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China Mobile Telecom Market Analysis report （ Industry Overview Part ）

China Mobile Telecom Market Analysis report （ Industry Overview Part ）. Sensky Telecom Consulting for SK Telecom (China). 2005.10. Contents. Country Overview Communication Industry Policy Current status of Communication Industry Communication industry overview Operators overview

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China Mobile Telecom Market Analysis report （ Industry Overview Part ）

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  1. China Mobile Telecom Market Analysis report （Industry Overview Part） Sensky Telecom Consulting for SK Telecom (China) 2005.10

  2. Contents • Country Overview • Communication Industry Policy • Current status of Communication Industry • Communication industry overview • Operators overview • Fixed network industry situation • Internet industry situation • Mobile industry situation • Analysis on marketing & sales of mobile communication • CMCC marketing & sales analysis • CUCC marketing & sales analysis • Comparison of marketing & sales between CMCC & CUCC

  3. Central China Total population: 38% GDP: 30% GDP per capita: 817 US dollars Penetration rate of telephone: 40% 2003 2004 2005 USA 1 1 1 HONG KONG 10 6 2 West China Total population: 28% GDP: 17% GDP per capita: 637 US dollars Penetration rate of telephone: 25% TAIWAN 17 12 11 JAPAN 25 23 21 KOREA 37 35 29 CHINA MAINLAND 29 24 31 East China Total population: 34% GDP: 53% GDP per capita: 1672 US dollars Penetration rate of telephone: 60% INDIA 50 34 39 Country overview－China’s position in the world Population of China: 1.304 billion GDP: 1.6493 trillion US dollars Population of Japan: 128 million GDP: 4.6234 trillion US dollars Population of US: 296 million GDP: 11.6675 trillion US dollars Population of India: 1.104 billion GDP: 0.6919 trillion US dollars Source: National Bureau of Statistics of China 2005

  4. Rating Very Low Low Median High Very High Country overview－PEST analysis Politics Economy Society Technology • The largest developing country in the world • A country with centralized system, currently enjoying a steady society. The policies on foreign investments are determined by the State Council • The opening-up policies are of great advantage to foreign investments • GDP has maintained an annual growth rate of 8% for successive 20 years. • Huge investment space in China for FIEs • The residents enjoy growing consumption capacity • There are 1.3 billion people on the Chinese mainland • In the multi-nationality country, there are 56 nationalities, with Han population accounting for over 91% • 10% people have religious faith. There are five official religious bases • Ｒ＆Ｄ spending accounts for 1.35% among GDP • There are 900 thousand scientists and engineers committing to R&D • There are 820 thousand graduates and 13.335 million undergraduates in colleges and universities Main characteristics • Steady politics, rapidly growing economy and huge potential for foreign investments • Increasingly larger market space and stronger consumption capacity of residents • The information industry enjoys a rosy future due to the supports from national policies • Low overall technical level. Various foreign patent technologies should be introduced Conclusions

  5. National People’s Congress (NPC) National People’s Congress (NPC) Standing Committee under National People’s Congress (NPC) Chairman Meeting Standing Committee under National People’s Congress (NPC) • Special committees • Ethnic Affairs Committee • Law Committee • Committee for Internal and Judicial Affairs • Finance Affairs Committee • Education, Science, Culture and Public Health Committee • Foreign and Economy Committee • Overseas Chinese Affairs Committee • Environment and Resource Protection Committee • Agriculture and Country Committee • Institutions and offices • Office • Commission of Legislative Affairs • Budget Commission • Hongkong SAR Basic Law Commission • Macao SAR Basic Law Commission • Offices under Special Committees • Credentials Committee Chairman: Wu Bangguo President President: Hu Jintao Vice president: Zeng Qinghong Central Military Commission State Council Supreme People’s Court Supreme People’s Procuratorate Procurator-general: Jia Chunwang President: Xiao Yang Chairman: Hu Jintao Vice chairman: Guo Boxiong Cao Gangchuan Xu Caihou Premier: Wen Jiabao Vice premier: Huang Ju Wu Yi Zeng Peiyan Hui Liangyu Country overview－politics overview • As the largest developing country in the world, China carries out socialist system. • The system of people's congresses is the fundamental political system for China. • National People’s Congress (NPC) is the supreme state powerorgan in China, owing legislative power, power of appointment and removal, power to make decisions and supervisory power. • The State Council, i.e. central people's government, is the executive organ of highest-level state power organ. It is also the supreme state administrative organ.

