The Mobile Centric The Mobile Centric Internet Internet

Country :ChinaCountry :ChinaProject for COM546 Project for COM546

By Simon ChenBy Simon Chen

Agenda Agenda

The Mobile Service Market in The Mobile Service Market in Mainland China Mainland China

The Diffusion Pattern of Mobile The Diffusion Pattern of Mobile Service Service

The Mobile Value-added Service The Mobile Value-added Service (MVAS)(MVAS)

Internet Industry & Mobile industryInternet Industry & Mobile industry

The Mobile Service Market The Mobile Service Market in Mainland Chinain Mainland China

The Mobile Service Market in The Mobile Service Market in Mainland ChinaMainland China

Factors Driving the Growth of Mobile Factors Driving the Growth of Mobile Phone Diffusion in Mainland ChinaPhone Diffusion in Mainland China

Global Economic DevelopmentsGlobal Economic Developments

Before be admitted to WTO, China committed to permit foreign organizations to prBefore be admitted to WTO, China committed to permit foreign organizations to provide a wide range of telecommunication service through join-ventures. According ovide a wide range of telecommunication service through join-ventures. According the regulation of join venture in China, for most type of service, the foreign investothe regulation of join venture in China, for most type of service, the foreign investo

rs can hold up to 49% of co-ventured company (USTR, 2004).rs can hold up to 49% of co-ventured company (USTR, 2004). But more impBut more importantly for mobile handset diffusion, customs tariff for IT ortantly for mobile handset diffusion, customs tariff for IT product were deduced to allow cheaper components to maproduct were deduced to allow cheaper components to manufacture mobile with better pricenufacture mobile with better price. . Instead of been imported directly,Instead of been imported directly, the price of handset make in China will be cheaper for average Chinese consumers the price of handset make in China will be cheaper for average Chinese consumers (Groombirdge, 2000). Cheap mobile phone produced by domestic manufacturers ha(Groombirdge, 2000). Cheap mobile phone produced by domestic manufacturers have increased the level of competition in mobile phone market, and the lower price hve increased the level of competition in mobile phone market, and the lower price handset encouraging end users to purchase mobile phone (Ramstad, 2003). andset encouraging end users to purchase mobile phone (Ramstad, 2003).

Factors Driving the Growth of Mobile Factors Driving the Growth of Mobile Phone Diffusion in Mainland ChinaPhone Diffusion in Mainland China

Domestic Market RegulationDomestic Market Regulation Until the mid 90s, The Chinese telecommunications industry was under the monopolUntil the mid 90s, The Chinese telecommunications industry was under the monopol

y of the state and was managed by the former y of the state and was managed by the former Ministry of Posts and TelecommunMinistry of Posts and Telecommunications (MPTications (MPT). ).

From 1995, reorganization introduced four new companies, each with a focused objFrom 1995, reorganization introduced four new companies, each with a focused objective but still a diverse mix of fixed, transport and wireless or satellite networks : ective but still a diverse mix of fixed, transport and wireless or satellite networks : China UnicomChina Unicom, China Telecom, , China Telecom, China MobileChina Mobile, China Network Telecom (China , China Network Telecom (China Netcom), and China Satellite; and a proposed China Railway Telecom (China RailcNetcom), and China Satellite; and a proposed China Railway Telecom (China Railcom) in the near future om) in the near future

Factors Driving the Growth of Mobile Factors Driving the Growth of Mobile Phone Diffusion in Mainland ChinaPhone Diffusion in Mainland China

The Evolution of Market Structure:The Evolution of Market Structure:

Factors Driving the Growth of Mobile Factors Driving the Growth of Mobile Phone Diffusion in Mainland ChinaPhone Diffusion in Mainland China

Prepayment Price Model Prepayment Price Model

The mobile communications market in China favors prepaid price model beThe mobile communications market in China favors prepaid price model because of its market characteristics. cause of its market characteristics. This model accounts to about 90% of This model accounts to about 90% of all price strategies according to GSMall price strategies according to GSM Association data presented at GSM Association data presented at GSM World 2004. New subscribers are increasingly from low income and low uWorld 2004. New subscribers are increasingly from low income and low usage market segment, and yield lower levels of average revenue per user sage market segment, and yield lower levels of average revenue per user (ARPU), though minutes of usage have increased over the years but still sl(ARPU), though minutes of usage have increased over the years but still slower than the price erosion. For example, according to China Mobile the Aower than the price erosion. For example, according to China Mobile the ARPU has declined from RMB431 (US$52) in 1997 to RMB90 (US$11) in RPU has declined from RMB431 (US$52) in 1997 to RMB90 (US$11) in September 2004 (chinamobilehk.com).This is attributed to the substantial gSeptember 2004 (chinamobilehk.com).This is attributed to the substantial g

rowth in low-use subscribersrowth in low-use subscribers..

