China’s Mobile Telecom Services Industry Overview

CONFIDENTIAL China’s Mobile Telecom ServicesIndustry Overview GCO Practice Development May 2002 This report is solely for the use of Firm personnel. No part of it may be circulated, quoted, or reproduced for distribution without prior written approval from McKinsey & Company.

02 PD China Mobile Telecoms Service Industry 020403.ppt ACKNOWLEDGEMENTS AND REFERENCES • MGMs and CSS involved in the relevant studies include the following: • The series of PDs include the following: • Tony Perkins (BEI) • Stefan Albrecht (BEI) • Chipper Boulas (HKO) • Peter Kenevan (TOK) • Perchow Joseph Chang (SHA) • Andrew Wu (HKO) • Hai Wu (BEI) • Jane Xing (HK) • Yi Feng (BEI) • Sheng F Li (SHA) • Yoshinobu Takanuki (TOK) • Graeme Hunter (JOH) • Julia Yang (BEI) • Eric Xu (BEI) • Jason Liu (BEI) • Shirley Chen (BEI) • # China Macroeconomic Environment • # China’s Mobile Telecom Service Industry Overview • # China’s Internet Industry Overview • # China Telecom Equipment and Services Overview • # China’s Mobile Handset Sector Overview • # China Telecom Industry Regulatory Overview • # Key Success Factors and Case Studies of MNCs Entry to China

02 PD China Mobile Telecoms Service Industry 020403.ppt KEY MESSAGES 1. China’s mobile telecom service market is huge and fast growing, representing US$21 billion market size in 2001 and US$38 billion in 2005. This market is supported by the world’s largest subscriber base at 145 million, already comprising 15% of the world’s total in 2001 and growing to potentially 218 million in a low case or 300 million in a high case by 2005 2. The competitive landscape for mobile services has evolved from a single regulator and operator to today’s duopoly of China Unicom and China Mobile, both of whom are unassociated with the Ministry of Information Industries. A second breakup of China Telecom is expected to form two large telecom operators, China Telecom and China Netcom Group, who are likely to receive mobile licenses. A fifth telecom operator, China Railcom, also has the potential of receiving a third generation license and building a mobile business. For now, China Mobile dominates the market with 82% value share and 72% subscriber share and owns much of the high value user base. However churn is already high and is expected to increase with continuing pricing pressures and increased competition. 3. Wireless data services are expected to grow quickly in China to a market of potentially over US$4 billion by 2005, used by 43% of all mobile users. Interest from consumer surveys have been high and operators and other players are actively building services in the market. While early WAP services have failed to catch on, SMS has grown exponentially with up to 20 billion SMS messages in 2001. The early adopters will be mobile professionals and modern youth, who will require services and devices tailored to their needs. 4. Regulatory changes loom, particularly with the accession of China to the WTO. While foreigners will be unlikely to set up MVNOs, WTO will allow greater participation of foreigners in basic and value added services, although geographic limitations will exist through 2004 and Chinese players will be required to own at least 50% of telecom service ventures (51% for basic services). Regulatory risks remain, with no means to appeal regulator decisions, unclear interpretation of regulation including WTO commitments, and the government’s track record of intransparent and unpredictable decision making. (See separate regulatory PD for details) Appendix • Players profiles • 3G technology standards choices

02 PD China Mobile Telecoms Service Industry 020403.ppt KEY MESSAGES • 1. China’s mobile telecom service market is huge and fast growing, representing US$21 billion market size in 2001 and US$38 billion in 2005. This market is supported by the world’s largest subscriber base at 145 million, already comprising 15% of the world’s total in 2001 and growing to potentially 218 million in a low case or 300 million in a high case by 2005

02 PD China Mobile Telecoms Service Industry 020403.ppt 1997-2001 MOBILE SERVICE REVENUE GROWTH OF 30% CAGR HAS OUTPACED OTHER TELECOM SERVICE SECTORS AND IS PROJECTED AT 16% THROUGH 2005 • Revenues • US$ Billions • CAGR vs. other industries (1997-2001) • Percent CAGR 16% • Mobile CAGR 30% • Fixed line • Paging Source: Deutsche Bank; McKinsey analysis

