China s Wireless Communications Market

Transcription

1 China s Wireless Communications Market International, Intergovernmental and Aboriginal Relations Government of Alberta

2 About this Report This report is primarily based on information from public sources both English and Chinese. We have made our best effort to select information from the most current and credible sources, information that has been validated through multiple channels and that is consistent with our experience of the Chinese market. However, we do not guarantee against the possibility that some of the information in this report is inaccurate or no longer valid. All monetary figures are in Canadian dollars unless otherwise stated. For conversion rates, we used Bank of Canada exchange rates as of February 21, 2007 (specifically CAD$1 = 6.68 renminbi and CAD$1 = USD$0.86). Alberta China Office Canadian Embassy 19 Dongzhimenwai Dajie Chaoyang District, Beijing People's Republic of China Tel: (86-10) Fax: (86-10) This report was prepared for the Government of Alberta by GrokChina, LLC. Grok specialises in helping western companies do business in China through market and consumer research, and consulting services. GrokChina LLC 63 Wall Street #1206 New York, NY China Central Place, Building 15 #802, 89 Jianguo Road, Chaoyang Beijing, China Page 1 of 39

3 Table of Contents Market Overview 3 General Description 3 Key Indicators for Mobile Operators 4 Regional Markets 5 The National Telecom Operators 8 New Standards, New Technology and Operator Accountability Shape the Basic Industry 10 Third Generation Network (3G) 10 Wireless Local Loop (WLL) PHS / Little Smart / Xiao Ling Tong 12 SCDMA/ Village Wireless Communications/ Da Ling Tong 13 China's Mobile Multimedia Broadcasting (CMMB) Industrial Standard 13 A Chinese WAPI Standard 14 WIMAX 14 Greater Control over Mobile Services 14 Other Emerging Technologies 15 Relevant Sectors 16 Handset Market 16 Wireless Value-Added Services (WVAS) 16 Wireless LANs 19 Near and Long Term Prospects 19 Key Contacts 21 In China 21 Canadian Government 21 Appendix 1: Main Players in Related Segments of the Wireless Communications Markets 23 Value Added Services Players 23 Device Manufacturers 27 Telecom Equipment Providers 29 Telecom Operators 31 End Notes 35 Page 2 of 39

4 Market Overview General Description - With the fourth largest GDP globally, and 1.3 billion consumers, the Chinese market is compelling. On the other hand, per capita income barely exceeds $2,000 per year and which products and services succeed is determined by the unique preferences of this culturally and economically distinct people. Success can be elusive in China but wireless communications is one of China s success stories. - The rapid emergence of the world s second largest online community, with over 130 million users, represents one of the most dramatic developments in China. This online community is expected to surpass the 210 million Internet users in the US by Moreover, roughly 52 million people currently have broadband access. Broadband adoption grew by over 50% in 2005 and almost 40% in 2006 a development watched keenly by both the online and mobile value added services industries. 2 - In 2006, China s telecommunications sector invested $33 billion on infrastructure, up 7.7% year on year. 3 Much of the development of China s infrastructure has leapfrogged the West. Growth within the fixed line business is slowing. The biggest telecom story in China is mobile services. Compared to Canada, China has roughly: 40 x the population 2.5 x the GDP 1/20 th the per capita income 23 x more mobile subscribers in x the mobile services revenue in x the mobile services profits in % 20% the average revenue per unit for mobile services* the average minutes of usage for mobile services in % the wireless data ARPU in 2006 *per calendar month With 461 million subscribers, mobile services generated more than $65 billion in revenue and $12 billion in profits in The number of mobile subscribers has grown dramatically more than 17% per year in both 2005 and The Ministry of Information Industry (MII) estimates that over 35% of the Chinese population has a cell phone and many Chinese have more than one. 4 - There are two dominant mobile operators in China China Mobile Limited and China Unicom Limited. As of the end of 2006, their combined number of mobile subscribers had reached million, accounting for 96% of the country's total mobile subscriber base million GSM users (301.2 million for China Mobile and million for China Unicom) and 36.5 million CDMA subscribers. 6 - China Unicom operates both a CDMA and GSM network. China Mobile currently only operates a GSM network. - China Mobile, with more than 300 million mobile customers, is not only the largest mobile operator in China, but also in the world. It is five times larger than second-place Cingular Wireless. Page 3 of 39

5 Key Indicators for Mobile Operators Revenue i - China's wireless market revenue, including related segments such as valued added services, is projected to reach $232 billion by Revenues for mobile service in 2006 are estimated to exceed $65 billion dollars. - China Mobile s revenue in 2006 was $42.7 billion, a 21% increase from China Unicom s (2006E) revenue was $14 billion. iii, 9 - The remainder is revenue earned by small regional operators. Average Revenue per Unit (ARPU) - In January 2006, overall ARPU for mobile services in China was $9.88 per calendar month (pcm) ii (compared to roughly $50 in Canada). ARPU for fixed line communications in the same timeframe in China was $ ARPU for pre- and post-paid customers are significantly polarized post-paid ARPU was $23.46 pcm, while ARPU for pre-paid customers was $7.87 pcm In October 2006, China Mobile reported iii ARPU for its 300 million customers of $13.32 pcm Although it represents a comparatively small percentage of China Mobile s total customer base, it s worthwhile to note that ARPU on China Mobile s contract customers is significantly higher: roughly $27.69 pcm. - China Unicom, the country s other dominant mobile operator, reported iii ARPU for the same period $7.44 pcm for its 106 million GSM customers and $10.00 pcm for its 36 million CDMA customers The allocation of 3G licenses which will be discussed later in this brief is expected to directly impact value added services (VAS) available through mobile devices. This is hoped that 3G and VAS will turn around falling ARPU figures and buoy already healthy profit margins within the industry. Minutes of Usage (MOU) - Operators saw an average of 300 minutes of usage per month (MOU) for mobile services in As of October 2006, China Mobile reported 374 MOU iii for its GSM customers. - As of October 2006, China Unicom reported iii average MOU of for its GSM customers and MOU for its CDMA customers. i ii iii Note that revenue figures for value added services, handsets, and other related markets are not reflected in the mobile services market figures. Current and forecast revenues for those markets can be found in the related sections of this brief. Blended across CDMA and GSM subscribers across all operators Based on January to September 2006 results. Page 4 of 39

6 Regional Markets - Much of China s wealth has historically been concentrated in China s eastern seaboard cities. Fearing that social instability will increase due to the growing income gap between the rich cities on the eastern coast, and the western and central regions particularly rural areas the Chinese government has made concerted and sustained investments in developing infrastructure, improving education, and encouraging commerce in secondary regions and rural areas. This has also extended to significant projects aimed at improving fixed-line and mobile telephony infrastructure and data networking / Internet access. - In terms of mobile services, network infrastructure and handsets, regional markets account for the majority of growth. This is in large part due to a concerted strategy by China Mobile to recruit rural subscribers % 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Regional Mobile Penetration in % 27.40% 52.80% Western Region Central Regions Eastern Coast (incl. Beijing and Shanghai) Primary and Secondary Cities - In Canada, there are five metropolitan areas with more than 1 million people. In China there are ninety four. There are nine Chinese cities with populations larger than Toronto: Shanghai, Beijing, Guangzhou, Shenzhen, Hong Kong, Wuhan, Tianjin and Chongqing. iv - Calgary, if it were in China, would be China s 90 th largest metropolitan area. Of the eighty nine cities larger than Calgary, eighty four have names that few people outside of China would recognize. - Historically, western businesses entering China have concentrated on Beijing, Shanghai and Guangzhou and Shenzhen, a bias that is now rapidly being corrected by western and local businesses alike. In many industries, secondary and tertiary cities are the new primary targets. For example, Chongqing, Wuhan, and Xi an are large urban areas with increasing wealth. iv The population of cities in China is a surprisingly complex question since there are several administrative units and political entities to define metropolitan areas. The above list is provided by the United Nations ( using a narrow definition of city. A broader definition of city would encompass greater urban areas. In that case, China would have a far larger number of cities with greater than 1 million people and more cities that are larger than Toronto. Page 5 of 39

