS,WAP,                  High Speed
                                   KJAVA,IVR                   Data Service




GPRS (General Packet Radio Service)


GPRS is a data bearing and transfer network developed in the base of GSM
standard. It adopts the leading wireless package technology and combines the
wireless communication with Internet together, representing the fashionable and
exciting features compared with the GSM network:




                                      17
                                 Chapter 1
Continual Online: Once the GPRS application has been enabled, it will keep
active forever without any question in draw off, be similar to an exclusive
wireless network.
Billing for real-time data traffic: Only when actual communication traffic has
taken place the bill will come into being, otherwise you can keep online forever
with no consideration in fee. It can be called a face-to-using billing model.
Quick login: Completely new package service, no need for long-time Dial-up
process.
Free Switch: The voice and data service can be switched freely. Users can make
voice calling or internet surfing independently.
High Speed Transfer: The theoretical transfer speed of GPRS can reach up to
171.2 Kbps, the present speed supported is nearly 40 Kbps.


GPRS can support such sorts of wireless value-added services:
WAP
WAP (Wireless Application Protocol) is a global opening standard to provide
wireless terminals with Internet Contents and leading value-added service, is a
simplified protocol in wireless Internet field. Combining the Internet technology
with mobile phone technology together, WAP realizes the convenient visit to
abundant internet resource. After the direct login of user’s handset and choosing
the navigation software for WAP site surfing, one can enjoy series of service like
news browse, stock consult, email sending/receiving, online game, web chatting
and etc. Access to the WAP through GPRS network can reduce the time-delay (in
2 seconds), and show advantages in High Speed Transfer, Continual Online and
Freely Switch.


The main reasons why operators are launching WAP are increased airtime usage
and increased revenue streams from per subscriber. Both of these issues deal with
the same concern that the more a network is used, the more revenues it brings in
relative to the cost of running the network.
                                       18
                                Chapter 1

MMS
MMS (Multimedia Messaging Service) can also be called Multimedia Text
Message Service. Designed for 3G (and beyond) networks. Compared with the
existing text message, it is added with the lots of multimedia contents like
colorful images, sorts of voices, cartoons and shake model in the base of
essential text information. So it can improve the actual function and interests of
mobile message.
Format that can be embedded within MMS include:
     Text (formatted with fonts, colours, etc)
     Images (JPEG, GIF format)
     Audio (MP3, MIDI)
     Video (MPEG)


Images could be downloaded from the WAP sites. It is quite simple, just selected
from a menu within the phone, or could even be photos taken by using a built-in
camera if the phone has one. MMS is an extension of the SMS protocol, making
its usage familiar to existing SMS users. One of the main differences between
MMS and SMS is that SMS messages are limited to 160 bytes, an MMS message
has no size limit and could be many Kbytes in size, or even more larger. MMS
requires a 3G network to enable such large messages to be delivered, but the
smaller messages can be sent with just second generation networks using GPRS.


Kiava (J2ME) download
K-JAVA or J2ME (Java 2 Micro Edition) either is a special JAVA software used
in embedded equipment. As a download possible coding technology in base of
the mobile terminal, J2ME adopts the JAVA as core language and introduce a
new model to wireless communication field. It means users can download sorts
of application software from Internet and create executable environment for such
software in the handsets. A Kjava supported GPRS handsets can make use of all
                                       19
                                  Chapter 1
  kinds of application service downloaded by GPRS, for instance: game, cartoon
  and stock.


  IVR
  IVR (Interactive Voice Response), bi-directional responding voice service, is a
  new sort of wireless voice value-added service. It is similar with the fixed-phone
  voice-information service which we are all familiar with. We can enter the
  service center with just a wireless terminal and receive entertainment program
  according to the operation illumination. The useful information or bidirectional
  service such as chatting room or friends making can be reached by the calling to
  an appointed number. For instance, banks and credit card companies can use IVR
  systems so that their customers can receive up-to-date information of their own
  account instantly and easily without having to speak to a person directly. IVR
  technology is also used to gather information, such as in the case of a telephone
  survey in which the user is prompted to answer the certain questions by pushing
  the numbers on a touch-tone telephone. IVR systems are different from
  Voicemail systems (the caller leaves a message) in that they are two-way
  interaction with the caller while Voicemail systems just one-way communication
  tool. Actually, IVR voice value-added service has an early beginning in
  developed countries like Japan or USA, and has built a grand market, becoming
  an important wireless value-added service.



1.1.2. Mobile value-added service industry-chain analysis


  Nowadays, the global mobile value-added service is just in a high-speed increase
  era. In spite of the short time experienced, the structure of this integrated and
  independent industry chain has been built. We can be more close to the true
  circumstance and business principal if a new viewpoint based on the whole
  industry is accepted.


                                        20
                                    Chapter 1

   The main roles of value-added services industry chain are: CP (Content Provider),
   SP (Service Provider), MNO (Mobile Networks Operator), EP (Equipment
   Provider) and TP (Terminal Provider). See the Figure 2 below. CP is the provider
   who provides the content of VAS to the SP. SP can provide the service to the
   Mobile Operator because it gets the content from CP. At the same time, the EP
   also provide the all the equipments to the Mobile Operator. The users get the
   terminal (mobile phone) from the TP, and subscribe the service from Mobile
   Operator. Each part in the chain are interwoven each other.


               Figure 2. Industry Chain of mobile value-added service



         CP(Content Provider)



          SP(Service Provider)



           Wireless Operator                       Equipment Provider



                 User                               Terminal Provider




1.1.3. Business model of mobile value-added service


Although the term “business model” is widely used and seen as important, there is
no generally accepted meaning at present. Different experts have different definition
of business model. One of them which comes from Petrovic describes the business
model as the logic of a “business system” for creating value, that lies behind the
actual processes. But Paul Timmers defines a business model as ‘an architecture for


                                           21
                                     Chapter 1
the product, service and information flows, including a description of the various
business actors and their roles; a description of the potential benefits for the various
business actors and a description of the sources of revenues’. (Timmers, P. (1998)
‘Business Models for Electronic Markets’ Journal on Electronic Markets). Briefly,
business model can be described as the enterprise’s business strategy which helps the
enterprise to earn the profit. As illustrated in previous part of this report, the mobile
business market is highly fragmented and the complete mobile services solutions
requires the collaboration of a large number of different market players, so each
entity in the mobile value-added service value chain acts different role in the mobile
service market. This means different role has different business strategy, in other
words, every entity in the mobile value-added service value chain has its own
business model. I will analysis the different business model for each entity from the
different perspective of them.


1.   Service Providers/Content Providers
         Tasks: the tasks of Service Providers/Content Providers are to provide
         relevant data and information products such as news, music, and video. etc.
         and distribute them using the various mobile channel.
         Target customers: target customers include mobile operators, business,
         Equipment Manufacturers and Terminal Manufacturers.etc.
         Business partners: content aggregators and portals are the main partners of
         Service Providers/Content Providers; purpose is to broaden the reach of
         their products.
         Revenue: revenues come from subscriptions fee, usage fees.
         Core activities: content collection, content processing and formatting,
         content publishing content distribution.


2.   Mobile Operators
         Tasks: provide the common communication services to the end users, giving
         them access to their network and other network operators’ network and the
                                            22
                                     Chapter 1
         Internet. It also provides various network-related services such as location
         information, user identification and billing services.
         Target customers: end users, businesses, application providers.etc.
         Business partners: operators buy the equipments from equipments
         manufactures in order to build their networks. They also set traffic
         agreements with other network operators and Service Providers in order to
         let their customers to access other networks. At the same time, they subsidy
         and distribute handsets in order to build their customer base.
         Revenue: mobile operators earn revenues from their subscriber; the
         charging fee is a combination of subscription, airtime fees and
         volume-based fees.
         Core activities: the main activities of mobile operators including network
         promotion, service
3.   Regulation authorities
         Tasks: set the legal framework which provides the users and the economy
         with a wide range of competitive telecommunications services.
         Target customers: they don’t have any target customers.
         Business partners: supported and supervised by the government.
         Revenue: licence fees, taxes.
         Core activities: frequency allocation management, service licenses
         management, market monitoring to ensure the fairness competition,
         supervising the telecommunication and information service market.


4.   Equipment manufactures and terminal manufactures
         Tasks: provide the physical core mobile network infrastructure and the
         logical infrastructure required to operate and manage the network.
         Target   customers:    network     operators,   mobile    operators,   service
         providers/content providers.
         Business partners: they purchase equipments from component vendors,
         assemble a variety of network equipments and systems and sell them to
                                           23
                                      Chapter 1
        network operators and mobile operators. They also collaborate with other
        equipment manufactures.
        Revenue: their revenues come from sale or lease the equipments.
        Core activities: R & D, system development.


1.2.    Development of global mobile value-added service

        market


The industry of mobile value-added service comes out with the promotion of the
mobile telecom technology. The development of technology promotes the
improvement of mobile value-added service, at the same time; more urgent
requirement on the telecom technology emerges with the expanding of value-added
application. This special relationship therefore builds the stable base of continuous
development of this industry.

    Figure 3. The ARPU (Average Revenue Per User) of global main mobile
                        telecommunication market


             80
                      65.6
                                                                    61.7
             60

             40                        32.9           30.5

             20

              0
                      Japan           South         Western         USA
                                      Korea         Europe


                                The average ARPU of handset users


    Source: IDATE. 2004.3
    @2004.5 iResearch Inc.



                                              24
                                    Chapter 1
From the Figure 3 we can find out that Japan and U.S. are still in the leading position
in the field of value-added services industry around the world, and they are
expanding their market to abroad at the same time. Although the developing speed of
VAS industry in Europe is slow because of several reasons in the last few years, it
speeds up its developing pace after year 2003. It probably will gain the leading
position again. South Korea is another country with huge potential. Of course China
is a country which can not be ignored. It owns one-fifth of population around the
world, and also has the biggest mobile phone market in the world. I will discuss the
Chinese market in details in the following chapters.




                                           25
                                    Chapter 2
2. Analysis of mobile value-added service chain in China

In China, the value-added service chain consists of following parts: content
providers, service providers, equipment manufacturers, mobile operators, terminal
providers, end users and MII (Ministry of Information Industry).


The role of Service Providers and Content Providers are to provide the content for
mobile operators under the control of the MII’s regulations, and need licenses to
operate. In China the major Content Providers are Sina, Sohu, Tencent and TOM
Online. But more than 70% of the Content Providers operate on loss. At present,
there are rare other Content Providers in China market now, because Service
Providers and operators provide their own content. Some big global companies such
as Sony Music, Disney and AOL are also providing content for the Chinese market
at moment.


Strictly, MII is not a part of the value-added service chain. But it is an exception in
China. MII plays a very important role in the whole information industry. MII
influences each part of this chain heavily through constitutes the regulations and
laws. At the same time, MII also ensures the fair developing environment for each
entity in this chain. Of course each entity has to obey the regulations and rules
constituted by MII. Usually, the job of MII is to choose standards and technologies
used in network such as 3G standard, or develop some new standard which they
think good for development of Chinese economy. They also provide the regulations
to get the mobile value-added service licenses and control the domestic value-added
service economy through these licenses.


As the mobile operator, they provide the service of voice and data, as well as portals
and payment mechanisms for value-added service. They also control the content and
services which provide by the Service Providers and Content Providers in terms of
the MII’s regulations. For instance, they prevent the distribution of “harmful”,
                                           26
                                           Chapter 2
“politically incorrect”, and “erotic” information. The mobile operators are interested
to have a great role in service providing by inviting Service Providers to join into
providing some new value-added services. There are two companies in China share
the operator market, one is China Mobile (share 60% of market), and the other one is
China Unicom (share 40% of market). GSM (Global System for Mobile
Communications) is the main technology using by China Mobile, and they also offer
Monternet portal based on a Java platform from Motorola. Their revenue sharing
model is 85% for the Service Provider and 15% for the operator. But China Unicom
is focusing on CDMA technologies and offers a service platform based on BREW
from Qualcomm. Their revenue sharing model is 80% for Service Provider and 20%
for the operator 4 .


Equipment manufacturer is the role who brings the new technology to the market.
They initiate the trials for new service together with mobile operators and sell
terminals to the end users. Consumers are free to choose any phone they want since
the mobile operators do not lock their SIM (Subscriber Identity Module) cards.
According to the iResearch, current market share of terminal manufacturers in China
are: Nokia (15.5%), Bird (11%), Motorola (10.8%) and Samsung on the forth place 5 .


2.1.      Service Providers and Content Providers


Nowadays, Service Providers and Content Providers play a more and more important
role in the telecommunication industry due to the rapid development of technologies
and the fast increase of market demands. Generally, the Service Providers and
Content Providers which belong to the telecommunication operators have much
more convenience than other Service Providers and Content Providers. In China,
they are InterStar of China Telecom, JiuZhou Online/Everyday Online of China
Netcom, Monternet of China Mobile and Unicom Online of China Unicom. They
4
 Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile Value-Added Services in China”
5
 “China Wireless Value-added Service Market Report 2004”, issued by iResearch Inc. 2004
(www.iresearch.com.cn)

                                                   27
                                                    Chapter 2
have advantages in the value-added service market competition and also get the
more end users in the user group. But the other Service Providers and Content
Providers can only obtain very small market share.


The features of Service Providers and Content Providers in value-added service
chain in China can be concluded as followings:


             Service providers now in China are under strict supervision compare to the
             beginning phase of value-added service development. Service providers will
             be punished if they disobey the regulations such as providing unhealthy
             information, vague charges, setting SMS traps and so on.
             Service Providers face the new challenges from the market because the
             market and regulation environments for Service Providers are changing
             quickly. In the following years, some small Service Providers will be washed
             out of the market or annexed by the big ones, and some of them will become
             Content Providers. The Service Providers who can provide unique services
             will survive in the market competition.
             Content Providers will play an important role in the future of value-added
             service chain in China because there is a big problem of this chain: lack of
             Content Providers. Now the Service Providers play both Application
             Providers and Content Providers.


       I will introduce some big Service Providers and Content Providers in today’s
       mobile value-added service market in China.



2.1.1. SINA Corporation (NASDAQ: SINA) 6


       SINA Corporation is one of the leading online media company and value-added


6
    http://corp.sina.com.cn/eng/sina_intr_eng.htm

                                                       28
                                Chapter 2
service providers for China and has more than 180 million registered users
worldwide, 450 million daily page views and over 42 million active users for a
variety of fee-based services. With the most recognized Internet brand in China,
SINA has established a network of localized Web sites that target China and
overseas Chinese communities. SINA provides services through five major
business lines including 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). For 2003 and 2005, SINA was ranked the “Most Preferred
Website” in China according to the Chinese Academy of Social Sciences and
considered “The Most Respected Chinese Company” for two years in 2003 and
2004 by the Economic Observer and the Management Case Study Center of
Beijing University. At the same time, South China Weekend honored SINA with
the prestigious award of the “Chinese Language Medium of the Year” in both
2003 and 2004. The company has nearly 2000 employees in its offices in six
cities throughout Asia and the U.S. On December 31, 2004 SINA generated
annual net revenue of $200 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, easy-to-use web space 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 news
includes breaking news, sports and games, entertainment and fashion, and
financial and IT information.


