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Future of Mobile Networking in China(2004-02-24)

After the spring festival of 2004, the quarter financial reports of 3 domestic portal websites were presented. An interesting fact was that more than 50% of their revenue came from the wireless value-added service, i.e. mobile network. From a strict financial point of view, they should have been mobile network service companies with famous websites. The history will prove that 2004 is a turning point for China's network industry.

I was once told a story. A world leading American software and network company sent more than 10 people to China to study the network development situation here. One day, when having their feet massaged, they enquired 10 waitresses there whether they visit the Internet. Nobody answered "yes". When asked if they had mobiles, 9 had said they did while one said that she would be buying one in the coming month. All 10 said that they sent SMS'. One of them spent RMB 200 on SMS every month, though her monthly payment was only RMB 1000. Therefore, the mobile network development in China is not only fast, but exceeds the speed of wired network development. The thumb economy has come true. The network should rather be called mobile network.

The year 2000 witnessed the start of China's mobile network. At that time, I introduced the concept of the "thumb economy" and predicted that the time it took to make profit would be only half in comparison with the wired network, that is, up until 2004, the "thumb economy" would be making profits (China's wired network is supposed to originate from Information Highway in 1996. It was predicted that the wired network would take 8 years to make profits). Two facts finally turned out to be surprises to me: one is in 2002 mobile network companies already started to make profits; the second is almost all wired network companies were making profits with the SMS business, especially the 3 widely known portal websites. This year, 5 or 6 more mobile network service companies (SP's) will become listed on the NASDAQ. Then there will be almost ten listed enterprises around China Mobile. Would it be more exact to refer to China's network as the mobile network?

Compared to the average growth rate of the SMS in the whole world, China's SMS development is the most noticeable. China's SMS traffic in 2000 only occupies 1% of the world's total amount. In 2001, it grew to 7%. In 2002 it grew to 25%. In 2003 it grew to 34%. Globally, one out of three SMS' is sent by a Chinese. However China's population as well as the mobile amount only reaches 1/6 of the world total. Why do we have such a fast development? Is it because China's SMS charge rate is very low? A SMS message costs about 0.1 Euro in Europe and America, which is about? Of the mobile call charge per minute. In China, the cost rate between the SMS and mobile phone call is the same. Therefore, charge rate is not the real explanation. Personally I believe there are two reasons for the fast development of China's SMS business:

I. The value link of China's mobile network is the most open one in the whole world. The mobile network operation can be divided into 3 types: A) Closed operation strategies represented by Europe. The carrier doesn't share profits with SP's and controls all the marketing and customer service process; B) Half open operation style represented by Japan and South Korea. The carrier shares profits with SP's, but the latter never goes to the front line to contact customers or join the marketing and sales activities; and C) China's mode is totally open. The carrier shares profits with SP's and the latter can also join the marketing and sales. Different operation strategies lead to totally different results. Many European SP's much larger than ours in 2000 have disappeared today. As the European operation of the closed mode hurt the enthusiasm of SP's, the SMS development in Europe is now obviously behind China. Japan and South Korea were China's study cases before, but their development speed is also left far behind China. Thanks to the open development, it took China only two years to rise to the leading position in the world. Based on the facts that Monternet created a brand new industry within only 2 or 3 years, and integrated a comprehensive industry value link, it should be called a miracle in China's enterprise marketing history, and deserves to be listed in the MBA typical case study materials of Harvard University.

II. The technology is an important reason. Specifically speaking, the Chinese input is much faster than the input of English. The average button pushing times in the Chinese input come only 1/5 compared to English input, that means the Chinese input is faster than that of English by 5 times. While the English input takes the leadership in the PC age, the Chinese input will catch up in the mobile age. This also encourages Chinese to frequently send SMS. Jiangsu Mobile organized an input competition before. Players were supposed to continuously send SMS' within 24 hours. The final champion sent a total of 41,000 Chinese characters (which means 29 characters per minute). Today, young people's Chinese input speed through the mobile can generally catch up with the speed through the PC. I think the above are two important reasons why China's SMS business has been developing with a super high speed.