7 Mobile Penetration by Province in % 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Nationw ide Eastern Seaboard Provinces Beijing Tianjin Liaoning Shanghai Jiangsu Zhejiang Fujian Shandong Guangdong Hainan Interior Provinces Hebei Shanxi Jilin Heilongjiang Anhui Jiangxi Henan Hubei Hunan Western Provinces Neimenggu Chongqing Sichuan Guizhou Yunnan Tibet Shaanxi Gansu Qinghai Ningxia Xinjiang - Provincial and city governments in secondary regions are often anxious to encourage local development. Finding the right champions in those governments can result in unusually favorable conditions for the right western businesses. Moreover, these large provincial and municipal governments can be customers of significant size in their own right. Page 6 of 39

8 - However, the risks, in some cases, are also higher. Some of those same regional governments being far from Beijing and central authority have a history of operating in a less than regular fashion. The mountains are high, and the emperor is far away. - old Chinese adage The Rural / Urban Divide - The Chinese government considers the growing income gap between urban and rural dwellers a serious concern, worrying both that this divide will create social unrest and that it is a root cause of a growing trend for rural workers to illegally migrate to cities. By the end of 2003, there were 3 times the number of fixed phone sets per capita in the cities than in the countryside and, by the end of 2004, the gap had widened to 3.2 times (in western China, there are almost 7 times more fixed phone sets per capital in cities than in countryside). The overall trend is negative and of serious concern. At present, 8.8% of administrative villages are still without telephones There is an even bigger difference in the distribution of mobile phones between the cities and the countryside; 80% to 90% of mobile phone users are located in cities and towns. In other words, per capita mobile phone ownership in the cities is roughly ten times greater than in rural areas. - Over the last several years, China Mobile has pursued a strategy of rapidly acquiring new customers from the vast, under-serviced population in China s rural areas. This strategy in alignment with the highest political priorities of the Chinese government has lead to rapid growth of China Mobile s subscriber base but, as was correctly anticipated, the fact that these rural populations have less disposable income eroded key indicators, such as Average Revenue Per Unit (ARPU) and average Minutes of Usage (MOU). - The momentum of growth in the central and western regions, as well as the rural market, is expected to remain strong in % of Chinese citizens over 900 million people - do not yet have a cell phone, 18 and yet China Mobile is already the world s largest mobile services operator. As incomes continue to rise and cell phone acquisition becomes a priority for more and more of the remaining 900 million people, and as value added services emerge to gain a larger percentage of each mobile users wallet, the opportunity for China s two licensed mobile operators seems almost limitless. Page 7 of 39

9 The National Telecom Operators Market Shares for Telecom Operators first half China Netcom; 14.40% Others; 2.30% China Mobile; 42.70% China Telecom; 27.40% China Unicom; 13.20% Basic Overview Operator Network Subscribers (2006) Financials (2006) Note China Mobile GSM GPRS EDGE 20 (contract subscribers) million; (prepaid subscribers) million ; (total subscribers) million 21 Revenue: $42.7 billion 21% increase from nationwide service See below for more details Page 8 of 39

10 Operator China Unicom China Telecom Network GSM GPRS CDMA CDMA20001x 23 GSM1X/World Wind (Dual mode since Aug 2004) 24 China Netcom PAS/PHS 30 China Tietong (formerly China Railcom) Subscribers (2006) (total subscribers): v 142 million 25 ; GSM: million CDMA: 36.49million 26 Fixed Line 223 million 28 PAS/PHS million WLL users Fixed line, broadband Fixed Line: 119million Broadband Services: million 31 (as of September 2006) Fixed Line: million ADSL: 3.14 million Financials (2006) Revenue (2005): $13.03 billion Revenue (2006E): $14 billion* (Extrapolated from results of the first three quarters 2006 and 4Q2005) Revenue (as of 3Q 2006): $19.04 billion, up 4.5% from Revenue (as of 3Q 2006): $9.7 billion 32 Revenue (2006E): $12 billion* (Extrapolated from results of the first three quarters) Revenue (2006): $2.3 billion up 12.5% year-onyear 33 Note nationwide service See below for more details Operates in the southern provinces; Operates mainly in northern provinces GSM-R trial 2004 Relevant Recent Events: China Mobile - China Mobile s gains in market share are disproportionately due to recruitment in rural areas and particularly China s western hinterland. 34 China Mobile increased its capital spending 17 percent to $12.5 million in 2006 to expand networks in rural areas China Mobile will participate in the testing and rollout of additional TD-SCDMA networks. Overall, China s telecom operators (including China Mobile) expected to spend about $2 billion on TD- SCDMA networking building in anticipation of 3G rollout China Mobile has been interested in expansion into international emerging markets via acquisition for some time now. In January, that interest finally became reality with the announcement that China Mobile will acquire an 89% stake (worth $330 million) in a Pakistani wireless company called Paktel, currently owned by Millicom International Cellular China Mobile is planning a stock market listing on the Shanghai market (currently listed on both the HK and NYSE) 38 - Trio recently announced that China Mobile will be buying TD-SCDMA mobile phones from Trio with an expected sale price of approximately $360 per hand set. 39 v From January November 2006, GSM postpaid and prepaid subscribers increased 5.60 million and 4.30 million respectively. On the other hand, CDMA postpaid increased 3.16 million and the prepaid subscribers increased to 251,000. Page 9 of 39

11 - Nokia announced that they have won a GSM expansion contract with China Mobile (ZheJiang). The contract, worth approximately $50 million, will improve operational efficiency for China Mobile (ZheJiang) and boost GSM coverage On Thursday, March 1, 2007, China Mobile asked equipment providers to submit informal bids, kicking off a round of bidding for TD-SCDMA equipment. 41 Relevant Recent Events: China Unicom - Reports in March 2007 suggest that China Unicom may take a stake in Taiwanese mobile operator Asia Pacific Broadband Wireless (APBW), which operates CDMA G and 3G networks and, as of December 2006, had a million customers. The price is rumored to be approximately $210 million In January 2007, Unicom was reported to have made deals with seven handset manufacturers for an estimated 2 million entry-level handsets. These handsets would be targeted at customers in rural areas, who are also able to afford value added services In November 2006, Nokia announced that the Shanghai branch of China Unicom demonstrated a range of advanced data services based on Nokia s EGPRS solution. Enabling data connections at up to 474kbps, EGPRS expands possibilities for connecting data networks to mobile phones. New products that were unveiled at a press conference in Shanghai included Near Field Communication (NFC), push , vcard and WAP browsing In October, the government of Macau awarded third-generation (3G) mobile telephony licenses to Hutchison Telephone Macau, China Unicom s local subsidiary Macau Unicom and local operator Companhia de Telecomunicacoes de Macau In August, 2006, press published by the Ming Pao Daily News and the Hong Kong Economic Journal suggested that China Telecom may buy China Unicom's CDMA network to give it access to the booming wireless segment. In fact, this would not be the first speculation that China's top telecoms operators China Telecom, China Mobile, China Unicom and China Netcom may conduct a major asset reshuffle as part of a wider government restructuring agenda. Specifically, rumours suggest that Beijing may split Unicom and merge its CDMA network with Netcom, while its larger GSM network would go to China Telecom. 46 New Standards, New Technology and Operator Accountability Shape the Basic Industry Third Generation Network (3G) - 3G networks have been long awaited in China as a prerequisite to offering a richer array of value added services. The timing of 3G license issuance has been speculated upon, tentatively announced and then re-set numerous times. According to China Mobile executives statements in February, 2007, China s government will not issue 3G licenses until the fourth quarter of 2007 or in According to estimates published in May 2006, the total anticipated 3G market size in China will reach $41.3 billion within 5 years after the launch of 3G in China. Many wireless players such as Page 10 of 39