  6. Overview of China’s economy • Currently, China has gradually formed the economic circle focusing on Beijing, Tianjin and Tangshan, the Yangtze Delta economic circle led by Shanghai and the Pearl Delta economic delta centering on Shenzhen and Guangzhou. The three economic circles account for over 60% of China’s GDP. • China witnesses the imbalance among regional economic developments. The GDP in East China and West China respectively achieve 53% and 17% of the total. • GDP enjoys a rapid growth. In 2004, China’s GDP achieved RMB13.6515 billion yuan. Among that, agriculture sector, industrial sector and service sector respectively contributed RMB2.0744 billion yuan, 7.2387 billion yuan and 4.3384 billion yuan. • The population has a large base. The GDP per capita only achieves 1257 US dollars. Source: National Bureau of Statistics of China 2005

  7. Main economic indicators • In 2004, the total value of China’s imports and exports achieved a growth rate of 35.7%. Among that, exports and imports respectively increased by 35.4% and 36.0%. • China’s main financial indicators are much lower than international warning line. This can facilitate the foreign exchange transactors to have more confidence in RMB value, thus achieving steady RMB exchange rate. Source: National Bureau of Statistics of China 2005

  8. Society overview • With an area of about 9.6 million square kilometers, People’s Republic of China has two special administrative regions, four municipalities, 23 provinces and five autonomous regions. • In 2005, China’s population achieved 1.304 billion, with urban population and rural population respectively accounting for 41.7% and 58.3%. • There are 56 nationalities in China. Among that Han population accounts for 91.6%. The rest 55 are called minorities. • Five official religious bases consist of Buddhism, Islamism, Taoism, Catholicism and Protestantism. There are over 100 million religious believers. Source: National Bureau of Statistics of China 2005

  9. Population GDP per Beijing 1382 22648 Population GDP per Shandong 9079 11565 Shanxi 3605 5548 Tianjin 1001 18981 Gansu 2562 4294 Shanxi 3297 6066 Xinjiang 1925 8299 Neimeng 2376 3998 Qinghai 518 5792 Hebei 6744 8155 Ningxia 562 5872 Population GDP per Liaoning 4238 10854 Jilin 2728 7698 Heilongjiang 3689 5964 Population GDP per Shanghai 1674 32258 Population GDP per Zhejiang 4677 15822 Sichuang 8329 5763 Jiangsu 7438 13444 Chongqin 3090 5825 Anhui 5986 5847 Yunnan 4288 5364 Guizhou 3525 3121 Population GDP per Xizang 262 5725 Guangdong 12729 8642 Population GDP per Fujian 11812 3471 Henan 9256 6482 Hainan 7624 787 Hubei 6028 8295 Guangxi 4901 4489 Hunan 6440 6522 Jiangxi 4140 5314 Overview of each province in China Population unit: 10,000 persons GDP unit: RMB Yuan Harbin • Inner Mongolia: Mongolia nationality population: 4.0292 million Changchun Urumchi Shenyang • Ningxia: Hui nationality population: 1.9 million Beijing Hohehot Dalian Tianjin Datong Yinchuan Yantai Tsingdao Shijiazhuang Lanzhou Xining Jinan Taiyuan Nantong Wuxi Xi’an Lhasa Zhengzhou Nanjing Suzhou Shanghai Chengdu Hefei Wuhan Chongqing Ningbo Hangzhou Nanchang Guiyang Changsha Wenzhou Fuzhou Kuming Tibet: Tibetan nationality population: 4.0292 million Nanning Xiamen Guangzhou Shantou Zhuhai Hongkong Haikou • Guangxi: Zhuang nationality population: 15 million • The red points refer to the most developed cities in terms of society, economy and culture in China • The red points refer to the most developed cities in terms of society, economy and culture in each province Source: National Bureau of Statistics of China

