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Introducing the Mobile Middle Kingdom
Introducing the Mobile Middle Kingdom

Tibet, the poorest province in China, has the highest ARPU for China Mobile. A poor Beijing student from the province of Hubei walks around with the latest Samsung color-screen GPRS Java-enabled phone. Construction workers climb high-rises while talking on Nokia phones. China is the largest and fastest-growing wireless market, but be warned: China is a great myth where paradoxes materialize in a never-ending story.

In a country with an average salary of $150 per year, mobile telephony has already become ubiquitous. Beijing, Shanghai, and Guangdong are reaching penetration rates of more than 40%. China is now the world's largest mobile phone market with more than 180 million subscribers and a growth per month equivalent to the population of Norway (over 4 million).

China has quickly moved to become the "Middle Kingdom" of the mobile industry. "Mitsubishi has its GSM research center in France," says Kenji Yokota of Mitsubishi Mobile's Global Strategy and Planning Division, "but will soon move it to Beijing." Motorola and Samsung now have the same strategy when launching new mobile phones: first in Asia - Korea and China - then Europe and America. Not being in China nowadays is a severe limitation in the mobile industry.

China's Enormous Potential Isn't Risk Free
Doing business in China has its risks. Price wars, unpredictable policies, a lack of intellectual property rights, and human rights challenges make China rough terrain for foreign startups. Many companies are working on business plans at this very moment without realizing the real hurdles.

"The enormous potential is the greatest risk," says Dr. Peter Lovelock, director of MFC Insight, a China-based telecom research and consultancy firm. "Most companies tend to get blinded by the potential and do stupid things, losing sight of their real goals. In China, more than anywhere, you need to set clear targets and, by understanding the market, deploy a very selective strategy to achieve your goals," he adds.

For the likes of Ericsson and Nokia, China is an extremely important market. It was Ericsson's No. 1 market in sales in 2001. For Motorola, China really is the nirvana that everyone dreams of: its market share of more than 30% represents half of Motorola's worldwide sales of mobile phones.

"The long-term approach we have taken in building up our brand, our presence, and our relations in China has paid off. Motorola China is now generating more than $5 billion and we are now the largest foreign investor in China," says Jim Gradoville, vice president of government relations at Motorola Asia. But the future for the multinationals looks less rosy than a few years ago. The local Chinese manufacturing industry, led by Huawei, has taken up the competition very effectively in fixed tele-phony and optical networks. Its next target is the mobile industry.

Foreign vendors are therefore trying to stay ahead by introducing new technology and are lobbying to make China select and implement UMTS as soon as possible. But lobbying is a double-edged sword, which QUALCOMM has learned the hard way. Instead of introducing CDMA technology in 1994, China Unicom launched its own indigenous TD-SCDMA network in 2002. The delay was the result of QUALCOMM's very intense lobbying efforts, where CDMA ended in heavy political bargains between China and the U.S.

China Mobile - Head of the Wireless Dragon
The impact of mobile phones in daily Chinese life could be much greater than the Internet, since the ratio between mobile phone users and Internet users is 4:1. In a country where the mobile device has already become part of the culture, the mobile phone can definitely become a pervasive tool to access Internet-related services.

Creating successful data services is something that wireless operators in China need to learn and master, however, because at present they are offering only the choice between "rice and rice" - i.e., between postpaid and prepaid voice mobile phone services.

"For our company, we know that if we want to raise ARPU and offer more value-added services, such as mobile data services, we need to effectively put our market segmentation into operation," says Madam Wang Hong Mei, director-general for strategy at the China Mobile Communications Corporation in Beijing.

After a 1998 breakup of the old Ministry of Post & Telecommunications, China Mobile was created as a spin-off and now has more than 130 million GSM subscribers and about 2 million GPRS subscribers (not necessarily users). The remaining China Telecom was a fixed telecommunications operator and, a few months ago, a new split became effective. China Netcom was created by merging a startup operator, called Netcom, an ISP, Ji-Tong, and 10 provinces from China Telecom. The new China Telecom has the remains of the old China Telecom. Since then, China Unicom has been gaining strength in the mobile sector and now has about 30% market share, with more than 50 million GSM subscribers.

"Through a clear strategy of aiming at providing ubiquitous access in both wire line and wireless, China has created the largest market in the world, but with very rudimentary ser-vice levels," MFC's Dr. Lovelock summarizes. "The key to future success lies in whether the operators independent of the government can now start to address declining ARPUs and offer value-added services."

If this coordination and segmentation of mobile services fails, the Middle Kingdom will remain as the deceptive wireless dragon with the lowest ARPU because of lagging data services. But there is one national characteristic that could help accelerate the unleashing of the mobile Internet in China: the phone is always on. The Chinese never switch off their mobile phones and always answer them - during meetings, dinners...even while sleeping.

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