12 Telecom Communications and TOM Online, KongZhong Corporation, and Dragon Capital Group in China anticipate great opportunities in 3G Many of the decisions related to infrastructure development are being made at the municipal or provincial level. For example, Chongqing plans to invest $87.6 billion in over three hundred major projects in the coming five years, with an estimated $516.4 million earmarked for 3G development. 49 Companies wishing to sell infrastructure equipment into the 3G market may find that large municipal governments or local telecom groups may be good market entry points. - Analyst firm Research in China issued a report that predicted, if 3G licenses had been issued in 2006, there would have been 6.2 million 3G users recruited in the first 12 months; three years later, they estimate the number of 3G subscribers would reach 128 million. 50 Chinese 3G Standards: 2006 Penetration as provided by MII 52 70% 60% 50% WCDMA; 65% - In October 2002, MII issued Document No. 479, entitled Announcement of Spectrum Allocation for the Thirdgeneration Mobile Service, which indicated that the spectrum with the bandwidth of 155MHz was allocated to TD-SCDMA, while only 60MHZ each was allocated to WCDMA and CDMA TD-SCDMA, WCDMA, and CDMA 2000 are the three potential 3G standards to be adopted in China. 40% 30% 20% 10% 0% TD-SDMA; 15% CDMA2000 1X; 20% TD-SDMA CDMA2000 1X WCDMA TD-SCDMA - TD-SCDMA (time division synchronous code division multiple access) is a mobile telephony standard, developed in China, for wireless network operators who want to move from a second generation (2G) wireless network to a third-generation (3G) one. TD-SCDMA, as a homegrown standard, has extended financial and policy support from the Chinese government and is expected to grow to dominance with 3G rollout. - Supporting data transmission at speeds up to 2 Mbps, TD-SCDMA combines support for both circuitswitched data, such as speech or video, and also packet-switched data from the Internet. The standard combines time division multiple access (TDMA) with an adaptive, synchronous-mode code division multiple access (CDMA) component In early March, Chinese telecom operators and equipment makers started construction of a largescale trial network featuring the TD-SCDMA standard in three mid-sized cities, in addition to ongoing commercial trials in Shanghai and Beijing Analyst firm Research in China issued a report that predicted that, assuming 3G licenses are issued in a timely manner, the number of TD-SCDMA users would grow as below: 55 Page 11 of 39

13 - In February 2007, the TD-SCDMA alliance announced that China will build more TD-SCDMA networks in a second round of testing involving the launch of more types of data services. During the first round of testing, the alliance signed up more than 20,000 users. That number is anticipated to dramatically increase with the second round of testing, in as-yet-unnamed coastal cities. China Mobile, China Telecom and China Netcom will participate in the second round (with the bulk of investment coming from China Mobile). The three telecom operators are planning to invest an estimated $2.25 billion in TD-SCDMA network build out. 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000, ,000,000 30,500,000 11,000,000 20,000 2,000, Number of TD-SCDMA users 56 - TD-SCDMA will provide a strong domestic benefit to Chinese mobile phone manufacturers - the majority of TD manufacturers are domestic, including Lenovo, TCL, Bird and Amoi. 57 Wireless Local Loop (WLL) PHS / Little Smart / Xiao Ling Tong - Little Smart the popular English brand name for XiaoLingTong is a version of the personal hand phone system (PHS) which originated in Japan in the late 1990s. Xiaolingtong connects existing fixed line networks through micro-cell radio, which enables wireless access of the wired telephone system. Little Smart handsets look like mobile phones, but their phone numbers look like fixed-line numbers. They can generally be used only within the local calling area. Xiaolingtong has received a warm welcome in China, due to its convenience and, more importantly, its low cost (calls are charged like a fixed-line phone). In many smaller cities, Xiaolingtong is a serious competitor to traditional mobile phones. - Xiaolingtong does not need a mobile operator license and it has, therefore, become a development priority for many local branches of China Telecom. China Telecom s many provincial branches and Netcom both offer Xiaolingtong services. China Netcom s Personal Assistant / Personal Handset business (as of 3Q of 2006) $9.7 billion (2006E: $12 billion) 58 - The Chinese government, particularly Ministry of Information Industry, has tended to favor the traditional mobile services vendors, indicating that Xiaolingtong is a dated technology, the adoption of which limits the potential of China s mobile industry. - Xiaolingtong can support data transmission and value-added services such as SMS ( Little Smart messages ), MMS messages, Smart Assistant, wireless Internet access, downloads of pictures and music, as well as ring tones. - According to MII, as of October 2006, there were 93.4 million Personal Hand Set (PHS) users, compared to 85.3 million at the end of last year (9% year over year growth). China Academy of Telecommunication Research of MII (CATR) estimates there will be 300 million more users added in Page 12 of 39

14 the following years. These users are mainly middle and low-end users, an ideal target user group for Little Smart Southern China's Guangdong Province and eastern China's Jiangsu Province were the top two provinces in terms of PHS user base, with both over 10 million subscribers by October At first, Xiaolingtong was viewed as a strategic segue to the future 3G market for the fixed-line telecom operators (who have no license in the mobile space). Both China Telecom and Netcom perceived Xiaolingtong as an opportunity to develop a mobile user base and experience in the mobile market. A year ago, China Telecom and China Netcom announced that they will invest about $748.5 million in 2006 to optimize the Little Smart network. 61 However, with falling mobile tariffs and a growing number of inexpensive wireless handsets, many speculate that Xiaolingtong s days are numbered. Despite the fact that the number of users is still rising, both China Telecom and China Netcom recently announced a gradual reduction in investments in Xiaolingtong The main providers of Xiaolingtong handsets are UTStarcom and ZTE. As of November 2006, there are dual-mode cell-phones compatible with Little Smart and GSM available in the market. 63 SCDMA/ Village Wireless Communications/ Da Ling Tong - SCDMA is a wireless access technology developed by Beijing Xinwei Telecom Technology Co., Ltd. SCDMA is a highly efficient technology, requiring much fewer base stations to cover the same geographical area than the existing technology currently deployed in China. SCDMA operates in both the 400 MHz and 1800 MHz spectrum, with up to 3-kilometer base station (1800 MHz) coverage, 95 percent success ratio in base station switching, a 100 kilometer/hour mobile speed limit, and 0.05W transmission power. - This technology has specifically been endorsed by the Chinese government to help develop rural mobile networks. The SCDMA technology is the only recommended wireless access technology for China s Phone to Every Village project. vi - As of 2005, there were 2 million SCDMA subscriptions. SCDMA has been deployed in over 100 cities across 29 provinces. China's Mobile Multimedia Broadcasting (CMMB) Industrial Standard - China's State Administration of Radio Film and Television (SARFT) announced the issuance of China's Mobile Multimedia Broadcasting (CMMB) industrial standard. "The standard is used for the mobile multimedia broadcasting business, which offers broadcasting TV programming and information services to different types of mobile and portable terminals," SARFT said in a statement. CMMB includes transmission technology, video, audio, channel transmission and protocol components. STiMi (Satellite Terrestrial Interactive Multiservice Infrastructure), a transmission technology developed by the Academy of Broadcasting Science of SARFT, is the key component of China's CMMB system. Shanghai Media Group (SMG) and China Central Television (CCTV)'s CCTV.com are the only two mobile TV license holders in the country. 64 vi Phone to Every Village is the State Government s 2020 Long Term Development Plan to expand telecom infrastructure to the countryside. Page 13 of 39

15 A Chinese WAPI Standard - WLAN Authentication and Privacy Infrastructure (WAPI) is a homegrown, proprietary encryption and authentication solution developed in part by the Chinese computer industry and in part by militaryand government-controlled entities. - Asia Times reports that two non-governmental wireless integrators have agreed to use WAPI as their preferred standard over 802.1X vii and i viii, apparently. There s also been an increase in the number of firms involved in the WAPI Industrial Alliance: Once 11, there are now 22. One of the arguments made for developing a domestic standard, which is not an unusual step in China, is to reduce payments to foreign holders of intellectual property. 65 WIMAX - Worldwide Interoperability for Microwave Access (WIMAX) is a standards-based technology that can provide easy and economical wireless access to the Internet, even to far away customers (i.e. in rural areas where the current broadband technologies cannot feasibly reach). - WIMAX is similar to WiFi, but unlike WiFi, which has a range of 200 Meters, WIMAX has a range of 30 miles. WIMAX is a complementary technology to WIFI and 3G, though it s expected that the three will converge in the future. WiMAX has an excellent opportunity to expand China s market for fixed, portable, and mobile broadband access. Though traction in the ix (fixed) market will be important, the real success of WiMAX in China will depend on the much larger (e) market x picochip has announced a partnership with the Institute of Computing Technology (ICT) of the Chinese Academy of Sciences in an effort to collaborate with the acceleration of WiMAX in China. 67 Greater Control over Mobile Services - The Ministry of Information Industry (MII) has announced that in order to become cell phone subscribers, people will soon have to register with their ID cards. Detailed regulations are expected to be published shortly One issue that is increasingly pressing is that SMS is used to sell illegal goods and services. MII is asking the telecom companies to find out the quantity of illegal short messages sent by those mobile value-added service providers and the users affected, as well as the amount of fees involved. - MII requires that MVAS companies be punished according to the degrees of their violations of the regulations. 69 vii IEEE standard for port-based network access control, that provides authentication to devices attached to a LAN port for point to point connections. viii IEEE standard specifying security mechanisms for wireless networks. ix IEEE Standard for local and metropolitan area networks Part 16 addresses the Air Interface for Fixed Broadband Wireless Access Systems x The IEEE standard for metropolitan area networks deals with mobility. Page 14 of 39