02 PD China Mobile Telecoms Service Industry 020403.ppt EXTRAORDINARY SUBSCRIBER GROWTH IS THE PRIMARY DRIVER OF REVENUE EVOLUTION, MORE THAN MAKING UP FOR LARGE DECLINES IN ARPU DUE TO STIFF COMPETITION • Announced • Effective • Number of subscribers – low case • Millions • Drivers CAGR 19% • Penetration initially low • Government backing for increasing subscriber numbers • Relatively low fixed line penetration • Low-end prepaid subscriber increase • 291 • 263 • Mobile revenues* • $ Billions • 235 • 208 CAGR 83% CAGR 16% CAGR 30% • ARPU • US$/month • Decline due to increased prepaid and lower spending by late entrants • Tariff reduction as competition increases • Slightly off-set by increase in data traffic in later years CAGR -24% CAGR -7% • 17 • 16 • 15 • 15 * Revenues do not equal the product of ARPU as subscriber figures are provided for year end, not average subscribers during a year. Detailed information on the timing of new subscriptions and churn required for the calculation of average subscribers during a given year is not available ** All CAGRs are calculated on the announced data Source: Deutsche Bank; JP Morgan; MII

2000 2005 02 PD China Mobile Telecoms Service Industry 020403.ppt CHINA IS THE WORLD’S LARGEST MARKET IN TERMS OF SUBSCRIBERS, HAVING OVERTAKEN THE US IN 2001 Number of mobile subscribers Millions CAGR = 30% CAGR = 22% CAGR = 13% CAGR = 14% CAGR = 7% • China – low case* • China – high case* • US • Japan • Major European** countries * 05 forecast use low case, net subs after inactive and multi-sim-card reduction ** Major European countries include: UK, France, Italy, Germany, Netherlands, Spain, Sweden Source: JP Morgan; WEFA-WMM; MII; McKinsey analysis

02 PD China Mobile Telecoms Service Industry 020403.ppt CHINA’S MOBILE SUBSCRIBER BASE IS GROWING MORE RAPIDLY THAN ANY OTHER MAJOR MARKET, COMPRISING 15% OF WORLD TOTAL IN 2001 • Global mobile subscribers • Million subscribers; percent • CAGR • 1997-2005 • percent • 100% = • 207 • 300 • 482 • 727 • 965 • 1,178 • 1,393 • 1,633 • 1,850 • Western Europe • 29 • 18 • US • South and Latin • 45 • Japan and Asia Pacific • 28 • 47 • China** • Rest of world* • 45 • 1997 • 1998 • 1999 • 2000 • 2001E • 2002E • 2003E • 2004E • 2005E * Afirca, Eastern Europe, Middle East, Canada ** Forecast of 02-05 use the high case, net subs after inactive and multi-sim-card reduction Source: JP Morgan; Gartner 2001; Deutsche Bank; Merrill Lynch; Piper Jaffray

02 PD China Mobile Telecoms Service Industry 020403.ppt CHINA’S MOBILE MARKET IS PROJECTED TO GROW SIGNIFICANTLY • Net subscriber* additions • Millions • Low case • High case • 47.1 • 46.3 • 45.7 • 43.9 • 39.4 • 35.9 • 16.9 • 11.5 • 5.5 • 1997 • 1998 • 1999 • 2000 • 2001 • 2002E • 2003E • 2004E • 2005E • Annual growth • Percent • Low • – • 108 • 47 • 133 • -9 • 8 • -47 • 1 • 1 • High • – • 108 • 47 • 103 • -9 • 22 • 5 • -1 • 3 • Penetration • Percent • Low • 1 • 2 • 3 • 7 • 9 • 12 • 13 • 15 • 16 • High • 1 • 2 • 3 • 7 • 9 • 12 • 16 • 19 • 23 * 02-05 forecast are net subs after inactive and multi-sim-card reduction Source: IDC report; JP Morgan report; McKinsey analysis