  10. Current status and trends of consumers’ financial structure Average savings maintain stable growth of 24% cagr until 2005 Average income Average spending 26% Average saving 24% 20% • China’s consumers will maintain a sustained growth of consumption in the future • With increasing consumption capacity, it is predictable that China will see an increasingly larger consumer market. RMB Yuan 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 - 1995 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: National Bureau of Statistics of China

  11. China’s investment environment • In 2004, China used a FDI of 60.6 billion US dollars, up 13.3% year on year; Since China is still in high-speed growth stage, it is predicted that China will maintain the preferential policies on foreign investments and attract more foreign investors to inject investments in China. • After the entry into WTO, China will accelerate the opening-up of the market for foreign investors in terms of depth and scope. Network Service Network Service LOW Big change Big change Bank Bank Chemical Chemical Retail Retail Insurance Insurance Automobile Automobile Agriculture Agriculture Mid Mid Protection after entered WTO Small change Small change Energy Energy Stock Stock sources sources Medicine Medicine Consumable Consumable High Telecommunication Telecommunication Electronic Electronic less change less change Low Low Mid Mid High High Protection before entered WTO Source: National Bureau of Statistics of China 2005

  12. The direct investment of Japan and South Korea in China

  13. Contents • Country Overview • Communication Industry Policy • Current status of Communication Industry • Communication industry overview • Operators overview • Fixed network industry situation • Internet industry situation • Mobile industry situation • Analysis on marketing & sales of mobile communication • CMCC marketing & sales analysis • CUCC marketing & sales analysis • Comparison of marketing & sales between CMCC & CUCC

  14. History of policy management

  15. Non-state-owned communication enterprises State Council State Asset Management Commission China Telecom China Mobile China Unicom China Netcom China Railcom China Satcom Current telecom management systems in China Non-governmental management organizations • China National Consumers' Association was established in December 1984 • National Telecom User Committee was established on September 16, 1999 • On May 23, 2001, China Post & Telecommunication Enterprise Management Association was renamed as China Communication Enterprise Association. • Trend of new Telecom Law • Establishing independent telecom monitoring institution • As the telecom regulatory department of China, MII monitors and manages China’s telecom industry; other governmental departments will divide their work on the basis of duties, implementing corresponding management over telecom industry within their duties. • Directly led by MII, the telecom management bureaus in each province, autonomous region and municipality, in accordance with Telecom Regulations, carry out management over the telecom industry in local administrative regions.

  16. Foreign operators’ investments in China’s telecom market

  17. Vodafone in the Chinese market Establish strategy alliance with CMCC, cooperate in the fields of new technique, equipment and terminal 2001/2002:Use 35 millions US$ Purchase 9.9% share of Aspire 2001/2002:Use 800millions US$ Purchase 3.27% share of CMCC 2001/11:Establish Subsidiary company in HK. Establish agent in China 2001/02:Sign strategy agreement with CMCC Initial stage: Establish strategy cooperation Establish agent in China Deepened stage: Penetrate in the value chain Capital operation stage: Purchase stock • Vodafone will inject more investments in China during 3G era.

  18. 1750 1800 1850 1900 1950 2000 2050 2100 2150 2200 2010 MHz ITU IMT-2000 FDD IMT-2000 FDD TDD TDD MSS MSS 2170 MHz 2110 MHz 1920 2025 MHz 1885 MHz Europe UMTS FDD UMTS FDD DECT TDD TDD MSS MSS GSM 1800 GSM 1800 1920 1710 MHz 1785 MHz 1805 MHz 1880 MHz 1980 MHz 2025 MHz China GSM1800 扩展 IMT-2000 扩展 GSM1800 扩展 IMT-2000 扩展 MSS TDD TDD MSS IMT-2000 FDD IMT-2000 FDD GSM1800 GSM1800 GSM1800 GSM1800 1820 1725 1755 1920 1980 1840 1745 2155 2170 MHz 1885 1895 1918 Japan IMT 2000 IMT 2000 C B PHS MSS MSS A ’ A 2165 MHz 1990 MHz 1865 1870 1885 1890 1930 1945 1965 1975 1895 1910 1970 PCS USA Broadcast auxiliary MSS MSS Reserve D E F C A B C A D B E F 1750 1800 1850 1900 1950 2000 2050 2100 2150 2200 The Frequency Layout in China • China 3G frequency allocation solution is stipulated in Notice about 3G Public Mobile Communication System Frequency Planning (XBW [2002] No. 479) of Radio Management Administration under MII • Among that, reserve TD-SCDMA-specific frequency for the development of national independent IPRs