16 Other Emerging Technologies 4G: FuTURE (Future Technology for Universal Radio Environment) Project - In January 2007, China Daily reported that 4G technology was rolled out in Shanghai by FuTURE Project, a consortium of ten leading domestic institutions. It provides wireless data transmission speeds of up to 100 megabytes per second, and was built at a cost of $22.4 million. 70 Worldwide commercial availability is expected for In January 2006, Wei Guo, a member of the FuTRUE project group and a professor at the University of Science and Technology of China, said that "this is the largest 3G testing system in the world, and it integrates such technologies as IPv6 Core Networking, High Definition Business of IPTV (Internet Protocol Television) and Mobile Communication Switching." 72 HSDPA - HSDPA is the upgrade from WCDMA, with a higher data transmission rate, which favors the development of mobile broadband data services. HSDPA is also able to increase system capacity, and to provide better services to high-rate users on the same wireless carrier frequency. It provides a smooth migration path for higher Universal Mobile Telecommunications System (UMTS) data transmission rates and higher capacity, like EDGE to the GSM network. - The development of HSDPA can be divided into three stages, i.e. basic HSDPA, enhanced HSDPA, and future HSDPA. Future HSDPA has not been defined yet and is still in the research process under The Third Generation Partnership Project (3GPP). Moreover, the equipment for the second stage still needs to be perfected and improved. - HSDPA offers serious cost benefits: only one fifteenth the costs of GPRS and one fifth of W- CDMA. 73 RFID - RFID a related but tangential market may be a dramatic development in China. Although the market has taken longer to emerge than anticipated, as manufacturer to the world, Chinese manufacturers are set to be the point of acquisition of trillions of tags, once the price of tags falls to levels that support massive manufacturing application. Walmart s plans to implement RFID will be a large part in driving adoption of RFID throughout the supply value chain In a more immediate opportunity, the logistics of being manufacturer to the world port operations and transportation are under huge strains in China and RFID is seen as a major component of solving these issues. RFID vendors whether of tags, information systems, readers or SIs may find opportunities within this area of the Chinese market. - Finally, RFID is also seen as a way to efficiently manage China s large population. The Gold Card Project of MII is issuing identification using RFID ultimately to every Chinese citizen. By 2008, China's IC card shipment will reach 1.91 billion pieces, 2.49 times of that of 2005; while the shipment volume will reach $3.7 billion 2.66 times of that of Factors like the 2008 Beijing Olympic Games and other major events will further drive mainstream use of RFID for such things like tickets. Page 15 of 39

17 Relevant Sectors Handset Market - In 2006, the mobile phone market in China reached $22.45 billion and increased by 15% compared to last year, the latest research from Gfk, finds China has well over 450 million users carrying over 1,000 different handset models, from the highest of the high end to the lowest of the low end In 2006, China produced a total of 450 million mobile phones, the majority of which were exported The total number of handsets sold in China in 2006 increased 40% y/y to 120 million units (from 85.4 million in 2005) Market Share Handset Sales (units) in China - In 2005, of the 85.4 million units sold, 78.7 million were GSM and 6.7 million CDMA. - China Unicom announced in December 2006 that its CDMA/GSM dual mode handsets gained increasing popularity with high-end users, with sales over 1 million units, and revenue over $449.1 million See Appendix 1 for more information on the major domestic vendors. - The market for handsets is crowded. 25% are sold by players with less than 3% of the handset market, such as Jingpeng, Yulong, Telsda, Gionee, MalataZ Mobile, Qiaoxing, SED, Zhong Shan G-Star Communication, Skyworth, Gaotong, Huawei, Aux, A Hong, Daxian Telecom. Others; 25% Konka; 3% Haier; 3% Amoi Mobile; 4% Lenovo; 4% TCL; 4% Sony-Ericsson; 4% Ningbo Bird; 6% Nokia; 24% Motorola; 13% Samsung; 10% Wireless Value-Added Services (WVAS) - The Chinese are comparatively sophisticated users of their cell phones. In 2006, over 33 billion SMS messages were sent in China. On auspicious occasions, particularly the Chinese New Year, the mobile services networks are jammed as hundreds of millions of Chinese people wish all of their friends and families well with SMS messages. China Mobile dominates the WVAS market, though Unicom with their dual network of GSM and CDMA will drive VAS for cross-network users. - Mobile phone customers sent 33.8 billion text messages in January 2006, up 65.7% from January According to a January 2007 report by MII, there were over 500 billion text messages transmitted over 350 million cellular phone users in By the end of 2005, there were over 12 million MMS subscribers and 8.58 million active users. 82 Page 16 of 39

18 - The main growth in the market will be driven by such new technological developments as convergence and 3G rollout, as well as economic developments, such as strong economic growth, rising spending, and foreign investment A 2004 report by analyst firm IDC forecast that the mobile value added services market would reach $7.7 billion in 2006, growing to $10.7 billion in 2009, with a CAGR from 2004 to 2009 of 18.6% In January 2007, research firm Ovum, using data up to mid 2006, estimated that the wireless value added services market in China reached $9 billion in 2006, growing to $13.4 billion in , a compounded annual growth rate of 10.3%. Ovum s 2006 estimate outpaced IDC s expectations by over 15%; a good sign for the market. - In December 2006, another market research firm, Market Avenue, reported overall market estimates for 2006 as exceeding $10 billion 2006 (up 40.3% from 2005), growing 32% in 2007 to $13.45 billion. 86 Market Avenue s estimates of potential contributions of MMS and SMS (combined in 2006 at $7.6 billion and $9.8 billion in 2007) dramatically exceed the estimates provided by Ovum, who recently forecast that SMS and MMS will account for $8.4 billion of revenue in $16,000 $14,000 $12,000 $10,000 Breakdown of WVAS Sub-Segments (provided by MarketAvenue) 87 $8,000 $6,000 $4,000 $2,000 $0 Cdn $ millions F 2007F LBS $3 $19 $33 $85 $242 Mobile Games $45 $91 $140 $207 $283 MMS $29 $120 $221 $412 $721 IVR $67 $140 $294 $456 $619 Mobile Music $110 $233 $381 $588 $792 WAP $73 $427 $692 $1,148 $1,751 SMS $2,591 $4,092 $5,534 $7,227 $9,052 LBS Location Based Services; MMS Multimedia Messaging Service; IVR Interactive Voice Response; WAP Wireless Access Protocol; SMS Short Message Service - Large global content providers such as Sony Music, Disney and AOL are providing mobile content for the Chinese market through domestic partnerships. Local companies that play a significant role in China s Wireless Value Added Services markets include Sina, Sohu, Tom, Tencent, NetEase, Linktone, Mtone and KongZhong. (See Appendix 1 for more information) Detailed analysis of each of the Wireless Value Added Services markets is beyond the scope of this document. However, a useful document for additional reference is by Peng Luo, entitled The Business Potential of Mobile Entertainment in China Market, published at the Royal Institute of Technology, Sweden in It provides additional valuable information including revenue splits between partners in various Chinese WVAS projects, such as Super Girl and Mobile Rock. Mobile Ring Tone and Colour Ring Back Tones (CRBT) - By the end of 2005, the mobile ring tone market reached $419.1 million. Sales of colour ring back tones (CRBT) totaled $748.5 million in Research in China another analyst firm with a report in this space predicts that the CRBT market, unlike other VAS markets, will not grow significantly in coming years. 89 Page 17 of 39