2001 2005 02 PD China Mobile Telecoms Service Industry 020403.ppt CHINA’S SUBSCRIBER BASE OF 218 MILLION IMPLIES A 47% PENETRATION OF AN ADDRESSABLE MARKET OF 460 MILLION BY 2005 • China income distribution and addressable market • Percent • China’s addressable population for mobile services is projected to increase by 8% p.a. for the next five years to 460 million in 2005 • The key assumptions in determining the income threshold are: • Chinese consumers willing to spend 5-10%% of their income on communication services – higher than the average of 3.5-4% for more developed markets as a greater portion of income is available for non-essential goods as a result of China’s relatively low living cost • Half of this assumed spent on mobile services (5.5%) • Unicom’s prepaid ARPU will decrease from USD 8.3 for 2001 to USD 8.1 for 2005; therefore the threshold income will drop from USD 1,815 (8.3*12/5.5%) for 2001 to USD 1,772 for 2005 (8.1*12/5.5%) • 2005 • Addressable market: 35% • Addressable population: 460 mn persons Percent of population • 2001 • Addressable market: 27% • Addressable population: 345 mn persons 25% 20% 15% 10% 5% 0% 1,772 1,815 Income per capita (US$ p.a.) 2001 2005E Addressable market Number of mobile subscribers Implied penetration of the addressable market 345 mn 145 mn 42% 463 mn 218 mn* 47% * Low case, net subs after inactive and multi-sim-card reduction Source: JP Morgan; DRI; Asiandemographics.com; Literature search; Analyst reports; Team analysis

02 PD China Mobile Telecoms Service Industry 020403.ppt MOBILE SUBSCRIBER PENETRATION OF LESS THAN 7% IN 2000, LEAVES SIGNIFICANT ROOM FOR GROWTH As percentage of total population – low case* Millions (total population) • Mobile subscriber penetration in 2000 • Percent • 1,218 • 1,230 • 1,242 • 1,254 • 1,265 • 1,276 • 1,287 • 1,298 • 1,309 • 1,319 • 100% • Italy • Sweden • Netherlands • UK • Spain • Germany • All • subscribers • France • US • 16.4 • 15.0 • 13.4 • 12.0 • China** • 8.9 • Data service • subscribers • 7.1 • 6.6 • 3.9 • 2.9 • 2.0 • 1.9 • 1.0 • 1.1 • 0.4 • 0.6 • China Urban*** • 1996 • 1997 • 1998 • 1999 • 2000 • 2001E • 2002E • 2003E • 2004E • 2005E * 02-05 forecast are net subs after inactive and multi-sim-card reduction ** Penetration over total population *** Penetration over urban population. Source: JP Morgan; IDC report; Gartner; Literature search, EIU

02 PD China Mobile Telecoms Service Industry 020403.ppt CHINA’S RICHER PROVINCES GENERALLY HAVE MORE SUSCRIBERS AND ARE GREATER PENETRATED… • Penetration • Percent, 2000 • Number of subscribers • Millions • Subscriber CAGR • Percent, 1998-2000 • Population • Millions • Province • Beijing • Shanghai • Guangdong • Zhejiang • Fujian • Liaoning • Heilongjiang • Jiangsu • Shandong • Hebei • Hubei • Anhui • Hunan • Sichuan • Henan Source: China Statistical yearbook, JP Morgan Report, McKinsey analysis

02 PD China Mobile Telecoms Service Industry 020403.ppt …WHILE THE POOR WESTERN AND INTERIOR PROVINCES HAVE LESS SUBSCRIBERS AND ARE LESS PENETRATED • Penetration • Percent, 2000 • Number of subscribers • Millions • Subscriber CAGR • Percent, 1998-2000 • Population • Millions • Province • Tianjin • Jilin • Hainan • Inner Mongolia • Ningxia • Chongqing • Xinjiang • Yunnan • Shanxi • Shaanxi • Guangxi • Gansu • Qinghai • Jiangxi • Tibet • Guizhou * Growth rate from 1999 - 2000 Source: China Statistical yearbook, JP Morgan Report, McKinsey analysis

