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Market Environment

In mid-2001, China surpassed the US to become the world's largest mobile market. According to China's Ministry of Information Industries (MII), the number of mobile subscribers reached more than 268 million as of December 2003, and is estimated to reach about 400 million by the end of 2005. And despite this rapid rate of growth, wireless penetration remains low compared to other global markets.

Likewise, the market for wireless value-added services is expanding significantly and is expected to continue to grow at a rapid pace. The independent research agency Norson Telecom Consulting reports that total wireless value-added services (VAS) revenue in China will grow from approximately $US 120 million in 2001 to over $US 3 billion in 2004. At the same time, total revenue from value-added services is estimated to have accounted for only 3.5% of total wireless revenue in 2002 - a significantly lower percentage than experienced by operators in other markets with progressive, wireless value-added services businesses.

With the success of Japan's NTT DoCoMo first, later replicated by SK Telecom in Korea, the trajectory for wireless VAS in China is very encouraging. In both Japan and South Korea, wireless VAS mushroomed once service providers and operators entered a revenue-sharing business model, and once scalable advanced networks were established. Service providers in China are utilizing the latest technologies to create innovative content, while advanced 2.5G networks are being rapidly deployed. And just as in Japan and South Korea, China has a mobile savvy - and mobile hungry - youth and business culture. China also has unparalleled scale.

In 2003, China accounted for one-third of the world's short messages sent by mobile telephones. The country's SMS market is predicted to reach US$4 billion by 2004, and SMS services continue to present considerable opportunities for Mtone. At the same time, as the China market rapidly evolves towards next generation networks and technologies, Mtone is positioning itself to continue to leverage its large user base with an expanded and diversified portfolio of wireless consumer services. Mtone is once again defining itself as an early mover in wireless VAS by developing trial applications for Kjava/Brew applications in close cooperation with China's mobile operators, and aggregating, distributing and creating more vivid and complex MMS, Kjava and WAP entertainment services that are suitable for 2.5G networks.

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