19 - Mobile music is receiving early attention and market share is increasing remarkably. 90 According to Research in China, in April 2005, China Mobile announced that it has partnered with A8 Limited and MTV China to develop a Chinese wireless music market. At the beginning of May, China Mobile launched its M-Dream based music channel. Research in China believes that China Mobile s music is mainly provided by large service providers such as Tencent and Sina. For the record companies, this is a significant development space. 91 Mobile Video and TV - Ovum also predicts that multimedia content, such as mobile TV and music, will rapidly become mainstream in China after 3G rollout, as well as location-based services, mobile blogging, and mobile payment services Beijing was the first city in China to launch a commercial Digital Multimedia Broadcasting (DMB) service in January Shanghai Media Group (SMG) received the city s first mobile TV trial license from SARFT in April Its DMB network operates from a single transmission point located on the Oriental Pearl Tower covering 95% of the city According to data from Norson Telecom, the number of Chinese mobile phone TV users was 500,000 in 2006 and will reach more than 52 million in It generated $1.9 million in revenues in 2005 and explosive growth to $194.6 million by 2008 is predicted. 94 MII forecasts that the mobile TV market will hit $374.2 million by 2011, based on only 8% of subscribers using the service An issue in this space is the unauthorized broadcast of mobile content. China's State Administration of Radio Film and TV (SARFT) is increasingly aggressive in regulating DMB. 96 In September 2006, SARFT issued an industry standard called the CMMB (China Mobile Multimedia Broadcasting) system, claiming that the transmission technology - the key part of the standard - has been resolved. According to SARFT's timetable, in mid 2007, construction of a terrestrial demonstration mobile multimedia network (ground data link and interchange network) will be completed and trials will begin. In addition, mobile phones, PDAs, and MP4 players, will be tested, followed by commercial launch in the third quarter. By the first half of 2008, the satellite system will be integrated into this network and will form a nationwide network for formal operation. If all goes to plan, mobile phone TV will be ready for the 2008 Beijing Olympic Games As of July 2006, Chinese users have three options for mobile-video services: a GPRS-based service from China Mobile, China Unicom's CDMA 1X-based streaming-tv service and the recently launched T-DMB-based mobile-tv service in Shanghai. 98 Fixed Mobile Convergence - Analyst firm In-Stat recently predicted that Fixed Mobile Convergence (FMC) xi will grow slowly at first in China, and then experience swift growth after the commencement of 3G services between 2008 and For the Chinese business market, FMC subscriber totals will increase from 400,000 in 2005 to 5.6 million in xi Fixed to Mobile Convergence (FMC), currently one of the crucial strategic issues in the telecommunications industry is the way to connect the mobile phone to the fixed line infrastructure. With the convergence of mobile and fixed line networks, telecommunications operators can provide services to users irrespective of their location, access technology, and terminal. Page 18 of 39

20 WAP - By the end of 2004, the number of domestic active Wireless Application Protocol (WAP) users in China had reached 15 million and Analysys International projected that by the end of 2005 the number of registered WAP users reached 35 million. 100 Wireless LANs - Analyst firm, In-Stat, predicts WLAN equipment revenues in China to increase at a near 33% CAGR, from about $62.7 million in 2004 to almost $186 million by China Netcom deployed the first wireless LAN service in China in 2001, though foreign equipment providers still hold the lion s share of the WLAN market in this region with a combined 70% share of overall revenues. 102 Cisco led the Chinese WLAN market in Q with a share of 21%, followed by Huawei-3Com, D-Link (Taiwan) and Netgear each with shares of 16-17% Growth potential of WLAN in China is expected to be significant. It is believed the market will grow 50% a year through 2006 and the number of hotspots may triple to 6,000 by Equipment Developers: Cisco, Nokia, Avaya, Intel, Huawei, ZTE & DATANG. 105 Near and Long Term Prospects - The mobile telecommunications equipment market in China is a complex and substantial market. Cisco, Huawei, Alcatel, Siemens, Nortel and Nokia all have dominant roles with the mobile operators, as well as the fixed-line operators offering WLL services. Except in narrow niches, small or midsize foreign equipment vendors often have difficulty selling equipment to the Chinese operators. Albertan companies that can address a niche within the mobile network equipment market especially in 3G related technologies where substantial network demand is expected - may be able to sell into the Chinese market by partnering with the major telecom equipment vendors. - Vendors with advanced technologies for example UWB, HSDPA may find a warm reception directly with the mobile operators. However, historically there is a bias toward funding local companies for next generation development. Foreign vendors may find their meetings less profitable than hoped, though extremely informative for the Chinese mobile operator or equipment vendor. - Alberta companies with solutions targeted at helping content providers with content delivery and management are in a position to sell to companies like Sina, Sohu, Tom and Tencent. While large, they do not approach the mobile operators in scale, and they are comparatively nimble organizations. - Selling content directly into the Chinese market is problematic on several levels. Most importantly, content is tightly regulated by both the Ministry of Information Industry and the Ministry of Culture. International content providers Disney, Time Warner, MTV address the mobile content market via local partnerships; channeling their content through companies like Sina and Sohu. Alberta content providers may find a market for specialized content through these vendors. - Alberta companies that hold intellectual property or provide applications or components related to next generation cell phone development may also find opportunities with the Chinese or foreign cell phone vendors. With the focus on rural subscribers, the handset vendors are under unprecedented Page 19 of 39

21 price pressures and their profits are falling. Alberta companies that can help address this gap may find an opportunity with both foreign and domestic handset manufacturers in China. - In the enterprise market, mobile convergence including such things as push , location based services, and IVR are starting to see some traction. However, the horizontal (i.e. broadbased) enterprise market in China requires sustained effort to find success. Often smaller foreign companies who do not have immediate brand advantage find that local competitors who have substantial advantages in terms of costs, local knowledge and relationships - rapidly emerge once the market has been demonstrated. Vertical and niche markets in the enterprise mobile solutions space (for example enterprise mobile solutions specifically designed for the petrochemical or geological industries) are less susceptible to this kind of displacement and are perhaps a better option for Alberta businesses. Deep industry knowledge can differentiate the Alberta business from the great numbers of general entrepreneurs in China, serving as a barrier to entry. Moreover, customer trust and brand can be established more quickly in a narrower market where relationships can be developed on the basis of common interest and expertise. Page 20 of 39

22 Key Contacts In China Ministry of Information Industry ( 信 息 产 业 部 ) 13 West Chang An Avenue Beijing, China Tel: Ministry of Commerce ( 商 务 部 ) No.2 Dong Chang'an Avenue Beijing China Tel: Fax: Ministry of Science and Technology ( 科 学 技 术 部 ) No.15B Fuxing Road, Beijing China Tel: State Administration of Radio, Film and Television ( 国 家 广 播 电 影 电 视 总 局 ) No. 2 Fuxingmenwai Street Beijing China Tel: Radio Management Bureau of Ministry of Information Industry ( 信 息 产 业 部 无 线 电 管 理 局 ) No.80 Bei Lishilu Street Beijing China Tel : Fax : State Intellectual Property Office ( 国 家 知 识 产 权 局 ) No. 6 Xituchenglu, Jimenqiao Beijing China Tel: Canadian Government Alberta International Offices in China: Alberta China Office Canadian Embassy, 19 Dongzhimenwai Dajie, Beijing, China Tel: Fax: [email protected] Website: CNPC - Alberta Petroleum Centre 2nd Floor, Science & Technology Building, 20 Xue Yuan Road, Beijing, China Tel: Fax/: [email protected] Website: Alberta Hong Kong Office Room 1004, Tower Two, Admiralty Centre, 18 Harcourt Road, Hong Kong Tel: Consulate (Guangzhou) Suite 801, China Hotel Office Tower Liu Hua Lu, Guangzhou China Contact: Cathy Yao, Commercial Officer Tel.: (86-20) Fax: (86-20) [email protected] Internet: Consulate General of Canada (Hong Kong) Trade Commissioner 13/F Exchange Square, Tower I Central, Hong Kong Contact: Brian Wong, Trade Commissioner Tel.: (852) (General) Fax.: (852) [email protected] Internet: Canadian Commercial Corporation (CCC) 50 O'Connor St., Suite 1100 Ottawa, ON K1A 0S6 Page 21 of 39