SINA generates revenues from five major business lines: SINA.com, SINA
Mobile, SINA Online, SINA.net, and SINA E-Commerce. Together with all these
                                      29
                                Chapter 2
units provide a series 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, 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 value-added service provider in China,
SINa Mobile provides over various platforms services including SMS, MMS,
Coloring Ring Back Tone (CRBT), IVR, WAP, KJAVABREW, and PDA. Its
products range from subscription to dating, gaming and downloading. The
contents are provided by famous brands such as Time Varner, 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. SINA Mobile cooperates with all these
telecommunication operators in order to provide Chinese mobile phone users
with the best value-added content services.
    SMS
    Products of SINA SMS are divided into subscription, dating, games,
    downloads and Internet SMS. The flagship products include Splendid
    Downloads, Friends and Headline News. As a leading mobile value-added
    service in China, SINA SMS builds on its strong content resources, as well
    as cooperation with numerous content providers not only in China but also
    abroad, to offer the most exciting SMS services to the users.
    MMS
    In addition to various MMS products, SINA MMS has the largest MMS
    downloading library in China. The library offers exclusive products
    including cartoons from HELLO KITTY, KITTEN DREAM, PUCCA, Zhu
    DeYong and Jimmy, and images and audio clips of A-Mei, Ren Hsien chi,
                                       30
                          Chapter 2
Chow Wah Kin, Yu Quan, Zhang Ziyi and many others. SINA MMS offers
over 20 customized services which including news, entertainment, stories,
education and romance.
CRBT (Coloring Ringing Back Tone)
SINA CRBT is composed of three parts: songs, funny dialogues and special
sounds. SINA obtains copyright from major music companies including
Warner International, Zhushufang Culture, Star Factory and Kirin Kid to
provide access for downloading of pop stars’ songs as ring tones. 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. Focusing on voice content service, SINA
IVR provides mobile phone users with a voice information value-added
service platform that integrates voice and SMS functionalities. Based on
users’ demand, SINA IVR sets up a three-tier product system, offering
content that includes chatting and dating, news information, interactive
games and so on. Products already introduced to the market including
Entertainment Scenery, Love Bible, SINA News, Binfen Blessing Zone.
WAP
SINA WAP offers a full range of information services on its wireless
terminal platform with nice 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 & Ring Tones, Chatting & Dating, Fashion & Life, and
Games & Entertainment.
KJAVA/BREW
The spread of SmartPhone in China has enabled the development of
KJAVA/BREW technologies. SINA’s KJAVA/BREW platform offers SINE
Netizens with improved users experience in products such as combating
                                31
                                             Chapter 2
            games, puzzles, sports games, poker and chess games. SINA’s K-Java game
            products have been 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.



2.1.2. SOHU Corporation (NASDAQ: SOHU) 7


       SOHU.com is one of the Chinese 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 in
       China, consisting of the mass portal and leading online media destination
       www.sohu.com; the number one online alumni club www.Chinaren.com; number
       one games portal www.17173.com; top real estate website www.focus.cn and
       wireless value-added services provider www.goodfeel.com.cn. This network
       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 symbol SOHU.


       After distributing the wireless services since 2000, SOHU has made 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 various 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 life. SOHU offers mobile


7
    http://corp.sohu.com/

                                                  32
                                       Chapter 2
       services on SMS, MMS, WAP, K-Java based platforms and IVR. Online games
       and e-commerce business currently account for a small portion of SOHU.com’s
       total revenue. The company will continue to operate these two businesses as to
       maintain a smooth user experience as well as to be prepared for future market
       potentials.


       SOHU acquired Beijing G. Feel Technology Co., Ltd. (‘Goodfeel’), aleading
       Chinese provider of value-added mobile data services for Wireless Application
       Protocol in May of 2004. WAP now is a rapid growing area in the Chinese
       wireless data market. Goodfeel is a Beijing-based WAP service provider. They
       offer WAP services via CMCC throughout China. Through a quick and
       convenient ‘One Key Access’ Monternet platform, the subscribers of CMCC can
       browse Internet on their mobile phone. And Goodfeel is one of the leading WAP
       service providers to CMCC, with its main products are ringing tone and picture
       logos. 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.


2.1.3. TOM.com 8


       TOM Online Inc. (NASDAQ stock symbol: TOMO) is one of the leading mobile
       Internet companies in China. Its 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 complete services for the people especially for the young
       fashion people including news, free e-mail, chat rooms, and a wide range of
       information covering sports, entertainment, technology, finance, health and


8
    http://ir.tom.com/en/index.html

                                             33
                                 Chapter 2
beauty and so on. www.tom.com is also the platform which also delivers core
services such as mobile value-added service and online advertising.


In 2001, TOM began to offer wireless data services, and soon it became the most
popular source and one of the biggest Service Providers for young users to
connect, interact and share experience. TOM offers SMS, MMS, WAP and Java
services, information content such as news headlines, sports information, games,
ringing tones, wallpaper downloading and also dating services. TOM is the first
player in the market of IVR services in China and now is the biggest IVR
provider in terms of market share offering one-to-one dating communications
and chat rooms.


The SMS service includes ringing tones, wallpaper downloading, greeting
messages, daily top line news, and weather report and dating. MMS service
includes true-tone ringing tone downloading; special tones downloading, color
picture messages, animated messages, graphical entertainment, picture news and
DIY (Do It Yourself). The WAP service includes ringing tone downloading,
games, news, jokes, and also cartoon downloading. And the IVR service includes
one-to-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 19 of November on 2003 and became one of the first
players in China to provide wireless IVR services. To cooperate with Wu Ji
Network strengthen the position of TOM Online as a leading provider of
value-added multimedia products and services. Because both TOM Online and
Wu Ji Network target similar users, they are able to create cooperation by
cross-selling wireless data services.


According to the revenues on CMCC platform, TOM was No. 1 in IVR for the
month of December 2003; No. 2 in MMS for the month of December 2003 and
                                        34
                                                  Chapter 2
       WAP for the month of January 2004; No. 3 in SMS for the month of December
       2003.


2.1.4. NetEase 9


       Guangzhou NetEase (www.163.com) established in May 1997. NetEase.com Inc.
       went public on NASDAQ in June 2000. 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 value-added
       service and Internet portal businesses. Until 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, all these fees includes charge users of its
       online games and mobile value-added service and other fee-based premium
       services, as well as from selling online advertisements on the www.163.com.
       Basic service offerings are also available on the NetEase Web sites without
       charge to its users.


       NetEase wireless
       Through arrangements with the two major mobile phone operators in China,
       China Mobile and China Unicom, NetEase offers a wide-range of services which
       allow users, for instance, to receive news and other information such as stock
       information and e-mails, ringing tones downloading, logos downloading for their
       mobile phones 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 offers services which are response to users’ changing tastes and


9
    http://corp.163.com/eng/about/overview.html

                                                     35
                                               Chapter 2
       needs, as well as leverage the core services of the Internet portal.


       Currently, most of the mobile value-added services which NetEase offers to users
       are the form of SMS. On 31 of December, 2003, NetEase had more than 33
       million registered SMS accounts. The SMS services of NetEase can be classified
       into four main categories, news and information subscription services, interactive
       and community services, Internet-related services and media downloading
       services.


       In addition to SMS, another small but increasing portion of mobile services
       NetEase offer includes MMS, IVR and WAP. Users can access these advanced
       services with mobile phones that use the new GPRS or CDMA technology
       standards. NetEase intends to continue to develop and introduce higher end and
       more mobile value-added service, since these new technologies become more
       and more widely and accepted.



2.1.5. Tencent 10


       Tencent is one of the first Internet Instant Messaging software developers in
       China, and a leading provider for Internet and mobile value-added services with
       a focus on IM (Instant Messaging) 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 successfully listed on the main board of Hong Kong Stock
       Exchange.


       Over the past seven years, Tencent keep steady developing space in high speed.


10
     http://www.tencent.com.hk/index_e.shtml

                                                  36
                                      Chapter 2
       More than 4.3 million registered accounts and vast active users demonstrate
       Tencent’s technology strength in operating online application systems and
       IM-related applications.


       As a leading Internet company and Service Providers in China, Tencent offers
       IM across different platforms such as Internet, mobile network and fixed
       networks to satisfy to the needs of users. Users can communicate with each other
       through the IM platforms with their PCs, mobile phone and fixed phones and
       various terminal devices. Users can communicate via not only texts, images,
       email, audio, video, but also have access to various Internet services and mobile
       value-added service to enhance community experience, including mobile phone
       games, online dating, content downloading and many other entertainment
       services.

2.1.6. Mtone 11


       Mtone Wireless Corporation is one of China’s leading providers of wireless
       interactive entertainment services to mobile phone users in China. They
       specialize in providing multiple services including online multi-user games that
       drive customer to customer interactions including competition, socialization,
       communications, role playing all integrated into virtual environments and games.
       All those capabilities support music, sports, humor, and many other mobile
       entertainment applications.


       Mtone offers service nationwide and cover more than 200 cities in China. Their
       sales operations cover most area 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.



11
     http://www.mtone.com/

                                             37
                                               Chapter 2
       The company has been a innovator and pioneer in China’s mobile value-added
       services market. It was the first one who provides wireless data information
       services in China in 1998. It was also the first one who offers commercial
       wireless mobile stock trading worldwide in 1998. Now it has developed mobile
       applications services using WAP for information browsing, MMS for information
       transmission, IVR for voice and audio services and a series of multi-user games
       for KJava enabled handsets. At the same time, they also promote the large data
       communications systems which support video, 3D graphics, MP3 audio, color
       screens, more memory and processing power.


       The majority of their customers are young adults. In additional to its own service,
       Mtone works with other Content Providers to allow all their partners to distribute
       their content using the broad coverage, nationwide customer service, billing
       capability, marketing knowledge of local provinces.



2.1.7. KongZhong Corporation 12


       KongZhong Corporation (Nasdaq: Kong) is a leading provider of advanced
       second generation (2.5G) wireless value-added services in China. The main
       service concerns of KongZhong are customer-oriented services, instant
       information and convenient communication. As a strategic partner of China
       Mobile, KongZhong has gained the leading position according to the revenues of
       WAP, MMS and JAVA. KongZhong offers a wide range of services in three
       major areas: Interactive Entertainment, Media and Community.


       KongZhong Corporation has established strategic relationships with China
       Mobile, China Unicom, China Telecom and China Netcom. The cooperation
       between KongZhong and all those mobile operators guarantee KongZhong can


12
     http://phx.corporate-ir.net/phoenix.zhtml?c=180513&p=irol-IRHome

                                                      38
                                       Chapter 2
       provide various mobile value-added services to more than 300 million mobile
       phone users and 300 million fix phone users in China. KongZhong not only
       established strategic relationship with mobile operators, but also cooperate with
       the handset manufactures. Now KongZhong is a company with total employment
       of over 500 people in different departments. All those departments include
       Technology Department, Media Product Department, Marketing Department,
       Network Department and Billing Center. Under the lead by an experienced
       management team represented by Yunfan Zhou, the Chairman and CEO, and
       Nick Yang, the president, KongZhong Corporation is now on the way to an
       international enterprise.


       In 2004, KongZhong published a new mobile media brand called KongZhong
       Media; it is a new reading experience on mobile phones. This service is different
       from the traditional media such as newspapers, radios, television and Internet. It
       is based on 2.5G technology platforms and delivers information through mobile
       handsets. It offers all kinds of information including news, entertainment
       services, stocks and bonds information, military events, sports and fashion news.
       Following are the milestones in the year 2004 of KongZhong Corporation 13 :
           August, 2004. KongZhong Media successfully broadcasted the Athens
           Olympic Games to domestic mobile users;
           October 12, 2004. KongZhong Media issued Motorola V3 Launch, China’s
           first commercial advertisement published through mobile phones to
           domestic users;
           November 12, 2004. The online game player of KongZhong exceeded 1000
           persons, up to 1017, which is the first online mobile game exceeding 1000
           players in China;
           Until November 26, 2004. KongZhong Media’s new center had received
           more than 200 thousand visitors;


13
     www.kongzhong.com

                                              39
                                                 Chapter 2
             December 17, 2004. KongZhong Media broadcasted the movie-Kungfu’s
             premiere through mobile phones. It is the first time to give live movie
             broadcasting to mobile phone users.


       In order to provider more rich content to their customers, KongZhong has
       already established strategic relationship with the world leading wireless content
       providers such as Japan’s Index and South Korea’s Olarks. They also signed the
       agreements with some recognized international mobile game providers such as
       France’s Gameloft, Britain’s Macrospace and Japan’s Namco Limited.
       Concerning the ringing tones services, KongZhong has entered agreements with
       both domestic and international record companies including the world top five
       record companies in order to be able to use the music in their products. At the
       same time, they also develop new products featured in its funny contents, special
       sound effects, dialogues from movies.


       Another area of community service offered by KongZhong such as City Night,
       Romantic Dating and School Lovers are also quite popular in China now. City
       Night is the first WAP community service with real life background. With more
       than 1.5 million people who have already registered that service. It provides
       players an environment to do everything just like in real life such as working,
       money making, chatting, shopping, dating, buying stock and studying. Romantic
       Dating providers the registered users to make friend all around the country.
       School Lovers bring the registered users back to the simple but sweet school life
       and gives the users a chance to experience it again.



2.1.8. Linktone 14


       Founded in October 1999, headquartered in Shanghai, Linktone Ltd. is a leading


14
     http://english.linktone.com/aboutus/index.html

                                                      40
                                   Chapter 2
   provider of wireless value-added services to mobile users in China. By
   developing a wide range of attractive content for the paying users and cooperate
   with Chinese mobile operators-China Mobile and China Unicom, Linktone
   provides a diverse of wireless content and applications which focus on media,
   entertainment and communications.


   Linktone has also established itself as a provider of innovative enterprise
   solutions. In May of 2002, Linktone partnered with Mcdonald’s Corporation
   (China) to launch its first nationwide SMS promotion for the 2002 FIFA World
   Cup in Japan and South Korea. Linktone has also worked to promote feature
   films, television programs, major entertainment events and consumer goods.



2.2.    Mobile operators


Mobile operators as an entity in the value chain act an important role in the whole
chain. At the same time, mobile operators have absolute advantages in the value
chain compare with other entities such as Service Providers/Content Providers.
There are two reasons: first, mobile operators own not only the network
infrastructure but also the customer resources; second, Service Providers can only
provide services to end users through the network infrastructures which also owned
by the operators.
In the first several years when value-added service just start, the relationship
between mobile operators and Service Providers is cooperation. During that phase,
mobile operators encouraged Service Providers to develop value-added service for
the consideration of profit and the market share. Mobile operators and Service
Providers cooperated quite happily. Operators charge for network flow fee, and
Service Providers charge for service fee. But after period of development, the mobile
operators are not satisfied with the profit sharing mode anymore because they
realized that Service Providers had gained more profit than them. Therefore mobile


                                          41
                                            Chapter 2
operators decided to begin to act in Service Provider role themselves. For example,
China Mobile has set up a corporation called “Zhuo Wang”, which is a Service
Provider actually. After that, the relationship between mobile operators and Service
Providers has changed from cooperation to cooperation and competition.


In China, there are two major mobile operators: China Mobile and China Unicom.
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 Telecommunication 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.



2.2.1. China Mobile Communication Corporation 15


       China Mobile Communication Corporation (China Mobile for short) was
       officially established on April 20th, 2000 and is directly under the central
       government. It is a key state-owned enterprise based on the mobile business, and
       now is the largest mobile network operator in China. CMCC (short for China
       Mobile Communications Corporation) 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 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 directly
       under the central government in China and went public in HK and New York
       Stock Exchanges.


15
     http://www.Chinamobile.com/ENGLISH/Profile.html

                                                       42
                                               Chapter 2

       CMCC is the only network operators focusing on the development of mobile
       communications. It has an important position not only in the Chinese mobile
       communication area but also in the international mobile communication area.
       After more than 10 years of development, it has established a comprehensive
       communication network with wide coverage, high communication quality,
       various service types and high level services. Both the scale of network and
       number of customers are in the first position in the world. The network has
       covered most of the cities and regions in China until the end of 2002. All the
       main traffic lines have been covered in the major areas of cities. And the GSM
       exchange capacity has reached 182 million; the total number of user is over 138
       million.


       CMCC operators mainly in mobile voice service, data service, IP telephone
       service and multimedia service. It also has the right to operate Internet services
       and possesses the international gateways. Nowdays, value-added voice services
       like “E-tone Online” has already achieved successfully. Data services maintained
       a robust growth momentum. The SMS traffic reached 79.4 billion transactions
       throughout the year 2004, 8.45 times that of year 2003.


2.2.2. China United Telecommunications Corporation 16


       China United Telecommunications Corporation (China Unicom for short) was
       established on July 19, 1994. Unlike China Mobile, China Unicom not only
       focuses on the mobile services, but also on the fixed network and services. 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, ant it became the world’s 3rd largest GSM operator and the


16
     http://www.Chinaunicom.com.cn/profile/gsjs/index.html

                                                       43
                                       Chapter 2
       2nd largest CDMA operator.


       Unlike China Mobile, China Unicom has a separate value-added service
       department which is responsible for all the things related to value-added services,
       such as the development of data network, Internet and E-business, the
       development of value-added service market, sales planning and so on. Moreover,
       the value-added service department is also responsible for the management of
       Service Providers.