  19. Inter-network connection • Trend of new Telecom Law • The monopoly of user access will disappear • A fine of RMB5 million Yuan for interconnection breakdown

  20. Structure of main tariffs regarding China Telecom • Fixed telephone call tariffs • Local telephone call tariff • Three fees: installation fee, basic monthly rent fee and call fee. • Monthly payment system: installation fee and monthly fixed-value fee. • Domestic long-distance call tariff • Calculate the fees according to the distance and traffic (call duration) • International long-distance call tariff • Collection charge of international call service • Total accounting rate: 2 US dollars • Division rate: 50%, 50% • Settlement rate: 1 US dollar • IP telephone call tariffs • Being value-added service. The tariff carries out market adjustment price • IP call tariff • Calculate the charge according to traffic • Calculate the charge on the basis of minutes • Since IP call serves as prepayment service, currently, the large operators face intense competition, which can be seen from the sharp discounts of IP cards. • Mobile phone call tariffs • Mobile phone call charge collection ways • Calling party one-way charge and calling & called parties two-way charge • Monthly payment system (after-service payment) and prepayment • Structure of tariffs regarding mobile phone calls in China • Structure: • Network access charge (cancelled on July 1, 2001) • Basic monthly rent charge • Call charge • Roaming charge • Internet service tariffs • Service types: • Dialing access • Private-line access • Enterprise email • VPN service • Internet service is value-added service. In accordance with the regulations of Telecom Regulations, the tariffs should be formulated mainly on the basis of market adjustment. The government should strengthen supervisions to prevent illegal competition. • Charge calculation of normal dialing service: traffic calculation system and monthly payment system • Private-line access service: charge collection based on bandwidth • Inter-network connection tariffs and network element rent tariffs • Inter-network connection tariffs • Network element rent tariffs • Determine tariffs based on costs • Trend of new Telecom Law: the tariff moves towards market adjustment

  21. Contents • Country Overview • Communication Industry Policy • Current status of Communication Industry • Communication industry overview • Operators overview • Fixed network industry situation • Internet industry situation • Mobile industry situation • Analysis on marketing & sales of mobile communication • CMCC marketing & sales analysis • CUCC marketing & sales analysis • Comparison of marketing & sales between CMCC & CUCC

  22. Overview of China’s telecom industry • The telecom industry always maintains a rapid growth. Its business revenue maintained a two-digit growth rate, higher than the growth rate of GDP. • Since 2000, each industry in China has gained an average profit rate of less than 10%. The operation benefit of the telecom industry is higher than the average level of various industries of national economy. Nevertheless, due to the intensified competition, the profit rate sees a decline year by year. • Mobile phones have accelerated the replacement of fixed telephones and the dispersion of fixed telephone call traffic. Source: MII and data about operators in 2005

  23. Structure of communication service revenue • The revenue from fixed local and mobile communication services still remain the majority. The revenue is mainly from voice services. However, from the perspective of change trend, fixed telephone call revenue suffered a sustained decline of share due to the heterogeneouscompetition and etc. Mobile communication becomes the main revenue source. • Data service enjoys a rapid growth. But it is currently in market cultivation stage, having no grate influences on telecom service structure. • Since telecom tariff decrease in 2001, long-distance telephone call tariff also witnessed a decline, acquiring a smaller share. Nevertheless, as long-distance telephone call becomes IP-oriented, the service can see a recovery of revenue with its low price advantages. • Other telecom services such wireless paging and telegraph services suffer a decrease of revenue.