23 Fax: Emai;: Website: Alberta Taiwan Office 13 Flr, 365 Fu Hsing North Road, Taipei, Taiwan Tel: Fax: [email protected] Website: Fisher, Stan Executive Director International Trade Operations International, Intergovernmental and Aboriginal Relations 4th fl Commerce Place Street Edmonton, AB T5J 4L6 Phone: Fax: [email protected] Canadian Embassy in Beijing 19 Dongzhimenwai Dajie Chaoyang District Beijing China Contact: Shirley Ong, Trade Commissioner [email protected] Contact: Hai Xia Cui, Commercial Officer [email protected] Tel.: (86-10) Fax: (86-10) Internet: Consulate General (Shanghai) Tower 4, Suite 604, Shanghai Centre 1376 Nanjing Xi Lu Shanghai China Contact: Tina Shih, Trade Commissioner [email protected] Contact: Sandra Jiang, Trade Commissioner Tel.: (86-21) Fax: (86-21) [email protected] Internet: Consulate (Chongqing) Suite 1705, Metropolitan Tower Wu Yi Road, Yu Zhong District Chongqing China Contact: Peter Liao, Commercial Officer Tel.: (86-23) Fax: (86-23) [email protected] Internet: Tel.: (800) or (613) Fax: (613) Internet: Export Development Corporation (EDC) 151 O'Connor St. Ottawa, ON K1A 1K3 Tel.: (800) or (613) Fax: (613) Internet: Industry Canada (IC) Spectrum, Information Technology and Telecommunications Sector Business Development Office 300 Slater St. Ottawa, ON K1A 0C8 Contact: Michael Cleary, Manager, Market Development Tel.: (613) Fax: (613) [email protected] Internet: International Trade Canada (ITCan) 125 Sussex Dr. Ottawa, ON K1A 0G2 Internet: Asia Commercial Relations Division (WOA) Contact: Stéphanie Berlet, Trade Commissioner Tel.: (613) Fax: (613) [email protected] Export Controls Division (TIE) Tel.: (613) Fax: (613) Internet: International Business Opportunities Centre (IBOC) Contact: Tim Connolly, Special Projects Officer Tel.: (613) Fax: (613) [email protected] Internet: Market Research Centre (BMR) Contact: Sean McLean, Trade Commissioner and Senior Market Analyst Tel.: (613) Fax: (613) [email protected] Internet: Market Support Division (BMM) Contact: Catherine Côté, Trade Commissioner Tel.: (613) Fax: (613) Page 22 of 39

24 Appendix 1: Main Players in Related Segments of the Wireless Communications Markets Value Added Services Players Sina Corporation 20F Beijing Ideal International Plaza, No.58 Northwest 4th Ring Road, Haidian District, Beijing , China Tel: (86-10) Fax: (86-10) SINA Corporation (NASDAQ: SINA) is a leading online media company and value-added information service (VAS) provider for China and for Chinese communities worldwide. With a branded network of localized websites targeting Greater China and overseas Chinese, SINA provides services through five major business lines: SINA.com (online news and content), SINA Mobile (mobile value-added services), SINA Community (community-based interactive services and games), SINA.net (search and enterprise services) and SINA E-commerce (online shopping). These products offer an array of services including online media and entertainment, online fee-based VAS/wireless VAS, and e-commerce and enterprise e-solutions for personal, business, and government use. - The company has close to 2,000 employees in its offices in six cities throughout Asia and the U.S. and maintains a network of four localized Web sites. - SINA MOBILE - Sina Mobile emerged in early 2002 as another major business line of SINA by integrating the advantageous resources of the former SINA Wireless, Memestar, Crillion and StarVi. As a leading mobile VAS provider in China, Sina Mobile provides over various platform services including SMS, MMS, Colour Ringing Tone (CRT), IVR WAP and KJAVA/BREW. Its products range from subscription to dating, gaming, and downloads. The content is provided by famous brands such as Time Warner, BANDAI, HELLO KITTY and WALKGAME. - SINA mobile s partners include China Mobile, China Unicom, China Telecom and China Netcom. SOHU Corporation Vision International Center #1 Unit Zhongguancun East Road, Haidian District, Beijing, , P.R. China Tel: SOHU.COM Inc. (NASDAQ: SOHU) is China's premier online brand that has a portal network for news, search, , wireless messaging, instant messaging, browsing, games and shopping. SOHU has built one of the most comprehensive matrixes of Chinese language web properties Page 23 of 39

25 and proprietary search engines, consisting of the mass portal and leading online media destination ( interactive search engine ( leading online mapping service provider ( online alumni club ( games information portal ( real estate website ( and wireless valueadded services provider ( xii. These network of web properties offers the vast SOHU user community very broad choices regarding information, entertainment, communication and commerce. - SOHU corporate services consist of online advertising on its matrix of websites as well as paid listing and bidding listing on its in-house developed search directory and engine. SOHU also offers three types of consumer services. SOHU offers wireless value-added services such as news, information, ring tone and picture content sent over mobile phones. The company also operates two massive multi-player online role-playing games and manages a business-toconsumer e-commerce platform. - SOHU.COM was established by Dr. Charles Zhang, one of China's Internet pioneers. - SOHU invests back in brand and product through exclusive online content agreements with Disney, NBA, China Open, Formula One, B.A.R. racing team, AFC Asian Cup, AC Milan, Miss World 2004 and China Daily. 106 TOM Online Inc. 8 th Floor, tower W3, Oriental Plaza, No. 1 Dong Changan Avenue, Dong Cheng District, Beijing , PRC Tel. : Fax : TOM Online Inc. (Nasdaq: TOMO, Hong Kong GEM: 8282) is a leading wireless Internet company in China providing value-added multimedia products and services. A premier online brand in China targeting the young and trendy demographics, the company s primary business activities include wireless value-added services and online advertising. The company offers an array of services such as SMS, MMS, WAP, wireless IVR (interactive voice response) services, content channels, search and classified information, and free and fee-based advanced . As at September 30, 2006, TOM Online is the only portal in China that enjoyed a top three ranking in every wireless Internet segment. - TOM was one of the first players in this market to provide wireless interactive voice response (IVR) services and is now the biggest IVR provider in terms of market share. - TOM Online acquired interests in Wu JI Network, the leading IVR service provider in China, on November 19, 2003 and became one of the first players in China to provide wireless IVR services. 107 xii In May 2004, SOHU acquired Beijing G. Feel Technology Co., Ltd. ( Goodfeel ), a leading Chinese provider of value-added mobile data services for Wireless Applications Protocol (WAP). In a joint branding promotional campaign in May 2003, SOHU.com teamed up with CMCC and Motorola Inc. to jointly introduce short messaging and multimedia messaging services at the Mount Everest, where some twenty international teams had gathered to commemorate the first human conquest of the world s highest mountain half a century ago. Page 24 of 39

26 Tencent 16th Floor, Yinke Building, No. 38 Haidian Street, Haidian District, Beijing, PR China Tel. : Fax : Tencent, founded in November 1998 in Shenzhen, is one of the first Internet Instant Messaging (IM) software developers in China, and a leading provider for Internet and mobile value-added services with a focus on IM and related value-added services. - In 1999, Tencent launched its first IM software Tencent QQ. Tencent integrates across different platforms such as Internet, mobile and fixed networks to cater for the communication needs of user. Users can communicate in real time with each other via the IM platform with their PCs, mobiles and fixed phones as well as various terminal devices. Not only can users communicate via texts, images, audio, video, and , but they can also have access to various Internet services and mobile VAS designed to enhance community experience, including mobile games, dating, content downloads and other entertainment services. 108 NetEase SP Tower D, 26 th Floor, Tsinghua Science Park Building 8, No. 1 Zhongguancun East Road, Haidian District Beijing , PR China Tel. : Fax : Guangzhou NetEase established in May Through its subsidiaries and contracts with affiliates, NetEase operates a leading interactive online and wireless community in China and is a major provider of Chinese language content and services through our online games, wireless value-added services and Internet portal businesses. The average daily page views for the month ended September 30, 2005 exceeded 614 million. The company generates revenues from fees they charge users of online games and wireless value-added and other fee-based premium services, as well as from selling online advertisements on the NetEase Web sites. Basic service offerings are also available on the NetEase Web sites without charge to users. - NetEase Wireless - Through arrangements with the two principal mobile network operators in China, China Mobile and China Unicom, NetEase offers a wide range of services which allow users, for example, to receive news and other information such as stock quotes and , download ring tones and logos for their mobile phones and participate in matchmaking communities and interactive games. SMS, MMS, IVRS and WAP are the mobile services they offer. 109 Linktone 6 th Floor, Harbor Ring Plaza, 18 Central Tibet Road, Shanghai , PR China Tel. : Fax : Page 25 of 39