The diffusion pattern of mobilThe diffusion pattern of mobile phone in mainland China e phone in mainland China

The diffusion pattern of mobilThe diffusion pattern of mobile phone in mainland Chinae phone in mainland China

The diffusion pattern of mobilThe diffusion pattern of mobile phone in mainland Chinae phone in mainland China

The InnovatorThe Innovator In 1987 MPT lunched two analogue mobile switch systems based on TACS technology. One tIn 1987 MPT lunched two analogue mobile switch systems based on TACS technology. One t

he switch center is located in Beidaihe, the resort and convention center for high level officials he switch center is located in Beidaihe, the resort and convention center for high level officials of China central government. Obviously, this switch center is used for commercial purpose. Tof China central government. Obviously, this switch center is used for commercial purpose. The second switch center was located in Guangzhou, the capital the Guangdong Province, also the second switch center was located in Guangzhou, the capital the Guangdong Province, also the center of Southern China. November 1987, Mr. Feng Xu, a young guy was in his late twenthe center of Southern China. November 1987, Mr. Feng Xu, a young guy was in his late twenties at that time, purchased the first mobile phone in China, at the same time, he is the one of thies at that time, purchased the first mobile phone in China, at the same time, he is the one of the first one hundred innovators in China. In 1987, MPT Guangdong division decided to promote first one hundred innovators in China. In 1987, MPT Guangdong division decided to promote the first batch of analogue mobile phone According to their plan; one hundred mobile phonee the first batch of analogue mobile phone According to their plan; one hundred mobile phones had been sold. s had been sold.

The price for Feng’s mobile phone was The price for Feng’s mobile phone was RMB 20,000(US$ 2,485).RMB 20,000(US$ 2,485). In the early 1988, the avera In the early 1988, the average price for an activated mobile phone in the private/ black market was RMB 60,000 (US$ 7,4ge price for an activated mobile phone in the private/ black market was RMB 60,000 (US$ 7,454). The average balance show on phone bill was up to 54). The average balance show on phone bill was up to RMB 10,000 (US$ 1,242) per month.RMB 10,000 (US$ 1,242) per month. (Zhang, 2005)(Zhang, 2005)

According to Roger’s theory, the first 2.5% adopters are the innovators. Along with the first oAccording to Roger’s theory, the first 2.5% adopters are the innovators. Along with the first one hundred mobile phone users, ne hundred mobile phone users, until 1996, the 6,853,000 mobile subscribersuntil 1996, the 6,853,000 mobile subscribers can be named t can be named the innovator of mobile phone in mainland China, even though, GSM service had been promothe innovator of mobile phone in mainland China, even though, GSM service had been promoted in 1995. Most of the innovators are high level official, private firm owner, people in special ed in 1995. Most of the innovators are high level official, private firm owner, people in special profession (police, fireman etc.).profession (police, fireman etc.).

The diffusion pattern of mobilThe diffusion pattern of mobile phone in mainland Chinae phone in mainland China

The Early adoptersThe Early adopters Until 1999, the number of mobile service subsUntil 1999, the number of mobile service subs

criber in mainland China was 43,300,000, apprcriber in mainland China was 43,300,000, approximately 20% of user number in 2002(207,000,oximately 20% of user number in 2002(207,000,000). 17.6% of 207,000,000 that is 36,150,000 000). 17.6% of 207,000,000 that is 36,150,000 “new” subscribers have appeared during the “new” subscribers have appeared during the period. Actually, period. Actually, the 3,6150,000 are the Early the 3,6150,000 are the Early adopters.adopters. The handset price and the service fe The handset price and the service fee drop down are the primary reasons contribue drop down are the primary reasons contributed to the appearance and formation of early ated to the appearance and formation of early adopter group. dopter group.

The diffusion pattern of mobilThe diffusion pattern of mobile phone in mainland Chinae phone in mainland China

The Early Majority and Late MajorityThe Early Majority and Late Majority

From year 1999 to 2002,From year 1999 to 2002, the number of increased mobil the number of increased mobile service subscriber is e service subscriber is 164,000,000164,000,000. Besides the price d. Besides the price drop down of mobile handset and mobile service fee, throp down of mobile handset and mobile service fee, the differentiation of service plan and lagged off of toll pe differentiation of service plan and lagged off of toll phone system the triggers for potential customer adoptihone system the triggers for potential customer adoption after the innovators group and early adopters group on after the innovators group and early adopters group (Zhang, 2004), also the early majority and late majority. (Zhang, 2004), also the early majority and late majority.

After year 1999, Chinese people began to hear the mobiAfter year 1999, Chinese people began to hear the mobile handset ring bell in the public transportation: bus, trle handset ring bell in the public transportation: bus, train and the taxi. It used to be heard only in airport and ain and the taxi. It used to be heard only in airport and hotel lobby. The average Chinese people began to tell thotel lobby. The average Chinese people began to tell their customers or friend “call my cell phone when yoheir customers or friend “call my cell phone when you want count on me”. u want count on me”.

The Mobile Value-added ServicThe Mobile Value-added Service (MVAS)e (MVAS)

The Mobile Value-added ServicThe Mobile Value-added Service (MVAS)e (MVAS)

The Mobile Value-added ServicThe Mobile Value-added Service (MVAS)e (MVAS)

The Mobile Value-added ServicThe Mobile Value-added Service (MVAS)e (MVAS)

Internet Industry & Mobile Internet Industry & Mobile industryindustry

Internet Industry & Mobile indInternet Industry & Mobile industryustry