  24. Regional differences of communication levels • The communication developments among East China, Central China and West China, especially between urban areas and rural areas, show obvious imbalance. • The fixed telephone penetration rate and mobile phone penetration rate in West China are less than 50% of those in East China. The fixed telephone penetration rate and mobile phone penetration rate in Central China also suffer a wide gap with those in East China. • In West China and Central China as well as rural areas, due to the backward economic level and small migration of population, the people pose few demands on communication products, resulting in low per capita telecom consumption level. Source: MII and data about operators in 2005

  25. Market share • Since urban areas and East China enjoy a high economic level and fast population migration, the people pose high demands on communication and information consumption, directly resulting in increasingly greater differences of telecom consumptions in each area. • Analysis of current status and market share: market change rules and market shares of major operators • China Mobile achieves a highest market share. The Chinese residents show an increasingly higher recognition level of mobile communication. Source: MII and data about operators in 2005

  26. Contents • Country Overview • Communication Industry Policy • Current status of Communication Industry • Communication industry overview • Operators overview • Fixed network industry situation • Internet industry situation • Mobile industry situation • Analysis on marketing & sales of mobile communication • CMCC marketing & sales analysis • CUCC marketing & sales analysis • Comparison of marketing & sales between CMCC & CUCC

  27. Network deployment of each operator

  28. Analysis of strength and weakness regarding each operator

  29. Contents • Country Overview • Communication Industry Policy • Current status of Communication Industry • Communication industry overview • Operators overview • Fixed network industry situation • Internet industry situation • Mobile industry situation • Analysis on marketing & sales of mobile communication • CMCC marketing & sales analysis • CUCC marketing & sales analysis • Comparison of marketing & sales between CMCC & CUCC

  30. Current status of fixed network industry • Since its release, PHS service has enjoyed a rapid growth. The service acquired an increasingly larger proportion among new users, becoming the key driving force factor for the revenue growth of traditional fixed network operators. • PHS can meet the requirements from low- and medium-end user bases. In late 2004, PHS had a higher proportion than normal fixed-line phone among new users. • Since 2002, China’s broadband market has been rapid developed, with an increasingly larger user base. ADSL played a key role for the growth of broadband user base. In the first half of 2005, China’s broadband user base achieved 31.651 million. • Long-distance phone call is IP-oriented. Low tariffs can directly result in long-distance phone call IP-orientation. Source: MII and data about operators in 2005

  31. 16 14 12 10 100 million yuan RMB 8 6 4 2 0 2002Y 2003Y 2004Y 2005Y 2006Y 2007Y 2008Y WLAN • Currently, China’s users cannot get a better understanding of WLAN, which resulted in the slow development of the total market • SME and household WLAN market enjoys an increase of share. China adopts the self-developed WLAN security standard WAPI. • The mature product technologies under 802.11b standards and multi-vendor supply environment are perfect, constituting the mainstream of China WLAN. 802.11g provides higher bandwidth for the users. The application will gradually achieve a higher proportion. The incompatibility of 802.11a will result in less application of this standard. Market share of WLAN protocol Forecast for WLAN market Source: MII and data about operators in 2005

  32. Contents • Country Overview • Communication Industry Policy • Current status of Communication Industry • Communication industry overview • Operators overview • Fixed network industry situation • Internet industry situation • Mobile industry situation • Analysis on marketing & sales of mobile communication • CMCC marketing & sales analysis • CUCC marketing & sales analysis • Comparison of marketing & sales between CMCC & CUCC

  33. Overview of Internet industry development • As of June 2005, the Internet-surfing users amount to 103 million • In 2004, China formed an Internet information service market with an annual size of RMB20 billion yuan • Internet information service has transferred itself from the reliance on past single online advertisement revenue to diversified operation and revenue generation. • The users with various Internet-surfing means are repeatedly calculated. Therefore, the sum of users with various Internet-surfing means is greater than the total Internet-surfers; • Private-line Internet-surfers refer to the users having access to LAN through Ethernet and then having access to Internet through private line; • Broadband Internet-surfers refer to the users surfing the Internet with xDSL, Cable Modem and etc. Internet-surfer base with various surfing ways ( June 2005)

  34. Contents • Country Overview • Communication Industry Policy • Current status of Communication Industry • Communication industry overview • Operators overview • Fixed network industry situation • Internet industry situation • Mobile industry situation • Analysis on marketing & sales of mobile communication • CMCC marketing & sales analysis • CUCC marketing & sales analysis • Comparison of marketing & sales between CMCC & CUCC