27 - Founded in October 1999, Linktone s current focus on SMS allows potential access to virtually all China s GSM subscribers. Linktone s consumer services focus on entertainment, messaging and personalized information. - Linktone has also established itself as a provider of innovative enterprise solutions. In May of 2002, Linktone partnered with McDonald s Corporation (China) to launch a first of its kind, nationwide SMS promotion for the 2002 World Cup Tournament in Japan and Korea. Linktone has also worked to promote feature films, television programs, major entertainment events, and consumer goods. 110 Mtone Wireless Room 508, Block A, He Qiao Mansion, No.8, Guanghua Road, Chaoyang District, Beijing, China Tel:(8610) Fax:(8610) Founded in Silicon Valley in 1994, Mtone has been a pioneer in China's mobile value added services market and commercialized the first wireless stock trading system and mobile information services with China Telecom in Mtone specializes in providing multiple services including online multi-user gaming that drive customer to customer interactions including competition, socialization, communications, and role playing all integrated into virtual environments and games. These capabilities support music, sports, humor, and other mobile entertainment applications. The company was the first to provide wireless data information services in China in 1998 and was first to offer commercial wireless mobile stock trading worldwide in mid In addition to its own service applications, Mtone works with the other content providers to allow these partners to distribute their content using the broad coverage, countrywide customer service, billing capability, as well as market knowledge of local provinces. The company has developed content for delivery via SMS, MMS, WAP and KJAVA to the largest cellular phone market in the world. 111 KongZhong Corporation 33rd Floor, Teng Da Mansion Building, 168 Xi Wai Da Jie, Hai Dian District, Beijing, PR China Tel : Fax : Kongzhong Corporation is a leading provider of advanced second generation (2.5G) wireless value-added services in China. Being the strategic partner of China Mobile, China Unicom, China Telecom and China Netcom, KongZhong has gained the leading position in terms of revenues of WAP, MMS and JAVA. - KongZhong delivers a broad range of services in three major categories, consisting of Interactive Entertainment, Media and Community. - KongZhong has established relationships with handset manufacturers, as well. - KongZhong has established strategic relationships with the leading wireless content providers such as Japan s Index and Korea s Olarks. The company also entered agreements with many Page 26 of 39

28 prominent international mobile game providers including Japan s Namco Limited, France s Gameloft and Britain s Macrospace. - In January 2004, Kong published its mobile media brand KongZhong Media, which is based on 2.5G technology platforms and aims to provide all kinds of information including news, entertainment services, stock and bond information, military and literature events, sports and fashion news. (In August 2004, KongZhong Media successfully broadcast the 2004 Athens Olympic Games to domestic mobile users; October 2004, KongZhong Media issued Motorola V# Launch, China s first commercial advertisements published through mobile phones to domestic users.) 112 Device Manufacturers Lenovo No. 6 Shang Di Chung Ye Road, Haidian District, Beijing PR China Tel : Lenovo is an international technology company formed as a result of the acquisition by the Lenovo Group of the IBM Personal Computing Division. - Lenovo develops, manufactures and markets cutting-edge, reliable, high-quality PC products and value-added professional services that provide customers around the world. - In China, Lenovo commands more than one-third of the PC market, covering all segments. Its leading-edge PCs are highly acclaimed for their user-friendly, tailor-made designs and customized solutions for various customer needs, including the Tianjiao and Fengxing consumer desktops and Yangtian and Kaitian enterprise desktops. Lenovo also has a broad and expanding product line encompassing mobile handsets, servers, peripherals and digital entertainment products for the Chinese market. - In 2004, Lenovo became the first Chinese company to join the Olympic Partner Program. As a worldwide sponsor with the International Olympic Committee, the company will be a major supplier of computing equipment such as desktop and notebook computers and servers and funding in support of the 2006 winter games in Turin and the 2008 summer games in Beijing. 113 TCL Mobile Communication Co.. Ltd. 8/F, TCL Industrial Building, No.6 ELing South Road HuiZhou,GuangDong ,China Tel: Fax: TCL Mobile Communication Co., Ltd, set up in March 1999, is a high-tech enterprise engaged in R&D, design, manufacturer, sales and service in the handset industry. It has since established a leading brand presence in domestic markets, and business has expanded considerably in all areas to support customer needs and the growth of the telecommunications industry in China. - In 2002, the sales of TCL mobile exceeded US$1 billion, which enabled TCL to be among the top three in China s mobile phone market. In addition, TCL became No.1 among China s mobile Page 27 of 39

29 phone manufacturers. 114 Ningbo Bird No. 999 Dacheng East Road, Fenghua City, Zhejiang Province PR China Tel : Fax: Ningbo Bird is a high technology company established in October 1992 which produces primarily mobile phones, palm computers and system equipment. Bird has a total of 30 branches, 400 site offices and 15,000 sales agencies, with 2400 repair centers to cover all of China. - In 2005, Bird first integrated advanced technology to introduce an MP4 series of mobile phones, combining the entertainment technologies of cameras, videos, music playing and movie viewing functions, which are one more massive upgrade in design after the MP3 series. Bird has established a high quality assurance system and passed the ISO9001 in 1999, acquired the 2000 version of the ISO9001 quality certificate in July While Bird is a leading mobile phone manufacturer in China, Bird is also exporting to the international markets for 60 countries including: France, Italy, Russia, India, Mexico and Brazil. Amoi 45 Tiyu Road, Xiamen Fujian PR China Tel : Fax: Amoi is focusing on 3C industries, namely Communication, Computer and Consumer Electronics. Its six business divisions have established an extensive range of products, including mobile communication, consumer audio and video systems, portable systems, as well as IT and electronic equipment. Many popular digital products are designed and manufactured by these 6 business divisions which work in a highly effective and low cost system though ERP from research, procurement, and manufacture to sales. - In 2003, Amoi achieved continuous and sustainable growth in the mobile phone market and PHS sale became one of the top 3 of China. Meanwhile Amoi had expanded its business to new areas and developed its line of Notebook PCs, flat panel TVs and Mp3 players. In 2004, Amoi focused on digital 3C and high-end digital TV & digital camera development. Amoi is also entering the automotive electronics market. ZTE Corporation ZTE Plaza, Keji Road South, Hi-tech Industrial Park, Nanshan District, Shenzhen, P.R.China, Tel : Fax : [email protected] - Founded in 1985, with global headquarters in Shenzhen, and operations in more than 100 countries, ZTE is a leading global provider of fixed line and mobile telecommunications equipment and network solutions. ZTE's product range is the most complete in the world - Page 28 of 39

30 covering virtually every sector of the fixed line, wireless and terminal markets. - ZTE is the fastest growing telecoms equipment supplier in the world, and China's only listed telecoms manufacturer, with shares publicly traded on both the Hong Kong and Shenzhen Stock Exchanges. With its three product series, i.e. wireless, network and terminal (mobile phone), ZTE is capable of providing global customers with diversified integrated telecommunications networking solutions and a wide range of professional services. By the end of 2004, the wireless capacity of ZTE CDMA equipment exceeded 20 million lines, and accordingly ZTE has become the biggest telecommunications equipment exporter in China. - By now ZTE is the only Chinese mobile phone manufacturer that provides products of the three systems, i.e. GSM, CDMA and PHS. In a bid to grasp key technologies in mobile phone R&D, ZTE has independent intellectual properties to all the core software, hardware circuits, core chips and overall design & integration. - The international market is becoming ZTE's most important strategic market. ZTE's diversified products like WCDMA, CDMA, NGN, GSM, switching, access, and optical transmission have already successfully entered over 60 countries. Telecom Equipment Providers ZTE Corporation (see above) Datang Telecom Technology Co., Ltd. International Business Department Tel: Fax: [email protected] - Datang Telecom Technology Co.,Ltd. is a high-tech enterprise share-held by the CATT (China Academy Telecommunication Technology). It was registered and founded in the new technology development zone of Haidian District, Beijing, September 21, In October of the same year, the company s stock " Datang Telecom" was listed in Shanghai Stock Exchange, with stock code " ". The company s registered capital was US$52.9 million, the legal representative is Mr. Zhou Huan. - Datang telecom is mainly engaged in microelectronics, communication equipment systems, telecommunication toftware and hardware, system integration, and microelectronics. Datang Telecom has formed up industries with proprietary intellectual property rights, such as the key technologies including the SP30iEX for Switching Access, SOC for IC and Microelectronics, software, next generation wireless communication and so on. Huawei Technologies Co., Ltd. Bantian, Longgang District Shenzhen , P.R.China Tel : Huawei Technologies is a leader in providing next generation telecommunications networks, and Page 29 of 39