       China Unicom has cooperated with lots of Service Providers so far. They provide
       a large number of value-added services to the users, for example, Prepaid Call,
       Voice SMS, Mobile VoIP, Unicom secretary, Mobile Pager, Mobile Banking,
       Mobile Stock Trading and so on. It wireless Internet service brand “Uni-Info”
       provides a wide range of wireless value-added service such as hot news, weather
       forecast, stock info, foreign exchange rates, railway schedule and flight schedule.
       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.



2.3.         MII (Ministry of Information Industry) 17


Although MII (Ministry of Information Industry) is not a real part of the value chain,
however in China, it plays a very important role in the whole information industry.
And at the same time, it also influences each entity in the value-added chain heavily.
MII was organized in March 1998. Its function is to guide the macro development of
the information industry and supervises the Chinese telecommunication market. MII
not only ensure the fair developing environment for the whole chain but also
stipulate each entity in the chain.


17
     http://www.mii.gov.cn/

                                              44
                                    Chapter 2


2.3.1. Duties of MII


       Drafting and studying the development strategy, guidelines and policies,
       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 regulations and laws for communication industry, electronic
       information products manufacturing industry and software industry; issuing
       the administrative rules.
       Managing and planning the national public communication networks,
       broadcasting and television 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.
       Ensuring the fairness competition, supervising the telecommunication and
       information service market, granting the operation licenses.
       Constituting the tariff policies for telecommunication and information
       services, determining the tariff standard for the basic postal and
       telecommunication service.
       Joining the relevant international organizations on behalf of China, signing
       the iner-governmental protocols, organizing the foreign economic and
       technological cooperation and exchange.
       Responsible for the information statistic and distribution which related to
       information industry.



2.4.   Equipment Manufacturers and Terminal Manufacturers

                                         45
                                     Chapter 2

Equipment manufacturers and terminal manufacturers play basic role in the chain.
Both of them have to predominate to advanced technologies in order to meet the
demand of value-added service’s development. Equipment manufacturers must set
up a good network environment together with operators. While terminal
manufacturers must response to the market requirement in time and provide
corresponding mobile terminals. Each entity in the value chain must develop
balanced in order to keep the healthy development. The whole chain will not work
smoothly if one of these entities develops too fast or to slow. This is especially
important for equipment manufacturers and terminal manufacturers.



2.5.     End users


Although end users are the last part of the whole chain, they are the most important
factor for the existence of the chain. End users can be divided into personal
customers and industry customers. Usually the operators have many customer
resources whatever personal customers or industry customers, so it is quite important
for operators to exploit end users’ requirements. And Service Providers and Content
Providers should also provide services that can meet the needs of the customers in
order to win the market.



2.6.     Conclusion
After analyzing the mobile value-added service chain in China, we can see that each
entity in this chain is important for the whole chain. In other words, their relationship
is related as closely as each breath is to the next. In order to keep the healthy and
harmony development environment, each of them must keep the develop balance. If
any entity develops too fast or too slowly, the balance will be broken and the whole
chain will not work smoothly.



                                            46
                                              Chapter 3
3. Analysis               of      China’s           mobile          communication   and
       value-added service market


3.1.         The scale of China’s mobile communication market and

        development prediction


China is the world’s largest mobile communications market. The number of mobile
subscribers in China surpasses the number of fixed-line subscribers. China had 344
million mobile users by March 2005 and a mobile penetration rate of 25.9% 18 .
According to the correlative market forecast, there is expected to be more than 500
million mobile phone users in China by 2010 19 .



3.1.1. The scale of China’s mobile communication market


       China Telecommunication industry was recombined at the beginning of 1999.
       The assets of telecommunication were operated by primary Ministry of Posts and
       Telecommunication now is divided into three parts: China Telecom, China
       Mobile, and China Satellite. Chinese government gave full supports to China
       Unicom in 1999. Additionally, the assets of Guoxin Paging and Railcom were
       amalgamated into China Unicom. Now there are six telecommunication
       operators in China: China Mobile, China Unicom, Netcom, Jitong, China
       Telecom and China Satellite, and mobile communication operators are China
       Mobile and China Telecom.


       After the reform in telecommunication industry in China in 1999, the
       competitive pattern of the mobile communication market has been taken shape.


18
     http://www.researchandmarkets.com/reportinfo.asp?report_id=223824
19
     http://www.friedlnet.com/product_info.php?cPath=11&products_id=49

                                                      47
                                             Chapter 3
     China mobile’s market share in GSM market was 88%, and China Unicom’s
     market share in GSM market was 12%. In 2000, the market share was changed,
     China Mobile’s is 78% and China Unicom’s is 22% 20 . The market share will
     continue to change because of the government’s slanting policy toward to China
     Unicom and China Unicom’s further growth.


     China Mobile
     Nowadays for the China Mobile, the call completing rate reaches more than 99%
     and call failure rate is 1.3% 21 . The annual operation revenue was RMB (The
     name of Chinese currency) 115 billion, the total amount of assets reached RMB
     320 billion 22 . The group company such like China Mobile and its subsidiaries’
     network has covered national wide regions or cities and over 96% of counties or
     cities. In the field of international roam, it has opened GSM roam service with
     257 telecommunication operators in 205 countries and regions, has opened
     GPRS roam service with 214 telecommunication operators in 105 countries. At
     the same time, China Mobile has also opened MMS roam service with 21
     telecommunication operators in 6 countries 23 .


     China Unicom
     China Unicom, since 1995, opened the digital mobile communication network,
     had developed by leaps not only in the number of subscribers but also in the
     network size. Its network capacity has reached 15 million. The 130 network
     covers more than 220 cities all over the country, and its market share was 21.5%
     in the mobile phone market, and signed automatic roam protocol with more than
     180 mobile phone operators all over the world 24 .



20
   “China Wireless Value-added Service Market Report 2004”, issued by iResearch Inc. 2004
(www.iresearch.com.cn)
21
   http://english.people.com.cn/english/200006/22/eng20000622_43723.html
22
   “China Wireless Value-added Service Market Report 2004”, issued by iResearch Inc. 2004
(www.iresearch.com.cn)
23
   http://www.Chinamobile.com/YDYW/gjmy.asp?ClassID=1&ClassChild_ID=15
24
   http://www.Chinaunicom.com.cn/products/ydtxyw/ydhyyw/file3.html

                                                      48
                                   Chapter 3
3.1.2. Comparative advantages of China Mobile and China Unicom


  According to the characteristics of the subscribers’ demand, compared China
  Mobile with China Unicom, China Mobile’s subscribers are aged from 26 to 35,
  most of these subscribers are graduate and higher paid clerks; but China
  Unicom’s subscribers are younger, aged from 12 to 25, diploma educational
  background, the salary is a little bit lower than China Mobile’s subscribers.
  China Mobile’s subscribers spend more mobile phone call fee than China
  Unicom’s subscribers do, but China Unicom’s subscribers pay much more
  attention on the economy of the cost and display the inclination to the novel
  things.


  China Unicom is consistent with China Mobile in the fields of the TV advertising.
  Both of them spend most of their capital in the central TV station and in
  GuangDong province. China Mobile takes the TV as the most important medium
  whereas China Unicom takes the Press as their most important medium. The total
  cost that China Mobile spent in these two media is 68% more than that of China
  Unicom.


  Compare to the China Unicom, China Mobile’s strength is high than China
  Unicom’s, and also its labor productivity is higher than China Unicom. But the
  growth rate of China Unicom is faster than China Mobile’s, and its capital
  productivity and ratio of input-output are better too.


  The technology of mobile communication has grown from analog technology to
  digital technology in the last few years, and at the same time, the technology is
  also developing from unique voice service to integrated services. Meantime, the
  mobile phone operators paid great attention on the GPRS and 3rd generation
  CDMA technical criteria. China Mobile now is stressing the upgrade of GSM


                                          49
                                             Chapter 3
     system and the technical application of the 2.5 generation with the current
     network resource, development level and the subscribers’ distribution. But China
     Unicom is stressing the trial and the application of the 3rd generation CDMA
     under the government’s slanting policy.



3.1.3. The prediction of China mobile communication market


     Till the end of 2003, mobile phone users in China have reached up to 268.69
     million, almost 20.92 handsets owned by every 100 person, making an enormous
     increase of 30%, and China has become the largest mobile phone market of the
     world. In 2003, more than 1/4 of global new mobile subscribers came from
     China. The total number of China’s mobile phone users has reached 290.30
     million with 21.692 new users joined in the first quarter of 2004. According to
     the data of Information Industry Ministry, 52 million of new mobile subscribers
     developed in 2004, and the permeation of mobile phone reached 24.5%. In 2006,
     this number will reach 441 million, and the average year increase rate will still
     exceed 18%. In July of 2004, fresh market data was release by Information
     Industry Ministry in the first half of 2004, there are 35 million of new mobile
     phone users in China, and the total number reaches 305 million, even 700 million
     expected in 2010. The great number of mobile subscribers actually builds up a
     nice foundation for mobile value-added service, among them, text Message is the
     most typical one 25 . Figure 4 below shows the mobile phone user scale in China
     from year 2001 to year 2006.




25
  “China Wireless Value-added Service Market Report 2004”, issued by iResearch Inc. 2004
(www.iresearch.com.cn)

                                                     50
                                              Chapter 3
                        Figure 4. The mobile phone user scale of China


      80000
                        68%

                                        43%
      60000                                            30%
                                                                       22%
                                                                                      17%              16%
                                                                                               44100
      40000                                                                      38100
                                                                  32700
                                                  26869
                                   20662
      20000        14481



            0
                     2001           2002           2003            2004           2005         2006(e)




                                  user number (ten thousand)              year on year increase rate




     Source:Information Industry Ministry. 2005.12
     @2005 iReseach Inc.


     Pay attention to the income of wireless telecommunication industry: In 2002, the
     total income of is 215.5 billion, and it reaches 242.5 billion in 2003 with a
     year-on-year increase of 13%. It is predicted by iResearch that the total operation
     revenue income of telecom industry will be 271.6 billion, keeping a average
     increase about 12% per year. It is expected to be 346.8 billion in 2006, and break
     through 500 billion in 2010 26 .




26
  “China Wireless Value-added Service Market Report 2004”, issued by iResearch Inc. 2004
(www.iresearch.com.cn)

                                                     51
                                     Chapter 3
   Figure 5. The market scale of mobile telecommunication industry in China


6000
              25%
                              13%                12%        12%               14%
4800



3600                                                                      3468
                                                        3042
                                           2716
                           2425
2400       2155



1200



   0
           2002            2003             2004         2005            2006(e)




                    market scale (100 million Yuan)    year on year increase rate




   Source:Information Industry Ministry. 2004.2
   @2005 iReseach Inc.


  Predictably, the trend of operation mode of mobile operators in the future will be
  changed. The revenue of voice service will decrease slowly, and the revenue of
  the mobile commerce commission and the other value-added service will
  increase gradually. The provided services will cover lots of new services such as
  travel ticket service, banking service, financing and trading service, retail
  ordering and so on. Mobile commerce with infinite interconnection will bring
  more and more convenience to our daily life.


  Moreover, with China joined WTO (World Trade Organization), the transnational
  telecommunication operators’ strategy are penetration policy, mainly offering
  value-added telecommunication service, extending the control in the 3G field.
  According to the investment mode, portfolio investment mode includes listing
  and leasing. Direct investment mode is to establish the joint venture with
                                            52
                                  Chapter 3
   main-body operators and to support rising operators and to purchase. No contest,
   all those strategy will threaten Chinese telecommunication operators. Chinese
   operators have to realize the disadvantages fully. Meanwhile, take corresponding
   strategy which can exploit the network entire advantages and regionalized
   advantages. All the operators must improve the relationship between the
   telecommunication operators and the local government, and use the
   government’s favorable policy fully.


3.2.   The development scale of China’s mobile Value-added

       Services market and development prediction


3.2.1. SWOT analysis of China’s Mobile Value-added Services

       development


   Value-added service is a new service which can not only bring real profits, but
   also a strategic service that main mobile operators decided on. I will make the
   following analysis on inner and outer environment for Chinese value-added
   services by SWOT analytical methods.


   Opportunity analysis from outer environment
   Wonderful environment for the development of value-added telecom service has
   been formed in China. It faces with all industries in the society, owning an
   extremely large marketing space.


   In terms of government policy, China made a plan to speed up the development
   of national economies and social informatization construction, which provides a
   better policy and chance for the telecom departments to explore more and more
   value-added services.




                                          53
                                Chapter 3
In terms of end users’ requirements, simple vocal services cannot meet their
demands. People are expecting to gain diversity, comprehensive, and
characteristic services and this hope is more and more badly with the users’
expansion.


In terms of advancement of technology, the widely application of IP technology
in web offers a new stage for the development of value-added services. The core
of telecom service has been transferred from vocal service to data service. A
trend of “telecom network IP realization” and “IP technology telecomization”
has appeared.


In terms of business development, China Telecom continently carried out “Three
big Network Project” (the government, enterprises and families) in recent years
that gained a great reflection. It is advantageous to basically raise the network
utilization level in virtue of government and corporates’ strength so as to further
explore the market potential.


Threaten analysis from outer environment
The development of China Telecom value-added service is severe as it is not
only facing with direct competition from other operators and social value-added
service runners, but also has fierce threats from potential competitors such as
broadcast network and multinational corporate.


Both China Mobile and China Unicom pay full attention to the value-added
service, which has taken a proportion of around 10% and maintains fast
developing; further the influence of the income. Comparatively, the development
of value- added service in China Telecom is much more slowly and fewer and
has a long way to reach.


The industry’s requirement is not so serious. The market opened widely and early

                                       54
                                 Chapter 3
which    results in furious competition. Besides the basic telecom runners,
professional value-added corporate are accelerating the value gathering with its
flexible operating regulations. Skimming effect is obvious.


Broadcasting department owned the big advantages of monopolizing of
operating content resources and rich experience. In recent years they tried several
times to enter into telecom fields and then practically get business filtrations.


After the entry to WTO, as a result of the high requirement and low profits of
basic telecom services as well as government’s political guidance towards
value-added service, foreign investors will first step into this field which makes
it become the hot point of the market development and the focus of competition.


Superiority analysis from inner condition
In order to promote the harmonized development of various services, China
Telecom is active to transfer to information servers, create a new profitable
pattern and seek for a complete industrial chain pattern to gain business value.
Take Jiangsu Telecom for example, through one year’s coordination and
exploration, great progress has been made in this terms so set a firm foundation
for the future work and create good conditions to win the competition.


1) The primary organization has been set up in the Province and cities. In the
whole province, the number of staff who is engaged in value-added service has
reached more than 800. What’s more, the function that targets at product
exploration resources corporation and industry application is clearer. A
professional system has been established.


2) In terms of ideas and thoughts, the importance and specialilty are gradually
known by leaders and staff at each level.



                                        55
                                 Chapter 3
3) In terms of procedure system, a product development procedure is been set up
which is clear responsibility, fluent procedure and close management. In order to
reduce the cost, improve the efficiency, avoid non-focusing strength and separate
towards outside, conformity has been implemented over the province on the
produce organization system towards network application, call message, test
message service of field network, web station and so on.


4) The development has a certain foundation and certain experience has been
accumulated in the terms of promoting province unified management, applied
contents construction, sales channels construction, combination with basic
services and corporation as well as industrial application.


In a word, after the reconstruction of procedures, companies have all established
organization facing with market. The four channels have been basically set up
and the market capacity has been improved a lot. Performance assessment is
continuing to be deepened and vigor and efficiency is strengthened. The whole
company’s potential is getting powerful, and due to the stable cash flow and well
financial achievements, the value-added service has a bright future.


Weaken analysis of inner condition
Generally, value-add is the main theme of telecom business and it has a great
prospect. However, at present, except the MMS, the core value is not so clear and
the key to start the market is ready to be disclosed. So, now the decisive matters
are as follows,


1) Lack of application and content, hard to find the point. It is the urgent affair to
divide the market, approach to application and meet the various requirements
with levels of service.


2) No enough channels, disjoint between development and sales. The majority


                                        56
                                 Chapter 3
value-added service is now under entering period and it is difficult to explore the
market. Operating efficiency is not obvious at this period and the current sales
channel is not enthusiast to promote new type service. Service spread and sales
channel are not well joined. As a result, the cost for service development is high
and users know little about this service.


3) No enough knowledge about the importance of value-added service, measures
should be strengthened. The evaluation system of value-added service is not
completed and no reasonable assessment is made towards indirect profits that
reduce the activity of the staff and move function has not appealed.