  35. Total size of China’s mobile communication market • Over the recent years, China’s mobile communication service saw a robust growth, owning the largest user base in the world. As of June 2005, the mobile phone user base in China amounted to 363 million. • Over the recent years, the mobile users always enjoy a higher growth rate than that of fixed-line phone users. In October 2003, the mobile user base exceeded the fixed-line phone user base for the first time. • The revenue from mobile services saw a ceaseless increase of proportion. In late 2003, this proportion was greater than 50%. The revenue from mobile communication services acquired a greater proportion. The mobile user base was greater than fixed-line phone user base The revenue from mobile services acquired a share of over 50% Source: MII and data about operators in 2005

  36. China Mobile Market competitive status • at present, there only are two operators CMCC and CUCC in China Mobile market. • some important factors influence the competitive status in China mobile market ,include contesting the users by PHS, recombining the operators, the granting of 3G license and the entrance of foreign operators. current influence Operators’s split and restructure Distribution by PHS CMCC and CUCC are the only two operator in the market The entrance of foreign operators CTC and CNC will obtain 3G Licence Latency influence

  37. CMCC and CUCC-development background and overview • China Mobile and China Unicom were established under different backgrounds and policy environments. China Mobile was split up from China Telecom in 1999. China Unicom was a product arising from competition attempts in China’s communication industry.

  38. CMCC and CUCC-network operation status • Both China Mobile and China Unicom own GSM network. But China Mobile’s GSM network enjoys better performance than China Unicom’s GSM network. • Since 2002, China Unicom has begun to operate CDMA network and laid emphasis on it. In addition, it upgraded CDMA network around China to CDMA 1X in late 2004. • In an effort to promote the development of mobile data services, China Mobile deployed GPRS and even EDGE networks in some developed areas. China Mobile’s GSM network enjoys better profiting capability than China Unicom’s GSM network. China Unicom’s CDMA network always suffers losses. The less deployed GSM network is the main profit source for China Unicom. Source: MII and data about operators in 2005

  39. CMCC and CUCC-market performance (user base and business revenue) • On the basis of comparisons about the data of user base and main business revenue, we can see that China Unicom suffers weaker overall strength than China Mobile. China Unicom cannot compete against China Mobile in short time. The ratio of China Mobile’s user base to China Unicom’s user base is less than the ratio of China Mobile’s business revenue to China Unicom’s business revenue. This means than low-end users take the majority among China Unicom’s users.

  40. CMCC and CUCC- market performance (ARPU value) • Due to more low-end users, intensified tariff price wars and lower proportion of new services, the users of China Mobile and China Unicom saw a decline of ARPU. Both after-service payment users and prepayment users show this trend. • Compared with China Unicom, China Mobile carried out a series of differential marketing activities for different brands, slowing the decline of ARPU value to some degree. • Compared with China Unicom, China Mobile enjoys a higher ARPU, with the gap set to become wider. In some degree, compared with China Mobile, China Unicom suffers weaker profiting capability. For China Unicom, its CDMA ARPU is grater that that of GM, which results from the small CDMA user base. With more general users among CDMA user base, the gap will be narrower. China Unicom invests a lot of cell phone subsidies to promote CDMA service. With the decline of cell phone subsidies, CDAM saw a decrease of ARPU value. China Mobile’s contract signing users are the high-end users. Source: MII and data about operators in 2005

  41. CMCC and CUCC- market performance (MOU value) • China Mobile’s traffic maintains a steady growth. Although the MOU value of prepayment users saw a decline in 2002, China Mobile introduced a series of activities for low- and medium-end users like monthly call minute offer, family love number setup, Shenzhou night call and etc, resulting in the rise of MOU value. The contract signing user base of China Mobile always maintains a growth. • The CDMA users of China Unicom saw a decline of traffic. This is because that in the beginning, China Unicom positioned CDMA towards high-end market and attracted many low- and medium-end users under the unfavorable operation. In addition, the decrease of CDMA cell phone subsidies is the other reason. • Through the comparisons, China Mobile’s users have more traffic than the users of China Unicom. The gap will be wider. Source: MII and data about operators in 2005

  42. CMCC and CUCC-VAS (service categorization） • Under the total brand of MonterNet, China Mobile introduced the mobile value-added services like MMS, WAP, STK-OTA, JAVA downloading and etc. • Under the total brand of U-Max, China Unicom introduced the mobile value-added services like color e (MMS), Unicom Message (SMS), STK-OTA, BREW/JAVA-0TA, Interactive Vision (WAP) and etc.