31 now serves 31 of the world's top 50 operators, along with over one billion users worldwide. Huawei's products and solutions encompass wireless products(hsdpa/wcdma/edge/ GPRS/GSM, CDMA2000 1xEV-DO/CDMA2000 1X, TD-SCDMA, WiMAX), core network products ( IMS, Mobile Softswitch, NGN ), network products (FTTx, xdsl, Optical, Routers, LAN Switch), applications and software(in, mobile data service, BOSS), as well as terminals(umts/cdma). Major products are designed based on Huawei's ASIC chipset and utilize shared platforms to provide quality and cost-effective products. - At the end of 2006, Huawei had over 61,000 employees, of whom 48% are dedicated to R&D. Huawei's global R&D centers are located in Bangalore, Silicon Valley, Dallas,, Stockholm, and Moscow, in addition to those in Beijing, Shanghai, Nanjing, Shenzhen, Hangzhou and Chengdu. Foreign Players China Offices Alcatel - Lucent 19-21/F, Tower E2, Oriental Plaza No. 1 East Chang An Avenue, Beijing , P.R. China Tel: Fax: [email protected] Avaya Ms. Yang, Shanghai Office Tel : [email protected] Cisco Systems Inc. Level 19F-21F, Tower E1, The Towers, Oriental Plaza No. 1, East Chang An Ave., Dong Cheng District, Beijing, P.R.C., Tel: +86 (10) Fax: +86 (10) D-Link China 8 th Floor, No. 641, Tianshan Road Shanghai, PR China Tel : Fax: Ericsson 9A, 26A Hanwei Plaza NO.7, Guanghua Road, Chaoyang District Beijing Phone: Fax: Motorola NO. 108 Jian Guo Road Page 30 of 39

32 Chaoyang District Beijing PR CHINA Nokia No.5 Donghuan Zhonglu Beijing Economic & Technological Development Area, Beijing Xing Wang Industrial Park Beijing China Tel: Fax: In 2004, Nokia continued to be the No. 1 player in the Chinese mobile equipment market, partly due to expansion in rural areas, company Chairman and CEO Jorma Ollila said at a news conference. Nokia s sales in China, its second-largest market, jumped 44 percent to US$3.6 billion in 2004, according to a company statement. The company was also the largest telecom exporter in China last year a position it has held since 2000 with exports up 56 percent to a record US$3.3 billion, Ollila said. Nortel Beijing Headquarters Nortel Networks Tower Sun Dong An Plaza No 138 Wang Fu Jing Street Beijing China Tel: Fax: Samsung th E Floor, ZhaoFeng Building, 1800 ZhongShan West Rd., Shanghai, P.R.China. Tel FAX No Siemens 7, Wangjing Zhonghuan Nanlu, Chaoyang District, Beijing Tel: (010) Fax: (010) Telecom Operators (January 2006)The mobile operator market is divided between two companies: China Unicom which focuses on CDMA technologies and offers a service platform based on BREW from Qualcomm (40%), and China Mobile which uses GSM technology and offers the Monternet portal based on a Java platform from Motorola (60%). 115 Page 31 of 39

33 China Mobile Communications Corporation ( China Mobile or CMCC) 60/F, The Center, 99 Queen's Road Central Hong Kong Tel: Fax: CMCC was officially founded on April 20 th, 2000 and is directly under the leadership of the central government. It is a key state-owned enterprise focusing on the mobile business, and is now the largest mobile network operator in China. - CMCC has a registered capital of 51.8 billion RMB, assets over 320 billion RMB and 120,800 employees. - CMCC deals mainly in mobile voice, data, IP telephone and multimedia service. It also has the right to operate Internet services and possesses international gateways. Besides the basic voice services, it provides multiple value-added services such as fax, data, IP telephone, etc. - CMCC has succeeded in shaping nationwide famous brands like GoTone, Shenzhouxing and M-Zone. The network access numbers of CMCC are 139, 138, 137, 136 and China United Telecommunications Corporation (China Unicom or CU) Jia 133 Xi Dan Bei Da Jie Xicheng District, Beijing PR China Customer Service : CU was established on July 19, CU not only concentrates on mobile services, but also possesses fixed network and services. Nevertheless, it is the second largest mobile network operator in China. - Its wireless Internet service brand Uni-Info provides a wide range of wireless VAS such as news, weather forecasts, stock info, foreign exchange rates, as well as railway and flight schedules. - CU has introduced many new features such as Voice SMS which gives users not used to writing short messages an alternative of saying and hearing short messages. OTA-STK service further satisfies SMS application demands among its users. 117 China Netcom Communications Corporation (CNC) Block C, 156, Fuxingmennei Street, Beijing, , China Tel: Fax: China Network Communications Corporation is a telecommunications enterprise in China and the fixed telecommunications service partner for the 2008 Olympic Games. On May 16th 2002, CNC was established on the basis of the former China Telecom Group Corporation and its affiliated telecom companies in the 10 Northern provinces (autonomous regions and municipalities), China Network Communications Shareholding Company Limited, Jitong Communications Company Limited, according to the Scheme of Telecom System Reform of the Page 32 of 39

34 State Council. CNC is dedicated to the development of broadband communications, among which services or brand names such as "CHINA169", "CNC-Community", "PHS Value-added" and the service access number "10060" have penetrated into almost all households. China Telecommunications Corporation (China Telecom) No. 31Jinrong Street, Xicheng District, Beijing, , PR China Tel : Fax : China Telecom Global Services Center : (English) - China Telecommunications Corporation (China Telecom) is an extra-large state-owned telecom operator organized according to China's telecom industry reform scheme. As a principal telecom enterprise and the greatest basic telecom operator of China, China Telecom owns the largest fixed-line telephone network in the world which covers the cities and towns as well as the rural areas of China. Member units of China Telecom include 31 provincial (municipal and autonomous regional) enterprises which provide telecom services nationwide. - China Telecom's main businesses currently include: operating various kinds of domestic and international fixed line telecom networks, including local wireless loops; providing telecom network-based voice, data, image, multimedia and information services; carrying out account settlements for international telecom services and developing overseas markets; carrying out some services which are related to telecom and information businesses such as system integration, technology development, technical service/advice, information service consultation, advertisement and publishing; production, sales, import and export of telecom equipment; designing and implementing telecom projects; operating other services which are required by the market development provided that provision of such services would have been authorized or permitted by the government of the country. China Tietong Telecommunications Corporation (formerly China Railcom) 21/F, Yuetan Mansion, No. 2, Yuetan North Street, Xicheng District, Beijing Tel. : Fax : At January 20, 2004, it was shifted from the Ministry of Railways to the administration of the State-owned Assets Supervision and Administration Commission (SASAC) and its name was changed to "China TieTong Telecommunications Corporation." Ever since its incorporation, China TieTong is a major state-owned basic telecommunications operator. - With total assets of $6.3 billion and a staff of 72,000, China TieTong has established 31 provincial braches (including those located in the autonomous regions), 316 municipal branches and five holding subsidiaries. China TieTong in addition to varied value-added services, currently also offers basic telecom services to the public, including: domestic/international voice, data, image and multimedia communications, and domestic communications resource leasing services. Network Profile - From 2001 to 2003, China TieTong has basically completed the construction of trunk transmission network, switching network, data network, MANs and the infrastructure for railway communications and interconnection. Therefore, China TieTong has reinforced its capability to Page 33 of 39

35 provide telecommunications services to the public, and transformed from a dedicated railway communications provider to a public provider. Currently with its varied services covering nearly 300 LANs nationwide, China TieTong has 150,000 kilometers of communications lines (including 100,000 kilometers of fiber cables), nearly 30,000 ports for various data services and 3600 kilometers of digital microwaves. In addition, its total switch capacity exceeds 18 million lines China Satellite Communications Corporation (China Satcom) 42, Xueyuan Road Haidian District, Beijing , PR China Tel : Fax: China Satellite Communications Corporation, one of the six basic telecommunications operators in China, was founded on Dec. 19, 2001 under the management of the Ministry of Information Industry. The establishment of China Satcom was a major strategic move aimed at deepening the reform of the telecommunications industry and setting a new start point for further development of satellite communications. The member enterprises of China Satcom include China Telecommunications Broadcast Satellite Corp., China Orient Telecommunications Satellite Company Co, Ltd., China Space Mobile Satellite Telecommunications Co, Ltd., China Posts & Telecommunications Translation Service Corp. and China Telecom (Hong Kong) Chinasat Corp. - The main services of China Satcom include satellite special services in communications, broadcast and other fields, satellite mobile communications services, Internet services and VSAT services; network services; 3.5G WLAN services; 800MHz trunking services and comprehensive data services based on GPS; audio, data and multimedia services based on satellite transmission technology; some technical services and some import and export services relating to satellite communications services above. Page 34 of 39

36 End Notes Reported company financial results Study Paper on Financial Analysis of the Telecom Industry of China and India, Study Paper No. 1/2005, Telecom Regulatory Authority of India, June 16, Reported company financial results ( 13 Reported company financial results Page 35 of 39

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