4) No suitable institution and staff need to tease the management relation. Some
unreasonable points still exist in Value-added department in the terms of
institution setting, responsibility division and assessment regulation. The
exploration and promotion needs to be strengthened.


Therefore, the competition in value-added field will continue to be fierce, so
China Telecom must attach more importance to value-added development and
dependent on the self advantages of resources, change management idea and add
the change of increasing pattern and introducing new business pattern as another
important point for business creation. Active to reform from system and
regulation with the basis of corporation to mutual benefits, explore a new way
for the development of value-added service.


The urgent thing for China Telecom to develop value-added service is to solve
the following problems. Firstly, how to discover the efficient and potential
market, where is the valuable consumers. Secondly, what kind of products should
be attached importance to explore and promote in order to adopt the
requirements? Thirdly, how to promote the current products, how to establish
channels and how to make pointed sale? Fourthly, how to develop new service
                                        57
                                             Chapter 3
     sets and combined with basis services to lower the costs, fix the target and
     promote the mutual development of basis and value-added services, improve the
     viscosity and real value, prolong the value chains and win a long-term
     development motivation.


3.2.2. The scale of China’s mobile value-added Service market


     In the recent years, the market of mobile communications has developed very
     fast in China. The way of people’s daily life has been affected by mobile phone a
     lot. Correspondingly, mobile value-added service increases very fast as well.
     Both the amount of mobile users and the requirement of the users on different
     kinds of services increased greatly. So far, almost 80% of mobile subscribers
     have experienced the value-added service without any great increase.
     Nevertheless, the income from mobile value-added service increases higher than
     the others, in the first half of 2004, the SMS service increases 71%, and the users
     of broadband service reaches up to more than 17 million, in which 6.58 million
     of new users adsorbed 27 . According to related statistics, the whole market scale
     of China is 1.98 billion RMB in 2001, and 2002 is the fastest increasing year
     with a exciting speed of 373%, so it adds up to 9.36 billion RMB. In 2003, it
     reaches 23.32 billion RMB and 38.54 billion RMB is expected in 2004 as well as
     64.05 billion RMB in 2006, popularly accepted, it will turn to be a slow trend 28 .


     From Figure 6, we can see the whole market scale of mobile value-added service
     industry in China from year 2001 to year 2006.




27
   “China Wireless Value-added Service Market Report 2004”, issued by iResearch Inc. 2004
(www.iresearch.com.cn)
28
   “China Wireless Value-added Service Market Report 2004”, issued by iResearch Inc. 2004
(www.iresearch.com.cn)

                                                      58
                                         Chapter 3
      Figure 6. Market scale of the whole mobile value-added service industry in
                                                 China


1200
                             328%

1000                                        149%
                                                             65%             41%               35%
800                                                                                     732.8


600                                                                      542.8

                                                          385.4
400
                                         233.3
200
                          93.6
           19.8
  0
           2001           2002           2003             2004            2005         2006(e)



                         income (100 million Yuan)                year on year increase rate




   Annotate: the whole wireless value-added market includes SP value-added service and
   Person-To-Person data transfer market.
   @2005 iReseach Inc.


       Figure 7. Percentage of the value-added service in the whole mobile
                           telecommunication market

25.00%

                                                                                      21.10%
20.00%
                                                                    17.80%


15.00%                                           14.20%


                                 9.60%
10.00%



 5.00%        4.30%



 0.00%
                  2002           2003              2004               2005            2006(e)




                                                 percentage(%)




                                                 59
                                  Chapter 3
  Annotate: the whole wireless value-added market includes SP value-added service and
  Person-To-Person data transfer market.
  @2005 iReseach Inc.


  From the Figure 7 above we can also see the revenue share of mobile
  value-added service to the total mobile services market increases also annually.



3.2.3. The prediction of China’s mobile value-added services market


  Issued by iResearch, Statistics show that SMS is the chief service of SP
  value-added market in 2003, which occupies an amount of 1.7 billion RMB in all.
  In 2004, 2.5G value-added service markets emerged as well as the enormous
  improvement of SMS business, the whole SP value-added service market
  revenue is 4.43 billion RMB in that year. It increases to 8.4 billion RMB in 2005.
  Further more, it is estimated that it will increase to 12.35 billion RMB in 2006 in
  which 5.5 billion is from SMS, 1.15 billion from WAP, 1.8 billion from MMS,
  1.2 billion from wireless game and 2.7 billion from IVR.




                                         60
                                             Chapter 3
Figure 8. Market scale of the whole SP mobile value-added service industry in China

              150




              120




               90




               60




               30




                 0
                            2003                 2004                2005               2006(e)
     SMS                     17                   34                   44                   55
     WAP                                          2.3                  8                    11.5
     MMS                                           2                   8                    18
     wireless game                                 3                   6                    12
     IVR                                           3                   18                   27



                             IVR          wireless game           MMS            WAP               SMS




     (100 million RMB)
     @2005 iReseach Inc.
     The China’s mobile value-added service market will still achieve steady growth,
     although the ongoing regulatory campaign and a reshuffling of the industry 29 .
     “The overall trend of the mobile value-added service market is good and the
     prospects are bright,” said Henry Yang, president of Shanghai-based
     iResearch-domestic professional Internet research house 30 . He said he believe

29
   “China Wireless Value-added Service Market Report 2004”, issued by iResearch Inc. 2004
(www.iresearch.com.cn)
30
   http://english.people.com.cn/200409/28/eng20040928_158526.html

                                                        61
                                              Chapter 3
       that the popularity of smart phone, the abundant content of mobile value-added
       services, and the launch of the 3rd generation mobile communications systems
       would lead to greater prosperity of the industry 31 .



3.2.4. The factors influence on the development of China’s mobile

             Value-added Service market


       Mobie Value-added Service situation in China


       The market of mobile communications has developed very fast in China in recent
       years. Mobile phone has affected the way of people’s daily life a lot.
       Correspondingly, mobile value-added services also increase very fast. Not only
       the amount of mobile users ascend greatly, but also the requirement of the users
       on different kinds of services. Now in China, about 80% of mobile phone users
       use value-added services. The revenue increase of mobile value-added service
       has exceeded the increase of the other telecommunication services. In the
       following figure 9, we can see that the market scale of mobile value-added
       service was 1.98 billion RMB Yuan in mainland China in the year 2001, and in
       year 2002, it reached 9.36 billion RMB Yuan. This means that the market has
       increased 373% compare to the preceding year. And in year 2003, the revenue of
       mobile value-added service was 23.32 billion RMB Yuan. It is expected that in
       year 2006 the market scale fo mobile value-added service can reach 70 billion
       RMB Yuan. We also can see that the revenueshare of mobile value-added service
       to the total mobile services increases annually from this figure.




31
     http://english.people.com.cn/200409/28/eng20040928_158526.html

                                                      62
                                            Chapter 3

 Figure 9. Mobile value-added service revenue and its share in the whole mobile
                           service market in China 32




     It is no contest that external environment can affect the development of China’s
     mobile Value-added services market, it including the economic environment,
     political environment and technical environment. I will introduce all those
     environment in the following section.


     3.2.4.1. Economic Environment


     The Chinese economy keeping fast development in 2004 after the GDP (Gross
     Domestic Product) broke through 11,000 billion RMB Yuan in 2003. Issued from
     newkerala, during January-March, the GDP of China reached 4.33 trillion RMB
     Yuan (about 540 billion U.S. dollars) 33 . Some international organizations, such

32
   Data source: Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile Value-Added Services in
China”
33
   http://www.newkerala.com/news2.php?action=fullnews&id=45877


                                                    63
                                 Chapter 3
as World Bank, IMF (International Monetary Fund) have adjusted the prediction
about the annual increment of Chinese economy to over 9%. With the
development of economy, Chinese people’s living standard has been improved
significantly. Demand on housing, autos and telecommunications is increasing
strongly. All this enlarges the Chinese telecommunication market, and at the
same time, it also provides an economic guarantee for the development of the
telecommunication services.


The development of economic influences not only to the total amount of the
telecommunication requirement, but also the trend of the content changes of the
telecommunication    requirement,   people    are   not   satisfied   with   the
telecommunication services only with voice. People want more and more
intelligent, comfortable, individual and entertainment services which only
value-added services can provide. How to provide better value-added services
and keep the increase of the revenue has become the focus for all
telecommunication enterprises.


Mobile value-added services play a more and more important role in the
telecommunication market with the economic development in China now. The
following Table 1 illustrates the services used by high-end users in the major
cities in China nowadays.




                                     64
                                            Chapter 3
                                          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%        45.6%   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 game                 39.3%        44.6%          52.7%          44.3%         66.1%   43.1%
          Web browsing                      50.0%         62.4%          29.1%          38.6%         60.0%   25.6%
       Color Messages                       29.3%         53.2%          18.2%          23.3%         31.5%   18.1%
     Mobile Phone online
                                            8.7%          22.0%           6.7%           9.7%          4.8%   2.5%
           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 value-added services used by users 34


    The data shows in Table 1 illustrates that many kinds of mobile value-added
    services other than the widely used SMS are required by the end users from
    different cities nowadays. Network browsing, receiving and sending Email are
    popular and widely used. In addition, the individual services such as
    downloading from the internet are welcome currently as well. Moreover, users
    from different cities great interest in online games such as gambling or lottery.
    Other inquiries have also revealed that the customs that have not used
    value-added services show low interest in the existing services, but they are
    interested in some new emerging services such as music and pictures upload,
    online translation etc.


    Table 2 in the following shows the interest degree of high-end users in mobile
    value-added services provided by future 3G mobile network systems.

34
   Data source: Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile Value-Added Services in
China”

                                                    65
                                              Chapter 3

                                             Beijing Shanghai Shenzhen                     Wuhan       Chengdu Kunming
      Transmitting images to
                                               15.9%         14.9%          14.6%          15.8%        17.1%   14.1%
       friends or relatives
                  Web browsing                 14.6%         15.8%          13.6%          15.2%        15.6%   13.3%
                  Transmitting
                                               14.3%         14.7%          14.4%          14.8%        16.0%   13.1%
      information with videos
          E-mail receiving and
                                               14.3%         15.7%          13.3%          14.5%        15.2%   13.2%
                    sending
                Online music                   12.5%         15.4%          13.6%          15.0%        14.8%   12.1%
                 Video Phone                   12.1%         14.3%          13.9%          14.9%        15.3%   12.2%
               Internet E-mail
                                               12.6%         15.0%          13.6%          14.0%        14.1%   12.1%
                transmitting
            Emergency location                 13.5%         13.9%          12.3%          12.5%        14.3%   14.1%
         Customer relationship
                                               13.0%         14.2%          13.4%          13.4%        14.5%   11.8%
                  management
            Online translation                 11.9%         14.5%          13.2%          13.5%        14.2%   11.0%
              Film on demand                   12.5%         13.7%          12.1%          13.4%        15.1%   11.4%
             Internal document
                                               11.8%         14.3%          12.6%          13.5%        13.6%   11.4%
                    sharing
       Movie or TV foreshowing                 11.2%         14.4%          12.2%          13.4%        14.2%   10.9%
          Online virus killing                 11.1%         14.0%          11.5%          12.7%        14.4%   10.8%
        Video program ordering                 11.0%         13.6%          12.3%          13.1%        13.7%   10.2%
     Online interactive games                  10.9%         13.6%          11.9%          13.1%        14.0%    9.6%
             Online shopping                   11.1%         14.3%          11.2%          11.4%        13.3%    9.7%
           Mobile picture QQ                   10.5%         14.3%          11.3%          11.9%        13.4%    9.4%
             Internal training                 10.5%         13.1%          11.4%          11.8%        13.0%   10.0%
                  Broadcasting                 10.6%         13.4%          11.9%          12.0%        12.1%    9.6%
                   Navigation                  11.9%         13.0%          10.7%           9.8%        12.1%   10.8%
       Information ordering in
                                               10.6%         12.6%          10.3%          10.1%        11.8%   9.5%
             shopping center
          Mobile Phone stock                   9.2%          12.2%          10.4%          11.2%        13.2%   7.7%
       Instant monitoring of
                                               10.3%         12.4%          10.4%          9.7%         11.8%   9.2%
               posting goods
       Remote medical treatment                9.0%          10.5%                         10.0%        11.8%   8.8%
        Mobile Phone lottery                   7.4%          11.9%           9.9%          10.9%        12.0%   7.0%
            Remote education                   9.1%           9.1%                         10.3%        11.5%   9.6%
                      Case=                     150            186            165           176          165     159

            Table 2. The interest degree of high-end users in Mobile value-added
                          services provided by future 3G network 35

35
     Data source: Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile Value-Added Services in

                                                       66
                                                 Chapter 3

    From this Table 2 we can see that the users believe that sending images to friends
    and relatives will be the most popular services in the future 3G system. Moreover,
    online music, web browsing, film on demand and sending and receiving of Email
    through mobile phone are also the desired services by the users. Some changes of
    the requirements on mobile value-added services have been found through the
    comparison between inquires in 2002 and in 2003. Different from the inquiry
    result obtained in many other countries, in 2002, most of the people in China
    were not very interested in the services of messaging and mobile entertainment
    such as video, game and so on. But situation has been changed since 2003; video
    services were accepted by most of the people.


    3.2.4.2. Political Environment


    The      political      environment           also        affects   the   development   of   the
    telecommunications and the China’s value-added services market. I will display
    all the major activities related to the supervision and regulation on China’s
    telecommunication market in the following section, and also analyze their
    possible influences on the China’s mobile valued-added service market.


    From the beginning of the 1990’s, a series of definitions which concerned to
    value-added service have been given in China’s telecommunication market. At
    the same time, the policies regarding the supervision and regulation of the
    Chinese national telecommunication market have been put forward as well.
          In December of 1993, the State Council authorized the construction of China
          Unicom Corporation limited; meanwhile, it also defined the concept of basic
          telecommunication services and value-added services for the first time 36 .
          According to the “Telecommunication Regulation of the People’s Republic

China”
36
   http://www.mii.gov.cn/col/col873/index.html


                                                         67
                                               Chapter 3
            of China” issued by the State Council in September 2000, value-added
            service includes totally 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 37 .
            On June 11th, 2001, the Ministry of Information Industry (MII) made a
            declaration to classify the value-added service 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 38 .
            ”Catalog of Telecommunication Services” was defined and implemented by
            MII on April 1st, 2003. According to this catalog, the telecommunication
            VAS was classified according to the characteristics of the services instead of
            network features. That’s mean the services which can be implemented on
            different networks but do not have much essential difference are combined.
            Besides, the value-added service may be also divided into two categories due
            to take into account the factors such as the degree to which the value-added
            service may influence the telecommunication market. One of these services
            is that a service can affect the telecommunication market greatly. This kind
            of services includes online data and trade processing, domestic multi-party
            communication services, domestic Internet VPN (Virtual Private Network)
            services, Internet data center services. The other category of service has less
            impact on the market. The services including mainly the store and forward
            services, call center services, Internet access services and information
            services.
            According to the ”Reference Process for Telecommunication Opening”
            signed when China joined the WTO, the stock of mobile value-added
            services which hold by the foreign company and the capital can not exceed

37
     http://www.mii.gov.cn/art/2005/12/17/art_873_3834.html
38
     http://www.mii.gov.cn/art/2005/12/15/art_873_3855.html

                                                       68
                                              Chapter 3
            50%. China will cancel the region restriction of value-added services
            completely at the same time. The opening range of mobile voice and data
            services will expand to 14 cities. It also mentioned that foreign capital can
            only reach 49% at maximum in a joint-venture company.
            MII issues a “Notification about the standardization of SMS market” in the
            middle of June of 2004. This notification deals with all the problems occurs
            in the SMS market, for instance, the opaqueness of SMS charging, charging
            for non-ordered SMS, complains cannot be solved in time and so on. It aims
            at to standardizing the SMS market, and protecting the legal rights of the
            users 39 .