With the rapid development of IT technologies, the mobile configuration will be the same as that of the present PC in 5 years. It can be predicted that the mobile will take the central position in China's future network business.

On the other hand, the totally open value link also has side effects, i.e. the non-standard operation in the market. Compared to the traditional industry link, the mobile network industry has obvious differences. Take GM as an example. If problems occur to the tire after a car is sold, the customer will go directly to GM to complain, even though the tire was not manufactured by the company, because GM had already finished the test and trade of tires before GM sold the car to the customer. Therefore, the moment when the lower part in the traditional link contacts customers is different from that when the upper link makes the trade. In the mobile network however, if a user sends a SMS to the network requesting a piece of news, the trade is finished within a fraction of a second though it may involve the CP, SP or the carrier. As a result, this industry has its special features and the management of the industry link is made more difficult. At the moment when the trade is made, if the CP doesn't provide satisfactory contents, or the network of SP is not reliable, or the charging is not trustworthy, the user will be dissatisfied. At the moment of the trade, the operator who in the position same as GM's, doesn't have the time to check the service quality and technologies of the SP or the CP. Therefore an important feature of the mobile network industry is the instant synchronization, i.e. more than one legal entity provide services to users at one moment. As most users have no idea about the SP and CP behind the carrier, they often accuse China Mobile in case of problems. Since the service provided by the SP can directly affect the brand of carrier and the customer's satisfaction, the business surveillance is naturally involved here. Different from what the traditional industry link needs, the management here requires an IT system to perform the real time quality test and trade management. Based on the feature of the mobile industry, it requires that each part involved in the industry can provide services of the telecom level. What is the service of the telecom level? Take the telephone we use at home for example, it never loses the dial tone. Today, can the user get the response within 0.1 second or regulated time each time after he/she sends a SMS? No. The SMS has to go through many parts, including the network provided by the carrier and some secondary devices such as the net gate. After the SMS reaches the net gate of the SP, it is then sent to the server of the SP and enters the server of the CP. Vendors offering services and developing software can total as many as a dozen. To provide satisfactory services to users, all these parts must reach the level of telecom. Ever since 2001, Mtone started to advocate the idea of "regularized operation and services of telecom level" which has been recognized extensively in the industry today.

China always studied foreign cases for our own commercial mode of the wired network. At first, Monternet also borrowed some ideas from the I-Mode of Japan, but now it created a new mode of its own. Japan bought 12% stocks from AT&T of the US, who, as the originator of mobile carriers in the whole world, is a very arrogant enterprise. Why would they sell 12% of their stocks? The reason is that DOCOMO can provide the marketing experience. Based on this advantage, DOCOMO can expand its worldwide market share. We should also broaden our expectations. Is it possible that China Mobile will perform the purchase around the world with SP's in 5 years? The answer is: definitely possible. At that time there might be hundreds of listed SP companies surrounding China Mobile. I don't think we can get around with the integration of mobile carriers in the world market. Vodafone is a good example, though the integration was paused due to the blocked cash flow. I think if China can turn out to be the largest wireless mobile network and China Mobile, the largest carrier with the most clients, the worldwide integration will be put into our schedule. Look at the world today. The US has turned out to be one of the most backward countries in the mobile data industry since their market is divided between different technical networks. Europe is now much behind China due to its closed management mode. Japan is still in the leading position in the whole world. Its data ARPU value is more than the ARPU value of China Mobile and China Unicom put together. In Japan there are a total of about 90 million mobiles, while mobiles in China can reach 500 million within 3 years, which is more than 5 times Japan's number. I believe though at present, the data ARPU value in China is only 1/5 compared to Japan's, if we can improve it by 5 percentage points, that is, 15%-20%, our overall revenue of the data business will leave Japan behind within 3 years. At that time, China will deserve the leading position of the world network industry.

In the mobile network industry, China has actually taken the leadership in the whole world. The "thumb economy" is building up the special "thumb culture" in China, which, when deeply influencing people's lives and changing their lives, creates the "thumb civilization". Since the Renaissance in Europe 500 years ago, for the first time China will have the chance of leading the mainstream culture of the society. This is the real contribution Monternet devotes to the history.

2004-06-10 17:23:25.760


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