  43. CMCC and CUCC-VAS (development status) • Despite GSM and CDMA networks, China Unicom steps up efforts on new services for CDMA. Since 2003, China Unicom introduced CDMA1X value-added service brand (U-Max) and developed a series of sub-brand services. As of June 2005, CDMA1X data users accounted for a share of nearly 40% among the total CDMA user base. • Currently, China Unicom is introducing U-Web and stream media services with greater efforts. • The value-added service of China Mobile maintains a steady growth, becoming the major driving force for the development of company and operation revenue growth. • Currently, China Mobile is introducing new services to achieve the steady and rapid growth of value-added service revenue. Among that, WAP and CRBT services will play a key role. • CRBT service is free of terminal restrictions. In addition, it can meet the requirements of users with affordable prices, therefore, it enjoyed a rapid growth since its release. • WAP service suffers terminal restrictions. Since 2004, China Mobile adopted a series of cell phone customization activities to promote the development of data services, resulting in the rapid growth of WAP service. Source: MII and data about operators in 2005

  44. CMCC and CUCC-development strategies and investment emphases in 2005

  45. Comparative parameters Very Low Low Median High Very High CMCC and CUCC-overall analysis • China Mobile • China Unicom User base • China Mobile achieves a market share of over 60%, while China Unicom gains a share of less than 40% Main business revenue • The main business revenue of China Mobile is 2.5-3.5 times as that of China Unicom ARPU value and MOU value • Compared with China Mobile, China Unicom suffers weaker profiting capability and the gap is wider. Network status • China Mobile enjoys better GSM network performance than China Unicom. The CDMA service of China Unicom always suffers losses, with troubles arising from two concurrent networks

  46. Current status of 3G in China

  47. A series of uncertainties for operators’ 3G license acquirement • China Mobile, China Telecom and China Netcom respectively get one license to deploy and operate the network • China Telecom and China Netcom respectively deploy nationwide 3G network, which possibly results in huge investment waste • China Telecom and China Netcom are likely to rent the current 2G network of China Mobile and China Unicom to carry out roaming services. • China Mobile and China Unicom respectively get independent 3G license. China Telecom and China Netcom get a combined license to jointly deploy 3G network • China Telecom and China Netcom need to resolve a series of troubles arising from joint network deployment, such as cost allotment, interconnection and etc. • China Telecom and China Netcom still need to rent 2G network of China Mobile or China Unicom to carry out roaming services. 1 2 • China Unicom’s CDMA network and GSM network are respectively integrated into China Netcom and China Telecom • China Unicom enjoys huge capital and owns GSM network. 3G upgrade can be achieved with large investments. China Netcom is relatively weak in terms of capital. The CDMA network license acquirement can help achieve 3G with a small amount of funds. 3

  48. After 3G license issuance, China’s telecom market will enter full-service competition era The services of fixed network operators suffered a slowdown. China Unicom witnessed a negative growth. China Mobile sharpened its overall competitiveness, with each greater indicator securing the leading position China Telecom and China Netcom entered mobile market with Little Smart, with the user base up to 30 million in late 2003 With the advantages of transfer network, China Telecom and China Netcom will rapidly deploy 3G mobile network and seize group customers through overall telecom service advantages and group customer relationship advantages. With network deployment and optimization and advent of Olympics, each major operator will race to carry out more applications of telecom value-added services and 3G video so as to secure the market. 2002 2003 2004 2005 2006 2007 2008 China Mobile and China Unicom dominated the mobile market Industry integration. The mainstream operators mainly secure the market, considering and implementing strategic transformation The government will issue 3G license in 2006. Three mainstream operators will compete against one another in the mobile market (if China Unicom can implement restructuring solutions before late 2005) With the operators’ competition in mobile market and foreign investment entry, the customer share and revenue share will be changed , with the competition evolved towards total services. With successfully held Olympics, the telecom operation mode characterized by multimedia and broadband will be rapidly penetrated. China’s telecom market will be prosperous with thorough competition.

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