       From all the activities on the supervision and regulation of value-added service I
       mentioned above, we can see that Chinese government has made a lot of efforts
       on the standardization of mobile value-added service market. First, the number of
       operating entities for value-added service is still increase, and the market
       competition becomes more and more fierce. More third parties participate in the
       running of a value-added service due to the threshold for permitting a
       value-added service to enter the telecommunication market becomes lower. More
       and more foreign companies including companies from Hong Kong and Macau
       are entering the China’s mobile value-added service market actively. This will be
       quite helpful for breaking the monopoly and to improve the service quality as
       well. Of course, this may also result in illness competition and finally have
       negative effect on the value-added service market’s development. Secondly, the
       competition activities are expected to become more standard. Now the
       competition in the value-added service market is only focus on some small
       service area. The competition may simply go through low prices because there is
       no mature regulations, laws and policies. This will result some illegal and short
       sighted activities which are not benefit to the long term healthy development of


39
     Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile Value-Added Services in China”

                                                      69
                                Chapter 3
value-added service market. The service providers will concentrate more on the
users’ requirements than illness competition under the mature regulation and
supervision. Third, the participation of foreign capital will stimulate the
development of the China’s value-added service market. On the one hand, the
customers probably will benefit from the introduction of foreign capital into the
Chinese market. For instance, the price of some value-added service will
decrease, and more types of value-added service can be provided. On the other
hand, through the cooperation, some advanced foreign theories and technologies
can also be provided to the Chinese service providers. All of these may stimulate
the development of China’s mobile value-added service and its market.


3.2.4.3. Technical Environment


Computer, Internet and IP technology developed very fast around the world and
in China in the recent years. This provides a strong technical support for the
development of value-added service. With the pervasion of IP technology in
telecommunication networks, the evolution to 3G, the telecommunication
networks in China will have greater capability for supporting various
value-added services.


    The influence of IP technology
    All kinds of the traditional telecommunication networks carrying services
    such as the access networks, transmission networks, and signaling networks
    change to a single carrier network system based on connectionless IP
    technology because of the transferring of telecommunication services from
    simple voice service to data service. It is quite obviously that all these
    changes strengthen the networks’ capability. The network becomes high
    stability, reliability, more flexible and also is easy to manage. At the same
    time, it can not only to guarantee the current quality of services, but also can
    provide an open system architecture. The development of IP technology

                                       70
                            Chapter 3
provides lots of network resources for value-added services.


One important feature of 3G mobile network system is that it can provide
various mobile multimedia services. The breakthrough of technical can
stimulate the development of mobile value-added service a lot in China.
Many kinds of services become possible because of the emergence of 3G
such as mobile location based services, mobile business and video telephony
and video conference. I will give a general introduction to all of these
services in the following section.


Video telephony and video conference: Since the network bandwidth can be
guaranteed in 3G network, video telephone and video conference will
become more and more popular. Especially with the development of IP
technique and coding technique, the cost of the network operators for video
telephony and video conference based on IP technique can decrease. This
will greatly to promote the popularization of video telephony and video
conference services.
Mobile location based services: Due to the data transmission rate increases
greatly in a 3G system, the location based services will play an important
role in 3G networks. Lots of location orientated services can be provided,
such as navigation, measurement, tourist guidance, and city guidance and
planning, transport scheduling, first aiding and so on.
Mobile business: Mobile business is also a hotspot of value-added service in
3G network. The user can obtain process and send or receive the information
at anytime and anywhere. The trading is based on the closed mobile network
so it’s more safe and reliable than the network based on the open Internet
system. Mobile business uses the mobile network operators who have a good
reputation; this solves the reputation crisis problem in the current Internet
system. And it is also allowed to use multiple ways such as voice, SMS,
WAP to trade. It makes mobile business more convenient and flexible.
                                     71
                                   Chapter 3
       Hence, mobile business is also a launch point for the development of
       E-business, and the 3G networks provide a platform for the mobile business.


       The influence of Terminal Technology
       The improvement of different terminal technology also provides provides
       conditions and possibilities for enriching value-added services. The
       development in encapsulation, displaying, and CPU processing speed has
       made it possible for enjoying value-added service by using mobile
       multimedia terminals.


From all the point of view I mentioned above, we can find that China possesses a
suitable environment for the development of mobile value-added service. The
continuous increase in economic in China provides a necessary precondition for the
development of mobile value-added service. A large number of potential users and
requirement on various mobile value-added services can be expected. At the same
time, the regulations and laws of telecommunication in China can guarantee the
normal operation of mobile value-added service market. In addition, the technical
progress in China now can provide the basis and possibility for the introduction of
mobile value-added service. The network infrastructure and platform which needed
by diverse mobile value-added service can be realized and provided.



3.3. Conclusion


According to the analysis above, the features of the development of Chinese mobile
value-added service can be summarized as follows:
    After several years’ development with a high speed, not only the number of
    mobile value-added service users but also the income level in China now has
    reached a large scale. Although the increasing speed become lower compare
    with the beginning phase, it still higher than other services. The income of the


                                         72
                               Chapter 3
mobile value-added service still shares the enlarging part in the whole income of
the mobile communication income in China.


The income structure of mobile value-added service in China is relative simple.
Among all the value-added service, income of SMS still occupies the majority.
With the development of other value-added service, the income proportion of
SMS will drop gradually.


There are several diverse factors influences whether the mobile value-added
service market will enlarge or not in China. One is the interaction and usability
which is called internal factor. The other one is the price of mobile terminal and
service which is called external factor. And the scale of user groups is an
important factor when determining the investment to the whole industry chain.


With the constant progress of technology and the development of mobile
value-added service market, services such as MMS which incorporates with
characters, pictures and also videos will have a great development.




                                      73
                                   Chapter 4
4. Analysis of China’s SMS market


4.1.    Introduction of the development of China SP SMS

        market


SMS (Short Message Service) is one of the most primary and mature basic mobile
value-added service. After several years of rapid development, it has already formed
a large scale market and driving greatly the development of the Chinese mobile
value-added service market. Since China Mobile set of SMS serve in 17th May 2000,
mobile subscribers have owned the other choice of communication besides voice call.
Compared with voice call service, SMS is cheaper and sometimes have more
advantages. SMS is only 0.1 RMB Yuan per text and billed unilaterally, constructed
to the 0.8 RMB (Yuan)/minute bidirectional billing model of voice call (a normal
price). However, the operation of SMS is very simple, People can use smoothly after
a short-time training. Thus, more and more youth show great interests in this service
without any consideration of expensive fee, resulting in the frequent usage and
significant flow. More users were involved in as the SMS was offered for
ShenZhouXing subscribers of China Mobile on 17th May 2001. From then on, great
achievement has been made in the SMS market, at that time the plan of Monternet
appeared, an opening platform for bearing mobile value-added service, inspiring
contents provider and mutually operating data market. To develop this market further,
income distribution model has been adopted in the cooperation between China
Mobile and SP, thus realizes the cash flow of the SP and inspires them to get deep
into this market. In recent years, the brilliant development appears in the SMS
market. By incomplete survey, the SP number has exceeded 1000 by the end of 2003,
presenting a prosperous circumstance. Also the SMS market has been regarded as the
golden-mine of China’s network firm contributes a lot to their exciting achievement
in NASDAQ. According to the statistics from CMCC (China Mobile
Communication Corporation) and CUCC (China Unicom Communication
                                          74
                                        Chapter 4
Corporation), the number of short messages sent in year 2001 was 19 billion.
However after a two year high speed increasing rate of 374% and 144%, the total
sending number of SMS has gone beyond the threshold of 200 billion, reaches 220
billion. And in 2004, it reached the number of 300 billion. Figure 10 illustrates the
increase of the number of SMS from year 2001 to year 2004. With the continue
increase of the amount of mobile phone users, we can anticipate that the number of
SMS sent will keep increase in the future.


 Figure 10. The total sending number of China’s SMS service from 2001-2004

 5000
                                     374%

 4000
                                                           144%
                                                                            30%
                                                                         2900
 3000

                                                       2200
 2000


                                  900
 1000

              190
   0
              2001               2002                  2003              2004



                       total sending number(100 million)          increase rate



@2004 iReseach Inc.


With the increase amount of the SMS, SP (Service Provider)s have maintained a
high speed increase in revenues. According to the survey data, the whole SP’s SMS
revenue reached 1.7 billion Yuan RMB, and in 2003, the SMS market grew
vigorously, it reached 3.4 billion Yuan RMB with a double market scale. In 2004,
development of SP SMS market slowed down its increase speed with respect to the
series policies has been released by China Mobile and Information Industry Ministry,
which to intend restrict this market, the serious competition and declined products
will also become another factor. The increase speed of SP market dropped to 30% in
                                             75
                                                Chapter 4
2004 and the near number is 4.4 billion RMB. In 2005, this number reached 5.5
billion with a year-on-year increase of 25% 40 . Figure 11 describes the SP’s revenues
from SMS in China from 2002 to 2005.


                  Figure 11. Market revenue of SP from SMS in China

 100
                                               100%
                                                                       30%                       25%

     75

                                                                                            55
     50                                                           44
                                          34

     25
                  17



      0
                 2002                    2003                    2004                       2005



                           SP SMS income (100 million RMB)                       increase rate



@2005 iReseach Inc.


4.2.       Market share of SMS market in China


According to the perspective of the network operators’ revenues, the CMCC’s
market share is bigger than CUCC’s . And the user level of CMCC is higher than
that of CUCC. In year 2003, the number of mobile phone users of CMCC and
CUCC share 65% and 35% respectively, and the income market share of CMCC and
CUCC are 86% and 14% respectively 41 . Because of several reasons such as
restriction of the network overcast scope, the limited roaming ability and the
problems in cooperation with SPs, CMCC has a great advantage compare with


40
   “China Wireless Value-added Service Market Report 2004”, issued by iResearch Inc. 2004
(www.iresearch.com.cn)
41
   “China Wireless Value-added Service Market Report 2004”, issued by iResearch Inc. 2004
(www.iresearch.com.cn)

                                                      76
                                             Chapter 4
CUCC in SMS contents and the quality of services. The SMS ARUP value of CUCC
is relative low. Figure11 shows the SP’s market revenue among the Chinese SP in
China in 2003. From this figure we can see that the Tencent and Sina belong to
highest level among all those SPs in China. They own 17% and 12% respectively.
Sohu, TOM, Net Ease belong to the second level. Actually, the revenue increase is
very fast through the active strategies for buying and selling. And among all the
current 1000 SPs in China, ByAir and LTON are also the senior SPs besides the first
5 top companies. Both of them reached 4% of market share in 2003 42 .


       Figure 12. Market share among SPs of SMS market in China in 2003




                                                                                  LTON (4%)
                                                                                  ZhangMen (4%)
                                                                                  Net Ease (7%)
                                                                                  TOM (8%)
                                                                                  Sohu (9%)
                                                                                  Sina (12%)
                                                                                  Tencent (17%)
                                                                                  Others (39%)




@2004.5 iReseach Inc.


SMS service usually charges information fee, and the users have two options: choose
either charging by month or charging by times, each mode has different charging rate.
The telecommunication operators charge the users monthly, and after wiping off the
SMS channel cost (the channel cost usually are paid by SPs to telecommunication
operators) and some bad account, SPs and telecommunication operators share the
profit at ratio of 85:15 43 .

42
   “China Wireless Value-added Service Market Report 2004”, issued by iResearch Inc. 2004
(www.iresearch.com.cn)
43
   “China Wireless Value-added Service Market Report 2004”, issued by iResearch Inc. 2004

                                                      77
                                      Chapter 4


4.3.      Factors influence the development of Chinese SMS

          market


After SMS service has been introduced into Chinese market from 1999, now it is in
the mature development phase. There are many factors influence the development of
SMS market in China, not only the positive factors which can drive the development
of Chinese SMS market, but also some negative factors which probably will baffle
the development of Chinese SMS market.


The positive factors:
       A large number of mobile users and the number of users are still increasing
       with a high speed. This factor is the biggest advantage among all the positive
       factors.
       With the enrichment of services, the average revenue of users will still keep
       increasing. This factor will inspirit the Service Providers a lot to effort to
       provide more and more different kinds of SMS services.
       Service Providers’ revenue from SMS service is quite good. This factor will
       also inspirit the Service Providers to continue to provide the high quality SMS
       services.
       Lots of terminals support SMS service.
       The price of SMS service is relatively low compare with other mobile
       value-added services. This factor will become another attraction because most
       of these users in China are middle income people.


 The negative factors:
        Protection of the copyright is not very effective.
        Complex input method.
        The limited capability of the carrier.

                                             78
                                              Chapter 4
           Service Providers’ transmit rate of content downloading is still high.
           The price of mobile voice is going down will take up some market share of
           SMS service.
           Scarce of industry standard.


     Besides, some other factors such as low price, supported by most terminals are
     also the factors which will accelerate the development of Chinese SMS market as
     well. At the same time, be able to send messages between different operators, such
     as in China between China Mobile and China Unicom, is also very important to
     users. But now in some provinces in China, this can not be achieved. This factor
     also influences the users choose SMS service.


4.4.         User characteristics


According to the survey of iResearch, the mobile phone users who prefer to use
SMS in China now have the following characteristics 44 :
        People who are 18 to 25 years old and 26 to 30 years old are the main users of
        SMS service. These people take up about 73% of the total SMS users in China.
        Mobile phone users with high educational level are the main users in China now.
        The users hold bachelor degree or higher than bachelor degree is 56.6%.
        Most of these SMS users are the middle income people whose incomes are more
        than 2000 RMB Yuan per month.
        All kinds of technologists and enterprise managers are the main SMS users.



4.5.         Conclusion


From all the data I mentioned above (including 3 figures), we can easily find that
Chinese SMS market is falling into the mature phase from the developing phase.


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                                              Chapter 4
Obviously, it has already become the main part of the China mobile value-added
service market. Because SMS has a large market scale and long product life circle, it
will still keep steady increase and high market share in the next few years. Now
there are more than 1000 SPs provide SMS in China’s SMS market, but only 7 of
them share the main part of the income. That’s mean the China’s SMS market is
concentrated. The key elements which affect the SMS market development of the
mobile operator will change. It includes the strength of prompting the new services,
the extent and depth of the cooperation with the SPs, the scope of the network
covering, and the roaming ability as well. At the same time, 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, some factors such as limited
carrier capability, complex input method, and short term behavior harmful to users
will restrict the development of SMS in China. SMS still have enough development
space in Chinese market. Users will add expense on SMS. The investigation from
iResearch shows that 42.9% 45 of users will spend 5-10 RMB Yuan per month and
20.4%47 of users will spend 15-20 RMB Yuan per month on SMS. Hence, we can
have a conclusion that SMS has huge development space in Chinese market.




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                                             Chapter 5
5. Analysis on China’s MMS market


5.1.       Introduction of MMS service


MMS (the Multimedia Message Service) is a newly issued service according to the
related standards of multimedia message referred by 3GPP and WAP forum. MMS is
a high-level application program packed on the base of WAP protocol, and able to
transfer contents and information fully which includes several of multimedia
information such as words, pictures, sound, and data. The MMS can realize real-time
multimedia information transfer including terminal-to-terminal, terminal to internet
or internet to terminal.


On October 9 2002, China Mobile began to offer MMS services to its users. The
profit apportion model of 15:85 has been applied in the cooperation of China Mobile
and14 Web Site Partners such as: Sky Network, Tom, Sina, Netease, Tencent,
Mafan.net, Ling.net ,WaPu.net, Lingtong, 21 CN, Moyi, 6388.net, Zhangshangtong
and Sohu. At present their partners increased to more than 60. China Unicom also
pushed out its Color Email service on 29th March 2003. Actually, the two grants
expect highly on MMS service after the tremendous success in SMS field 46 .



5.2.       MMS market share in China


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 CUCC at that time. But in 2003, the user market share of CUCC
has increased greatly. There are two reasons of this: first, because CUCC has made
great efforts on promoting the CDMA (Code Division Multiple Access) 1χservices;

46
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(www.iresearch.com.cn)

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                                   Chapter 5
secondly, because the CMCC’s 2.5G services are still in the starting phase, the
advantages of having large amount of users have not worked yet.


There are more than 30 major MMS SPs currently in China now. Among all these
SPs, KongZongWang involved in the MMS market relative early and has the largest
market share of 20% now. But after 2003, other companies also devoted more
investment into MMS market. All those companies include TOM, Sina, NetEase and
Sohu. The China’s MMS market is relatively concentrated since KongZhongWang,
TOM, Sina, NetEase and Sohu have taken up 75% of whole MMS revenues. Figure
12 illustrates the MMS market share by SPs in China.


     Figure 13. Market share among SPs of MMS market in China in 2003




                                                           KongZhong (20%)
                                                           TOM (19%)
                                                           Sina (16%)
                                                           NetEase (12%)
                                                           Sohu (8%)
                                                           21CN (5%)
                                                           Linktone (3%)
                                                           Tencent (3%)



@2004.5 iReseach Inc.


The number of MMS users in China is still low now. The reasons are: the MMS
products and the terminals supporting MMS are quite expensive at moment; and the
target users are to some extent young people who have low income or even no
income at all; the demand on MMS has not been elaborately analyzed during the
development of MMS products. Scaled marker for MMS in China has not formed
yet, of course it is far away from saturation. MMS in China is still in the starting
phase.


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The growth-up of MMS market depends on the popularization of MMS handsets
which is the mobile phones with MMS functions. By some statistics, the new user of
MMS handsets has been up to 500 thousands by the end of 2002. Because of the
decrease of manufacture cost and fresh preferential polices of China Mobile and
China Unicom, the price of MMS handsets is drop to 2000 RMB, begins to be
widely spread. Till the end of 2003, the total MMS handsets users have reached 15
million with a penetration of 5%. In 2004, it got up to 50 million and 17% 47 . Figure
13 shows the penetration and scale of China’s MMS handsets market.

           Figure 14. The penetration and scale of China’s MMS handsets

 8000
                                                                                       17.0%
 7000

 6000
                                                          5.0%                      5000
 5000                      0.2%

 4000

 3000

 2000                                               1500

 1000
                      50
     0
                     2002                           2003                            2004


                                     the number of MMS handsets(10 thousands)
                                     MMS handsets penetration



@2004 iReseach Inc.


At the same time, in the end of 2003, China Mobile brought down the
telecommunication Channel expense of part SP quietly. The unbalanced
communication expense of SP has been reduced to 0.25 RMB, especially the 0.125
RMB preferential price is offered to Tom, Sky Net, Sina, Sohu and Netease, however,
this part of cost is 0.3 RMB not long ago and without any half price favor to such

47
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(www.iresearch.com.cn)

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                                              Chapter 5
main strategic SP. Naturally, It results in more freedom of SP in MMS price, and it
indicates that the future the price, decrease and the MMS cable used more frequently,
accelerating the business development.


From the perspective of the market scale, there was totally 150 million MMS were
sent in 2003 through CUCC and CMCC, and the 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 48 .

                           Figure 15. The China’s MMS market scale




@2005 iReseach Inc.


MMS service also charge information fee as same as SMS services. User can choose
either charging by month or by 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 ratio of



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85:15 49 .



5.3.         Factors influence the development of MMS market


Compare with SMS service, MMS has more abundant service content such as color
ringing tone, pictures and cartoons downloading. MMS is still in the start phase in
China now, the potential market is huge. Same as SMS market, there are also some
positive factors and negative factors influence the development of MMS market. The
positive factors which can drive the development of MMS market including:
        User can accept it easily due to MMS’ similar style to SMS.
        The MMS service content has been enriched because the competition of mobile
        network operators.
        Simple input method, it is also an important reason why MMS service is so
        popular in China now.
        MMS mobile phone is more and more popular now in China and more and more
        mobile phone users can use MMS services.


The negative factors including:
        The price of MMS service is relatively higher than SMS; the quantity of users’
        demand is limited by price.
        The terminal supporting MMS service is relatively expensive.


The number of MMS users is still low now in Chinese market because of the MMS
products and the terminals which supports MMS are relative expensive at the
moment. At the same time, the users are to some extent young people who have no
or only low income. Whether the Chinese MMS market can develop rapidly mainly
depends on the popularization of mobile phoes with MMS functions. All those
factors effect the development of Chinese MMS market.


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5.4.         User Characteristics


According to the investigation by iResearch, around 45.56% of the users believe
than MMS service will take place the SMS service. And 91.11%of interviewees
express that they want to try the function and services provided by MMS. The MMS
users have following characteristics 50 :
        With the more and more mobile phone supporting MMS enter into the market,
        young people especially people younger than 22 years old are still the main
        users of MMS service, which occupy 88% of the current MMS market.
        Users whose incomes are less than 2000 RMB Yuan have high interest in MMS.
        MMS will become more popular and widespread with the development of
        market.



5.5.         Conclusion


The China’s MMS service is just in the starting phase now. It only operates a small
part at the moment. But it has already shown an enormous development potentiality.
80% of Chinese mobile phone users are interested in the beautiful graphics
representation and abundant information which provided by MMS services. And the
China’s MMS market is quite concentrated; China Mobile occupies a much higher
market share than China Unicom in China’s market. The considering SP such as
KongZhongWang, TOM, Sina, NetEase and Sohu has occupied the majority of the
China’s MMS market for the moment. The increasing demand of the multimedia
information, the reducing of charging and the diversity of service content are the
main factors which can accelerate the development of MMS. But on the contrary, the
high information charging fee and the high price of mobile terminals are the main
factors which can hinder the development of MMS. Whether the MMS market can

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develop well also depends on the popularization degree of MMS mobile phones. At
present, only 15% of MMS mobile phone users use the MMS service, the other 85%
are not 51 . The reason of that is most users have no experience of using MMS and
they do not know the advantages of MMS service.




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6. Analysis on China’s IVR market


6.1.     Introduction of IVR service


IVR (Interactive Voice Response), is a special mobile value-added service. Though it
is still a new word to users, the actual application of relative services has been
designed early in the end of 2002 by China Mobile. Greatly different from the
existing services like data business, the core character of IVR is the particular voice
exchange platform: users only need to ring a appointed number to get required
information or join the interactive voice service like chatting, friends making, voice
order etc.


Since the second half of 2003, IVR has become the hot-point of mobile value-added
field and the increase point of benefits. IVR’s voice model is more popular than data
services like SMS, MMS, Baibaoxiang and other data services in despite of the
rough technology accepted. Thus it is regarded as the most potential mobile
value-added service exclusive SMS and MMS. From the fourth quarter of 2003,
great investment has made in the IVR field to absorb more important SP with a
suitable price and efficient development model that is the beginning of IVR market.
All sorts of SP are devoted to the new field, expecting more market share.


Compared with the traditional voice information call, mobile voice value-added
service owns the following special characters: The concept of IVR is the interactive
voice responding, the same base of traditional voice information service, but the
frequent voice interaction is what to be avoided mostly in mobile value-added
service field. Therefore, this process must be reduced as possible in the design of
products.


The user group is the second largest difference between mobile voice value-added

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service and traditional voice information service: Generally, the traditional voice
information service is invented for fixed phone users who is an unsure one, as we all
know, a common fixed phone can be shared by several users. On the contrast, the
mobile phone is a private one, to some extent; a handset can be regarded as one’s ID.
This difference can make better results if a special design of products can be
adopted.


Therefore, we can believe that there is great difference between mobile voice
value-added service and traditional voice information service, and we couldn’t use
the same contents or operation model of the existing business.



6.2.       Category of IVR service


Among all the voice services, the most popular one now is chatting and engagement
services. Because of the users’ requirements, chatting and engagement service is not
only the chief business forever for the requirement of users, but also the most
profitable service. The second class is music service. Among the existed SP, Rock
Mobile is a typical one. As most handsets users are also music fans, so if there is
abundant music resource as well as good products design and promotion skills, the
music IVR can win a brilliant future. The third class is game and entertainment.
These include: knowledge competition, role play game, and interactive games etc,
but only figure button can be used for voice service, thus makes it dull and attract
players only by offering prizes. The others are composed of sports class, news and
consultation class, test class, media cooperation class and implication information
class etc. In addition, a special class should be emphasized: new service class which
includes voice message, color ring and third-party billing etc, all these above
construct a potential market of future.




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6.3.    Positive and negative factors influencing the development

        of IVR


IVR has a very large potential market. Following are the positive and negative
factors which will influence its development:


    Positive factors:
    A) The large potential market in China because of the 300 million mobile
        phone users totally in China now.
    B) Potential penetration rate is high because the IVR service is not limited by
        terminal device and it can be used by any mobile phone.
    C) IVR service can improve the network operators’ devices utilize rate because
        it use the bandwidth at leisure time of basic data service.
    D) IVR services is very interactive because the voice is relatively clear, direct,
        and strong emotional.
    E) IVR service is accessed by user in a voluntary mode, this decreases the
        users’ complain.


    Negative factors:
    A) Chatting service without the assistant of music, pictures and words is
        boring.
    B) Product contents are not rich and colorful.
    C) Price rate is high.



6.4.    Analysis of China’s IVR market


We can say that IVR is the new commerce opportunity for many SPs. It is another
development of wireless technology when it from short message to voice. Most of
big SPs in China such as Sina, NetEase, Tencent and Sohu have entered this market
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already. The competition of voice value-added service in this domain was started.
Now the China’s network operators and SPs are making efforts to find a good
development mode of IVR service in Chinese market. In general, the China’s IVR
market is not normative yet now. But the idea that the network operators want to
develop IVR is quite clear. It also profit from the mature managing mechanism.
Unlike other value-added service such as SMS, in the IVR domain, the network
operators are making great efforts to standardize the IVR market though putting
forward some short-time policies. All those policies include to heightening the
threshold for SP to enter the IVR market, limiting the highest price of service and so
on.


At present, lots of mobile IVR products are put forward, but the development of this
service is still limited. The reason is because the kind and content of these services
were consubstantial: mainly focus on the entertainment. In China, mobile IVR is
developing rapidly under the effort made by the network operators and SPs. The
China’s market scale of mobile IVR exceeded 200 million RMB Yuan in 2003, and
reached 1500 million RMB Yuan in 2004 52 .


Take a panoramic view from the China’s IVR market, CMCC takes up the major
market share. The market scale of CMCC is increased by geometric series. The
revenue of CMCC’s IVR exceeded 200 million RMB Yuan in 2003, and in 2004 it
reached 1300 million RMB Yuan. There are around 60 million users of CMCC are
the target users of IVR service 53 . In the domain of IVR service, CUCC hand behind
CMCC. Although CUCC put forward the service named “10158 hearing the short
message”, no further action of this service has been formed. And another planed
service named “CUCC color voice” has also been put forward, but did not
popularize as well.



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In 2003, the IVR service of mobile operator had been launched, the market revenue
is about 300 million during that year. In 2004, it increased by 50%, to be 2.7 billion
RMB 54 . Figure 16 shows the scale of IVR service market in China from 2003 to
2005.
                  Figure 16. The scale of IVR service market in China

 50


 40                                                     500%


 30                                                                                    50%
                                                                                  27


 20                                                18



 10
                    3

     0
                  2003                            2004                           2005


                                  market scale of IVR service (100 million RMB)
                                  year on year increase rate



@2005 iReseach Inc.


From the perspective of SPs, the IVR market is highly centralized. TOM, Sina, Rock
Mobile, Unihub and Tencent have taken up 97% China’s 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, the revenue of Tencent 6.8 million RMB Yuan 55 . As
shown in Figure 17, TOM has the largest market share among them; it occupies
almost 50% of the Chinese market. The second largest one is Sina, around 19%.
Rock Mobile and Unihub are the SPs which entered the mobile IVR market early,
and each takes the market share 12.5% and 9%. Although Tencent entered the IVR
market later than the others, it has the advantages of user resource, its service
increase rapidly. It also takes up about 7% of the IVR market share in China.

54
   “China Wireless Value-added Service Market Report 2004”, issued by iResearch Inc. 2004
(www.iresearch.com.cn)
55
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           Figure 17. The market share of IVR service by SPs in China


                                                             TOM (50%)

                                                             Sina (19%)

                                                             Rock Mobile
                                                             (12.5%)
                                                             Unihub (9%)

                                                             Tencent (7%)

                                                             Others (3%)
@ VAS CHINA Project: Mobile Value-Added Services in China


6.5.     Conclusion


In general, the China’s IVR market is still in the high speed shaping phase. This
market can be compared as a gold mine and is waiting for someone to dig further.
Now this market is quite centralized. As a network operator, CMCC still takes up a
much higher market share than CUCC. And concerning the SP, TOM, Sina, Rock
Mobile, Unihub and Tencent have own the majority of the market. At the same time,
there are several negative factors hinder the developing of IVR in China: the high
price of this service, short of applications and short of innovation.




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7. Analysis of China’s Mobile phone game market


7.1.    Introduction and Category of mobile phone game


Just as the name implies, the Mobile Phone Game is the game which can be played
in the handset platform. Nowadays, with the development of technology, the
function of handset is getting richer and more powerful. In fact, today’s handset
game is far superior to the initial simple rough embryos like “Russian Magic” and
“Hungry Snake”, it is now a complex form of great amusement and interactive
operation even can be compared with Palm Game Station. According to the
difference handsets, the game can be mainly divided into two kinds: text type and
graphic type.



7.1.1. Text game


   Text game is a kind of text message exchange game. Generally, the player can
   reply the appropriate message according to the system implication. Take the
   well-known game --” virtual pet” for example. It is a typical text game. In this
   game, the SP will give you some clues, for instance, such message like: “Your
   pet’s hungry degree is 70, thirsty degree is 20, and fatigue degree is 20, reply 1 if
   you want to feed it with food, 2 if you want to feed water, 3 for rest…” etc. Then,
   if the figure of 1 has been replied, the system will send you with a message:
   “Your pet has been fed over, the hungry degree is now 20”, so you can use your
   text message to continue this game.


   The text game includes message game and WAP game.
        Text message game
         Like “virtual pet”, text message game is built on the text contents
         communicated by users and SP. The process of text message game is base
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     on text contents, thus results to the lack of amusement, but is still the most
     compatible game for all kinds of handsets.


    WAP game
    Nearly every handset produced after 1999 has a WAP browser. It is a static
    browse carrier in nature, a simplified WEB, optimized for the miniature and
    low broad band character of mobile phone. One can enter the URL (usually
    by a operator’s homepage link) of SP, to download or view these web pages,
    and choose a menu or input some text, that ends with the data referring and
    more pages to view. WAP 1.x edition uses a separate signal language of
    WML, allowing users download several pages (cards series). The edition of
    2.x adopts a subgroup of XHTML, can transfer a whole page at one time
    and has better control display format. Both these two editions of WAP can
    provide a friendlier interface than SMS, and be much cheaper, billed
    according to the time instead of information Bytes. However, it is still a
    static browse carrier, and not necessary to do additional process, at the same
    time, all of these games must be played through network; almost all
    operations are carried out in the long-distance server. The WAP browser is
    still integrated in the handset, for the inventers have found out that WAP is
    useful for transfer more detailed and helpful information and principles of
    these games, because most of them are still limited by the memory volume.
    Nevertheless, WAP can not get to a higher possession of the market (in
    Europe and North America, only 6% users make use of WAP), and the
    wireless operators and game developers are keeping away from the WAP
    technology.


After all, there is a common character of these text games, that is, the game is
described by words. During the whole process, abundant imagination is required
for players to continue this game, making it to be a boring one. Although the
MMS and other special services have been accepted to make it more humanistic,
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  the essential base can not be changed yet. What’s more, the high price is also
  another bottle-neck of these text message games.



7.1.2. Graphic game


  The graphic types of handset game mainly include: embedded game, KJAVA
  game, BREW game and UNI-JAVA game.


      Embedded game
      The embedded game is a sort of game, which fixes the game software into
      the handset, chips in advance. All of these data is fixed into the chips ahead,
      so no modification can be made. In another word, you couldn’t replace or
      delete them. The “hungry snake” in the early products of Nokia is a good
      case in point


      KJAVA game:
      Java 2 micro Edition (J2ME) is a professional JAVA language for such small
      equipments like mobile phone and PDA. Most of the handsets vendors are
      expecting to make it more popular. Compared with the Java used in
      computers, there are still great limitation in the J2ME, but it has already
      improve the ability for mobile terminals to support games, moreover, it has
      a more controllable interface than SMS or WAP. Not only the sub-graphic
      cartoon is accepted, but also the long-distance server login by wireless
      network comes true. J2ME is not the only explanation language in the
      handset deploys, but it’s the industrial standard supported by many vendors.
      Some other explanation languages also have perfect application in special
      area, like the BREW of Qualcomm, and GVM used by some Korean mobile
      operators.




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     In general, the features of the mobile phone game can be summarized as
     follows 56 :
           Around 87% of users know the mobile phone games when they buy a
           mobile phone, and think it is an important factor influencing when they
           choose mobile phone;
           Around 60% of the users expect to set up a mobile phone game community;
           Average game time for each user lasts 20 minutes;
           Around 58% games are played at home;
           Among all the mobile phone games, the adventure games take up around
           47% and it is quite popular;
           Around 88% of users think the quality of games is an important factor
           influencing their choice of game;
           Around 78% of mobile phone game users are male;
           The download information of female players is three times as much as
           download information of male players, and 87% female players are
           interested in classical games;
           Around 73% of players know the price of mobile phone game.



7.2.       The limitation of the mobile phone used as a game

           platform


          Small display screen
           Although resolution rate has been improved continuously and the color
          screen will become industry standard, the screen is still in a small size and is
          different with the handset. It is a big problem for the players who have get
          used to the big PC screen.




56
  “China Wireless Value-added Service Market Report 2004”, issued by iResearch Inc. 2004
(www.iresearch.com.cn)

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                                Chapter 7
    Limited color and voice support
     Most subscribers still use black-white screen handsets, though the Java
    supporting phones are mostly color-screen and 12-bit graphic. There is also
    weaker than the true-color graphic of PC. The voice broadcast ability is very
    limited in despite of the voice equipment accepted.


    Size limitation of the application software
     Most java handsets only have a small memory volume for the operation of
    MIDet (a java program for embedded devices). Further more, the size of
    MIDlet is always restricted. The actual limitation relies on the handset
    equipment and requirement of operators. In such case, the number of
    supported games is greatly restraint.


    Long waiting time
    Waiting time, the time from the request to the responding, is accounted in
    the units of microsecond for PC, millisecond for wire Internet and second for
    wireless network. The waiting time of wireless network is so long that it is
    impossible to offer efficient multi-player rapid moving action games, but
    good for the go-around multi-player games. Although great efforts have been
    made in the improvement of available bandwidth, the reduction of waiting
    time is not regarded as the primary problem to be resolved. It is not so
    important to other implication program.


Another special instance is: The Internet waiting time of communication
(usually 200-400 milliseconds) can be used, if blue-tooth technology or other
wireless LAN handsets are accepted to build the access to other blue-tooth
equipments nearby. Thus, if such high tech mobile phone as Nokia 3650 is used,
you can play multiplayer action games with other users nearby.


    Interruption down permission


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        The running games can be interrupted when a call is coming. Thus the game
        program must be able to pause and continue as you wish, in order not to
        result in any problems (for example, if the monster can move during the
        phone call, it will kill player’s role and result in a defeat) as well as the
        overflow of memory.


7.3.    The development of global mobile phone game market


It is evaluated by some research firms that the total income of hardware, software
and service of mobile phone games business in USA will be 4 billion USD in 2006,
not to mention the more potential Asia market such as Japan, Korean and China. The
global market volume is expected to reach 17billion in 2006.


Today’s main developers can be divided as following: The first group is traditional
and fresh game vendors. The most active leaders can be concluded as the two main
classes: Europe-America class and Japan-Korea class, for example, Digital Bridges
of Scotland, Sci Entertainment of UK, JAMDAT&THQ of USA, Sony-Ericssion,
Sega of Japan. ZIO of Korea. The second group is the handset vendors which own
the technical advantages: the network operation principle inventors like Motorola,
Nokia and Siemens. The third group is the famous or fresh mobile operators like
NTT DoCOMo of Japan, Orange of UK, AT&T Qualcomm, Unplugged , Cingular of
USA. The last group is electronics leaders like Intel and LG. Released by a report
from Analysis Ltd of UK, in the next 5 years, tremendous break through will take
place in Europe. The market scale pf handset game in Europe is expected to be € 500
million, and increase to 3 billion in 2008. Figure 17 shows the market scale of
mobile phone game in Europe.




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                                         Chapter 7
          Figrue 18. The market scale of mobile phone games in Europe

45

                                   57%                57%          57%                   57%
36
                                                                                   30

27

                                                               19.3
18
                                               12.3
                             7.9
 9
             5


 0
            2004            2005             2006(e)          2007(e)           2008(e)



                       income scale (100 million E)         year on year increase rate




     Source: Analysis Ltd. 2005
     @2005 iReseach Inc.


7.4.     China’s mobile phone game market


7.4.1. The scale of China mobile phone game market


     With the development of data services based on CMCC’s GPRS and CUCC’s
     CDMA1χ, mobile phone game service now become an important part of the
     2.5G data service. It becomes a competition between CMCC’s Java platform and
     CUCC’s BREW (Binary Runtime Environment for Wireless) platform. The
     mobile phone game service competition will focus on the service platform,
     application software download and different services which based on Internet. At
     present, China Mobile owns more than 300 SP partners in handset game field, 15
     large scale ones among them. It is revealed by some related officers of China
     Unicom that the normal income of their SP partners is about several million
     RMB in one month, and the larger ones such as some Web Site can make more
     than 10 million sales. Certainly, the mobile operators are still the main role of


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     this value chain instead of the SP in domestic handset mobile phone game
     industry. Compared with the mobile operators, the numbers of small game
     developer is in the poor position, and there is not any distribution channel to
     share these benefits, so it is profitable. At the same time, the mobile phone game
     also contributes a lot to the wireless data service of operators. Early in August of
     2001, China Mobile has launched out the GPRS service, but it is ignored for the
     lack of application value until the tremendous flow produced by the download
     and mobile game usage in these days. Facing with the tough competition, top 20
     of the SP is divided into several groups: the first one is the web site vendor,
     owning advantages in ring, picture, information and community service; the
     other two groups focus on game and chatting service, one is owning special
     resources like QQ, the other is mainly focusing on games like Meitong, Lingtong
     and Xunlong etc.


     In terms of the scale of handset game market, the domestic scale in China
     reached 300 million RMB Yuan in 2003; and it doubled in 2004, reached around
     600 million. In 2005, it reached doubled again, got up to 1.2 billion RMB
     Yuan 57 .




57
  “China Wireless Value-added Service Market Report 2004”, issued by iResearch Inc. 2004
(www.iresearch.com.cn)

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                                     Chapter 7

Figure 19. The scale of mobile phone game market in China from 2003 to 2005

 20
                                                100.0%                       100%


 15

                                                                        12


 10


                                            6
  5
                  3



  0
                 2003                      2004                         2005


                                handset game market (100 million RMB)
                                year on year increase rate



@2005.12 iReseach Inc.


7.4.2. The market share of mobile phone game in China


      Currently, the SMS games still share the main part of the whole mobile phone
      game market in China, around 63%. But more and more WAP users coming, the
      market share of WAP games increased to 25%. And at the same time, the
      KJAVA/BREW games increased to 12% due to the great development of mobile
      devices, show in Figure 20 below.




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                                 Chapter 7


      Figure 20. Market share of mobile phone game in China in 2004




                                                         SMS games
                                                         (63%)
                                                         WAP games
                                                         (25%)
                                                         BREW KJAVA
                                                         (12%)


  @2005.1 iReseach Inc.


  In term of the favorite degree of the mobile phone users, the intelligence games
  still take up the main part of the mobile phone market, although the ratio is
  declining. This may be related to the disadvantages of mobile phone such as
  small screen, limited color, sound and memory. Figure 21 below shows the
  market share of different types of mobile phone games in China in 2004.

Figure 21. Market share of different types of mobile phone games in China in
                                    2004


                                                      Intelligence games
                                                      (46%)
                                                      PRG games (17%)

                                                      Action games (14%)

                                                      Simulation games
                                                      (12%)
                                                      Shooting games
                                                      (10%)
                                                      Others (1%)


  @2005.1 iReseach Inc.



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                                  Chapter 7

7.4.3. Advantages of development in China’s mobile phone game

     market


  There are some positive factors which will promote the development of the
  mobile phone game service in Chinese market.
      Fully support from mobile network operators
      The mobile network operators in China promote mobile phone game service
      greatly. The operators present various methods to attract users to use this
      service.
      Fully support from the Internet Service Provider
      Most of Internet Service Provider in China such as Sina, Sohu, TOM begun
      to pay more attention to mobile phone game market than before. And they
      have plan to enter the mobile phone game market and will expand Chinese
      market through their effect on mobile phone game market.
      Easy to enter Chinese mobile phone game market
      It is relatively easy for the new comers to enter the Chinese mobile phone
      game market because the requirement on capital and technology to start
      business is low. At the same time, there will be quite a lot of talents in this
      field can produce new games and new business model for the mobile phone
      game service.
      Huge market in China
      There are more than 300 million mobile phone users in China until 2004,
      which provide a good opportunity to develop the mobile phone game service
      in China.



7.4.4. Problems in China’s mobile phone game market


  Although the development of mobile phone game is really fast, there are still

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       some problems have been observed in the China’s market which will hinder the
       development of it in a certain level:
            Compatibility of the platform of mobile phone game
            There are several kinds of platforms of mobile phone games in China now. It
            is quite difficult to develop various versions of games to suit all kinds of
            platform. And it will take long time and cost lots of money to develop the
            games for different platforms. Furthermore, it is also hard for the mobile
            phone users to choose the right version for their mobile phone.
            Technology problem
            The hardware must have strong processing and storage capability if it can
            support mobile phone games. But now the memory of mobile phone is less
            than 5MB, it will restrict the performance of multimedia required by mobile
            phone games.
            Low popularization of mobile data service in China
            Although the market of the mobile data service have been improved a lot in
            China after importing the GPRS and CDMA network, it still not popular
            enough in China compare with the mobile data service abroad. It will
            prevent the development of mobile phone game service in China
            Chinese traditional opinion
            Chinese traditional opinion does not encourage paying too much attention on
            playing games. Especially most of Chinese parents oppose their children to
            play mobile phone games. They think playing games have a negative
            influence on their children and their studying. This traditional opinion will
            depress the Chinese mobile phone game market.



7.5.         User Characteristic58


            Mobile phone game users younger than 16 and older than 35 years old just


58
     Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile Value-Added Services in China”

                                                     105
                                     Chapter 7
        occupy a small part of the total mobile phone game users, about 3%. But the
        youth between 19 and 22 years old are the main users of mobile phone game
        users, 34% totally.
        Undergraduate students occupy the major part of mobile phone game users,
        45% totally. 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.
        25% of the mobile phone game users are students. 30% of the users whose
        incomes are less than 1000 RMB Yuan, and 50% of these users whose
        incomes are between 1000 RMB Yuan to 3000 RMB Yuan.



7.6.     Conclusion


The feature of mobile phone game market in China can be concluded as follows:
first, the Chinese mobile phone game market is still at it beginning phase, and it will
increase very rapidly; Secondly, the platform, application software download and
various other services based on Internet will become the competition focus of
Chinese mobile phone game service; Finally, for the handset manufactories in China
now, the challenges which they are facing now is how to establish a uniform
platform for all kinds of mobile phone games, how to improve the performance of
mobile terminals on supporting multimedia, and how to decrease the price of mobile
terminals and expand the market size. From the perspective of income, low-income
users are still the main users of mobile phone games. It will affect the users’ choice if
the mobile phone game’s rate is too high.




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                                    Chapter 8
8. Analysis of China’s WAP market


8.1.       WAP service in China


WAP (Wire Application Protocol) is a simplified wireless Internet protocol. Based on
this kind of protocol, WAP service can help wireless operators and CPs to provide
terminal users with Internet Contents and leading value-added services.


Presently, the WAP service offered by China Mobile is constructed on the base of
GPRS Monternet, As long as the user owns one WAP or GPRS handset and set up
the function, he can easily enter the Montenet. Now it is composed by MMS, EMS
and KJava game (the main content of BaiBaoXiang). There are two billing methods:
monthly rent or bill according use times, in addition, the telecommunication fee is to
be paid in flow Bytes.


The content of WAP is built in the User Information Service System of operators,
has an essential difference to the individual SP model of SMS: Billing, Bargain
Relationship of subscribers and ID Information are all managed by operator,
therefore SP can not influence or control the sales to users in direct way. Once users
want to cancel their appointed service, they can login in the My Monternet menu of
Monternet to get off it directly or call a special post-sales number of operators,
instead of waiting for permissions of SP. Early in the May of 2000, China Mobile
launched the WAP service, only won an impassive responding, conducing to the
embarrassment of Motorola the initiator of WAP service and the first vendor of WAP
handset.


With the maturity of SMS market and coming out of some negative influence, China
Mobile turns to concentrate on service to MMS, WAP and BaiBaoXiang service and
enhances the supports to such business. Through two-year’ calm, on October 2002,

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                                   Chapter 8
the MMS was formally released by China Mobile, signaled a prosperous era, attract
great attention of customers. It is the beginning of high-speed increase time of WAP
service.



8.2.       The scale of WAP market in China


Since 2004, some companies and servers in China began to attempt and practice
WAP sales and the primary pattern formed.


Corporate practice
At the beginning of 2004, Disney collaborated with the mobile Content
Provider-INDEX and created a Disneyland on mobile phone on WAP stage. Those
who can use GPRS can load Disney website and download pictures, cartoons,
vogues rings or load 'Mobile dream net to download cartoon characters' pictures and
songs under the menu.


Disney wants to be the No. 1 brand in WAP entertainment field in China. Disney
does not only provide picture and ring services and will explore games, movie and
card services. Besides, 3G products also appeared including cartoon plays-“Mickey
Adventure”, especially made for services invented with technologies at each period
e.g. MP, WAP games and JAVA.


Wireless Commercial Affairs
In September of 2004, Intel and Alibaba (the global largest e-market,
http://China.alibaba.com) declared that they would corporate to establish the first
mobile phone wireless business stage. When it is finished, Chinese network
merchants group will break through PC network users but also cover the current
mobile phone users to realize the electronic business everywhere. It is reported that
the exchange model Alibaba and Intel invented will soon apply to mobile phone with


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                                   Chapter 8
Intel structure which Motorola and Dopod will first introduce.


Mobile Blog
At present, some companies in and out of China have successfully realized the
mechanization of Mobile Blog, offering various services including sending mobile
phone photos, diaries. In terms of personal use, besides free Mobile Blog service, it
also provides two different kinds of charged services including filtering
advertisements and private Mobile Blog.


Mobile Personal Website
By the end of 2004, Mobile Personal Website has appeared with China ME
(www.Chiname.cn) as its representation. Interactive family realized mobile phone
management of personal website. Individual website users can use WAP to manage
the website, functions including writing mobile diaries, mobile phone's reply to
website, mobile phone managing net shop and mobile phone website club will be
soon invented. The appearance of Mobile website is a wise measure in WAP field
and will greatly advance the spread and development of WAP.


At present China Mobile and China Unicom are focusing on the spread of WAP
service. The revenue of SP WAP also turns out a rapid increase on the base of the
wide possession of WAP handsets and the abundant contents of WAP application.


In 2003, the revenue of WAP was 230 million RMB. In 2004, there was a marvelous
increase of 245%, reached the scale of 800 million, and further increase to 1150
million in 2005.




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                                     Chapter 8



Figure 22. The development of China’s WAP market from 2003 to 2005

 24

                                                245%

 18                                                                     44%



                                                                     11.5
 12

                                            8

  6
               2.3

  0
               2003                       2004                       2005


                           income of WAP information fee(100 million RMB)
                           increase rate



@2005 iReseach Inc.



Among all the WAP services, the using frequencies of various WAP services are
different. In the following Figure 23, it shows the investigations of using frequency
of several WAP services.




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                                   Chapter 8
Figure 23. Investigations of using frequency of several WAP services in China in
                                       2004


                                                         images and ring
                                                         downloading
                                                         (46.59%)
                                                         chating online
                                                         (12.80%)

                                                         mobile phone BBS
                                                         (12.20%)

                                                         mobiel phone
                                                         games (11.47%)

                                                         news browse
                                                         (10.78%)

                                                         receive email
                                                         from mobile phone
                                                         (1.08%)
                                                         others (4.80%)
@2005 iReseach Inc.


From Figure 22 we can easily find that mobile phone images and ring tone
downloading is still the most popular service for almost half of totally users
(46.59%). Online chatting is the second popular services because chatting through
SMS is already very common, users now tend to spend more time on connecting to
MSN or OICQ via WAP. WAP BBS reaches the third position of 12.2%, but the
mobile phone games only get the forth position with the share of 11.47%. After that
is 10.78% for browsing news, 1.08% for receiving emails on mobile phone and
4.08% for others.



8.3.    User characteristics


    Most of the WAP users are young people because young users can operate the
    service on their mobile phone more easily although this operation is a little bit


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        complex. This also benefit from the experience of schooling and the age. Young
        people used to use the wired computer.
        The income of WAP users are in the middle level. 45% of WAP users in China
        are those with the income of 800-3000 RMB Yuan. And there are 36.39% of
        WAP users are the students without any income, 10.64% are those with income
        higher than 3000 RMB Yuan. 59



8.4.         Conclusion


WAP service has gained distinct popularization now in China. At present, there are
two parts compose the WAP service charge: charge for Internet surfing, and charge
for service. At the same time, the helping service of WAP is not free. This will
negatively affected the user’s preference for choosing WAP because most of users
will meet problem when they operate the mobile phone to use this service. When
they meet this kind of difficulties they have to resort to help. More than 80% of users
expect this service will be free, but the network operators are charging for most of
their service currently.




59
     Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile Value-Added Services in China”

                                                     112
                                              Chapter 9
9. Individualized Ringing Tone Service


Individualized ringing tone service is a mobile phone service that replaces the
normal ringing tone into sweet music or friendly greetings. It is harmonized with the
current individualized trend in the telecommunication consumer market. It is
development by South Korea in 2002, and then CMCC and CUCC had planned to
introduce it into Chinese market. After the hard working of CMCC and CUCC, it has
been put into trial commercial use by calling it as “colorful ring” and “cool ring”
service respectively in China now. “Colorful ring” means when the user opens this
service, all the people who is calling this user’s mobile phone will hear a sweet
music instead of the normal ring tone in the phone. This service has been widely
accepted after more than one year’s trial and commercial use. The number of users
increases greatly. Even in many areas, the system capacity of the network operators
can not satisfy the increase of user numbers. There are two main reasons why the
individualized ringing tones service to be accepted by the market. One is because all
types of mobile phone can use this service; it is not limited by the terminal. The
other reason is because this service spread and promoted by the CMCC and CUCC a
lot. Thus, the individualized ringing tone service has a huge market capacity
compare to the other mobile value-added service and will be popularized faster.


According to the increasing speed of the market in South Korea, the number of the
individualized ringing tone users has reached around 50% of the total mobile phone
users after one year 60 . Referring to the development plan of the mobile network
operators in China, the users of this service reached 30 to 35 million, which is about
10% of the total mobile phone users in 2004 61 . It is relative difficult to estimate the
market scale of this service in China due to the high increasing speed, especially in
some developing provinces in China where the increase user number can reach ten
thousands each day. According to the survey of CCWResearch, the increase rate of

60
     http://txzxs.cnii.com.cn/20030527/ca260309.htm
61
     Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile Value-Added Services in China”

                                                     113
                                              Chapter 9
Individualized Ringing Tone service reached 102.8% in China in 2005. The user of
this service reached 69 million in China in 2005 62 . A conservative estimation of the
monthly income of the mobile network operators can be close to 400 million in the
end of 2006 63 .


The telecommunication operators (such as CMCC and CUCC in China), device
manufacturers, Service Provider/Content Provider and the end users compose the
industry chain of the individualized ringing tone service. The telecommunication
operators lie in the leading position of this industry chain, and they charge the end
users every month. This charging fee includes information fee and channel use fee.
The channel use fee is usually obtained by the network operators. The information
fee is obtained by the network operators and the Service Provider/Content Provider
at the ration of 15:85. Therefore, the network operators always can get the benefit no
matter how often do the users change ring tones of their mobile phone.



9.1. Problems of the development of the Individualized Ringing

          Tone service


Enrich the different ringing tone must to be done in order to get a rapid market
development. The network operators have to prepare a suitable running platform for
this kind of service. And at the same time, Service Providers or Content Providers
should work hard to develop diverse types of ringing tones. The latter is more
important than former. However, there are still some problems during the
development of individualized ringing tone service:
            Problems of music’s copyright is one of the intractable problem which faced
            by individualized ringing tone service. Not only network operators but also
            Service Providers and Content Providers have already begun to pay attention


62
     http://news.xinhuanet.com/mobile/2005-11/01/content_3711696.htm
63
     Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile Value-Added Services in China”

                                                     114
                                    Chapter 9
        to this problem. Some Service Providers have already set up an effective
        cooperation with copyright providers in order to obtain the copyright of
        music.


        With the large number of Service Providers and Content Providers entered
        the Chinese individualized ringing tone service market, the competition is
        becoming more and more fierce. The Service Providers who proving this
        service through CMCC are Tencent, Sina, TOM, LongTengYangGuang,
        GuenShiYiDong and ZhangShangLingTong. And the top Service Providers
        who providing this service through CUCC are ShenZhenXinFei,
        ShiJiKaiXuan, BeiTianZongHeng, JinPengKeJi and HuaYouShiJi. All these
        Service providers take up the most market share in Chinese market now.
        Therefore, the resource of ringing tone is scarce and ringing tones
        reduplicate to each other and short of novelty.


        How to support the Individualized Ringing Tone service is also the problem
        for the network operators at present. There are two solutions can solve this
        problem. One is using intelligent network, it may make full use of the
        existing network resources and may make the service quickly. But this
        method takes up too much relay trunks. The other solution is using exchange
        and separate IP. This can avoid taking up too much relay trunks, but all the
        exchanges needed to be updated, which is cost a lot and hard to control and
        to manage.



9.2. User Characteristics


The main users of Individualized Ringing Tone service have the same
characteristics:
    Young age people;


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                                    Chapter 9
    The income of the users are in the medium level;
    Most of them have high educated.



9.3. Conclusion


The features of Chinese Individualized Ringing Tone service market can be
concluded into followings:
    The market requirement of Individualized Ringing Tone service in China
    expands rapidly. It already entered into the growing phase from the introduction
    phase.
    The equipment capacity of network operators now is the bottleneck of
    Individualized Ringing Tone service due to the rapid development of this
    service.
    All the Service Providers and Content Providers including network operators are
    working hard to compete for the market share in China at present because of the
    good outlook of this service.




                                         116
                                   Conclusion
Conclusion


The market scale of mobile communications in China has been developed very fast
in recent years. At the same time, mobile value-added service increases also very fast
correspondingly. Both the amount of mobile users and the requirement of the users
on different kinds of services ascend greatly. Although the increasing speed become
lower compare with the beginning phase, it still higher than other services. Now
there are more than 70 thousand kinds of mobile value-added service in China. All
these services can be divided into mobile Internet content/application services,
mobile Internet access services and mobile value-added voice services. From the
perspective of the running platform, mobile value-added service can be classified
into five categories now in Chinese market; these are SMS, MMS, WAP,
JAVA/BREW and IVR. The services can be classified into communication, business
and trading, information support and entertainment according to the contents and
applications. There are several diverse factors influences whether the mobile
value-added service market will enlarge or not in China. One is the interaction and
usability which is called internal factor. The other one is the price of mobile terminal
and service which is called external factor. But the Chinese mobile value-added
service market concentration is still quite high. From the perspective of various
mobile value-added services SMS still act a key role in Chinese mobile value-added
service market. It occupies the majority among all the mobile value-added service.
This service is widely accepted by the users due to the low tariff, and was popular
especially by the people of low and medium income. From the data showed in the
previous part of report, we can find that the SMS service market in China is now
from developing phase into mature phase. It will still keep steady increase rate and
high market share in Chinese market in the next few years due to its long product life
circle and a large market scale. At the same time, the factors such as large number of
mobile users, the average revenue of users still keep increasing, high revenue from
SMS for SPs and lots of terminals support SMS service etc. drives the development


                                           117
                                  Conclusion
of Chinese SMS market. But the factors such as the protection of the copyright,
complex input method and scarce of industry standard etc. are the main barriers of
Chinese SMS market. Meanwhile, the other mobile value-added services such as
MMS, IVR, mobile phone games, WAP and Individualized Ringing Tone service etc.
are also maintained a robust growth momentum.


For MMS, it just in its starting phases in Chinese market now. It shows an enormous
development potentiality although it only operates a small part at present. The
increasing demand of the multimedia information, the reducing of charging and the
diversity of service content are the main factors which can accelerate the
development of MMS. But the negative factors such as the price of MMS service is
still relatively high compare to SMS service, the terminal supporting MMS service is
relatively limited etc. are the disadvantages of development of Chinese MMS market.
The popularization degree of MMS mobile phones will affect whether the Chinese
MMS market can develop well or not.


Regarding Chinese IVR market, we can say it still in the high speed shaping phase.
And it still has huge market developing potential due to the large number of mobile
phone users in China now. Meanwhile, the advantages of IVR service such as this
service is not limited by terminal device and can be used by any mobile phone, it can
improve the network operators devices utilize rate because it use the bandwidth at
leisure time of basic data service etc. are good for the development of IVR service.
But the high price of service, short of applications and lack of innovation are the
negative factors which hinders the developing of IVR in China.


Another important mobile value-added service is mobile phone game. The Chinese
market of mobile phone game is at its beginning phase and will increase very fast.
The application platform, application software download and various other services
based on Internet will affect the Chinese mobile phone game market directly. And
furthermore, the attitude of handset manufactories in China is important as well. The
                                         118
                                   Conclusion
tasks they are facing is to establish a uniform platform for all kinds of mobile phone
games, to improve the performance of mobile terminals on supporting multimedia
and to decrease the price of mobile terminals. The positive factors which promote
the development of the mobile phone game service in Chinese market includes: a)
fully support from mobile network operators; b) fully support from the Internet
Service Providers; c) easy to enter Chinese mobile phone game market for the new
entrances; d) huge market potential in China. There are some problems which affect
the development of Chinese mobile phone game market. All those problems include:
a) compatibility of the platform of mobile phone game; b) technology problem such
as the hardware must have strong processing and large capability to support mobile
phone games; c) low popularization of mobile data service in China now; d)
traditional Chinese opinion doesn’t encourage the young people to pay too much
attention on playing games, but all those young people are the main part of the
mobile phone game users. From the perspective of income, low-income users are
still the main users of mobile phone games. It will affect the users’ choice if the
mobile phone game’s rate is too high.


As regards WAP and individualized ringing tone service, both of them expands
rapidly these years, already entered into the growing phase from the introduction
phase. And both of them are the rapidly growing area in the Chinese wireless date
market. They have a very good outlook in Chinese market. For individualized
ringing tone service, some problems affect its development in Chinese market: the
copyright of the music; the scarce of resource of ringing tone and ringing tones
reduplicate to each other and short of novelty. Although there are some problems
feaze the Chinese mobile value-added service market, the entire mobile value-added
service exclude SMS are now still moving towards the status which SMS service is
experiencing now.


However, the market concentration in China declined in 2005 compared with the
year 2004. The main reason is that the rapid developing mobile value-added service
                                          119
                                   Conclusion
market provided opportunities to many small and middle size Service
Providers/Content Providers in 2005. All the small and middle size Service
Providers/Content Services are competing with the big SPs/CPs to try for the more
market share in Chinese market.


By analyzing main mobile value-added service in China, We can say that the 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
value-added service will have a very bright future in China.




                                          120
                                  References
References
1.    “China Wireless Value-added Service Market Report 2004”, issued by iResearch
           Inc. 2004 (www.iresearch.com.cn)
2.    “China Wireless Value-added Service Market Report 2004”, issued by iResearch
           Inc. 2004 (www.iresearch.com.cn)
3.    Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile
      Value-Added Services in China”
4.    “China Wireless Value-added Service Market Report 2004”, issued by iResearch
           Inc. 2004 (www.iresearch.com.cn)
5.    Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile
      Value-Added Services in China”
6.    “China Wireless Value-added Service Market Report 2004”, issued by iResearch
           Inc. 2004 (www.iresearch.com.cn)
7.    SINA Corporation
      http://corp.sina.com.cn/eng/sina_intr_eng.htm
8.    SOHU Corporation
      http://corp.sohu.com/
9.    TOM.com
      http://ir.tom.com/en/index.html
10.   NetEase
      http://corp.163.com/eng/about/overview.html
11.   Tencent
      http://www.tencent.com.hk/index_e.shtml
12.   Mtone
      http://www.mtone.com/
13.   KongZhong Corporation
      http://phx.corporate-ir.net/phoenix.zhtml?c=180513&p=irol-IRHome
14.   KongZhong Corporation
      www.kongzhong.com
15.   Linktone
      http://english.linktone.com/aboutus/index.html
16.   China Mobile Communication Corporation
      http://www.Chinamobile.com/ENGLISH/Profile.html
17.   China United Telecommunications Corporation
      http://www.Chinaunicom.com.cn/profile/gsjs/index.html
18.   MII (Ministry of Information Industry)
      http://www.mii.gov.cn/
19.   http://www.researchandmarkets.com/reportinfo.asp?report_id=223824
20.   http://www.friedlnet.com/product_info.php?cPath=11&products_id=49
21.   “China Wireless Value-added Service Market Report 2004”, issued by iResearch
           Inc. 2004 (www.iresearch.com.cn)
22.   http://english.people.com.cn/english/200006/22/eng20000622_43723.html
23.   “China Wireless Value-added Service Market Report 2004”, issued by iResearch
           Inc. 2004 (www.iresearch.com.cn)
24.   http://www.Chinamobile.com/YDYW/gjmy.asp?ClassID=1&ClassChild_ID=15
25.   http://www.Chinaunicom.com.cn/products/ydtxyw/ydhyyw/file3.html
26.   “China Wireless Value-added Service Market Report 2004”, issued by iResearch
           Inc. 2004 (www.iresearch.com.cn)


                                         121
                                References
27. “China Wireless Value-added Service Market Report 2004”, issued by iResearch
             Inc. 2004 (www.iresearch.com.cn)
28. “China Wireless Value-added Service Market Report 2004”, issued by iResearch
             Inc. 2004 (www.iresearch.com.cn)
29. “China Wireless Value-added Service Market Report 2004”, issued by iResearch
             Inc. 2004 (www.iresearch.com.cn)
30. “China Wireless Value-added Service Market Report 2004”, issued by iResearch
             Inc. 2004 (www.iresearch.com.cn)
31. http://english.people.com.cn/200409/28/eng20040928_158526.html
32. http://english.people.com.cn/200409/28/eng20040928_158526.html
33. Data source: Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project:
Mobile Value-Added         Services in China”
34. http://www.newkerala.com/news2.php?action=fullnews&id=45877
35. Data source: Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project:
    Mobile Value-Added Services in China”
36. Data source: Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project:
    Mobile Value-Added Services in China”
37. http://www.mii.gov.cn/col/col873/index.html
38. http://www.mii.gov.cn/art/2005/12/17/art_873_3834.html
39. http://www.mii.gov.cn/art/2005/12/15/art_873_3855.html
40. Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile
    Value-Added Services in China”
41. “China Wireless Value-added Service Market Report 2004”, issued by iResearch
    Inc. 2004 (www.iresearch.com.cn)
42. “China Wireless Value-added Service Market Report 2004”, issued by iResearch
    Inc. 2004 (www.iresearch.com.cn)
43. “China Wireless Value-added Service Market Report 2004”, issued by iResearch
    Inc. 2004 (www.iresearch.com.cn)
44. “China Wireless Value-added Service Market Report 2004”, issued by iResearch
    Inc. 2004 (www.iresearch.com.cn)
45. Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile
    Value-Added Services in China”
46. Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile
    Value-Added Services in China”
47. “China Wireless Value-added Service Market Report 2004”, issued by iResearch
    Inc. 2004 (www.iresearch.com.cn)
48. “China Wireless Value-added Service Market Report 2004”, issued by iResearch
    Inc. 2004 (www.iresearch.com.cn)
49. Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile
    Value-Added Services in China”
50. Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile
    Value-Added Services in China
51. Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile
    Value-Added Services in China
52. Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile
    Value-Added Services in China
53. Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile
    Value-Added Services in China
54. Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile
    Value-Added Services in China

                                       122
                                References
56. “China Wireless Value-added Service Market Report 2004”, issued by iResearch
    Inc. 2004 (www.iresearch.com.cn)
57. Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile
    Value-Added Services in China”
58. “China Wireless Value-added Service Market Report 2004”, issued by iResearch
    Inc. 2004 (www.iresearch.com.cn)
59. Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile
    Value-Added Services in China”
60. Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile
    Value-Added Services in China”
61. http://txzxs.cnii.com.cn/20030527/ca260309.htm
62. Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile
    Value-Added Services in China”
63. http://news.xinhuanet.com/mobile/2005-11/01/content_3711696.htm
64. Bernhard Holtkamp (Ed.) (January 2006) “VAS CHINA Project: Mobile
    Value-Added Services in China”




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