02 PD China Mobile Telecoms Service Industry 020403.ppt KEY MESSAGES www.21ask.com 中国管理资讯网 2.The competitive landscape for mobile services has evolved from a single regulator and operator to today’s duopoly of China Unicom and China Mobile, both of whom are unassociated with the Ministry of Information Industries. A second breakup of China Telecom is expected to form two large telecom operators, China Telecom and China Netcom Group, who are likely to receive mobile licenses. A fifth telecom operator, China Railcom, also has the potential of receiving a third generation license and building a mobile business. For now, China Mobile dominates the market with 82% value share and 72% subscriber share and owns much of the high value user base. However churn is already high and is expected to increase with continuing pricing pressures and increased competition. www.21ask.com 中国管理资讯网

1994 to 1999 • Virtual Monopoly • 1999 To 2002 Deregulation/Breakup • Pre 1994 • Regulator and Operator 02 PD China Mobile Telecoms Service Industry 020403.ppt CHINA’S MOBILE OPERATOR LANDSCAPE HAS EVOLVED SIGNIFICANTLY, CULMINATING IN SECOND BREAKUP OF CHINA TELECOM No mobile licenses currently • 2002 and beyond 2nd breakup • and future landscape China Netcom • Established in Sept.1999 with internet backbone • Likely license winner China Netcom Group • China Telecom broken up into North and South with CT North merging with China Netcom and Jitong to become China Netcom Group Jitong Jitong • Setup in 1994 to develop data communication service • Began to offer VoIP services • Leading player in voice over IP China Telecom China Telecom Ministry of Posts and Telecommunications • China Telecom South continues operation as China Telecom • Operating CDMA local loop services in several cities China Telecom China Mobile (CMCC) • Prior to 1994, the MPT acted as the regulator and sole operator of telecommunications • In 1993, announcement was made to separate operating and regulatory functions along with the establishment of a 2nd operator • Created in 1994 when former MPT separated into regulatory and operating functions • China Telecom ownership transferred to Ministry of Finance, with regulatory functions placed in the new Ministry of Information Industries (MII) • Under the government’s anti-monopoly plan, in the 1st half of 1999, China Telecom was split into 4 operating companies: CT fixed, China Mobile, CT Paging, CT Satellite • The change became official on April 20, 2000 China Mobile (CMCC) • China Mobile unaffected by second breakup, surviving proposal to merge it with Jitong, given concerns about consequences of forced mergers for publicly listed companies China Unicom China Unicom China Unicom • Became the second mobile network operator in mid 1994 • However, China Telecom as the sole provider of both basic and wireless telephony services made it difficult for Unicom to grow • China Unicom unaffected by second breakup, surviving proposal to merge it with Railcom • While Great Wall CDMA asset transfer has yet to be completed, Unicom will become first major operator in the world with both CDMA and GSM services, with launch of its own CDMA network in 2002 Great Wall Great Wall • Due to government commitment to separate PLA from commercial activities, Great Wall dissolved with decision to transfer CDMA assets to China Unicom made in October 2000 (transfer yet to be completed) • Established in 1995 to harness PLA’s radio spectrum • The company undertakes “the CDMA project” at the direction of the government China Railcom China Railcom • 2nd largest fixed line network • Established December 2000 • Offers limited GSM service over it’s railway network • Operator bidding for 3G license, with openness towards adopting China’s 3G standard, TD-SCDMA Source: Literature search; EIU Pyramid; Industry reports

GROUP 02 PD China Mobile Telecoms Service Industry 020403.ppt MOST RECENT BREAK-UP OF CHINA TELECOM TO LEAD TO A LANDSCAPE OF 5 OPERATORS COMPETING ACROSS BOTH MOBILE AND FIXED Have license • Before • Licenses • After CT break-up • Licenses • Mobile • Mobile • Fixed • Announcement on November 26 to merge Jitong with China Netcom and China Telecom Northern unit • Competition will increase as merged telecom giants obtain licenses for comprehensive telecom operations, including • Fixed-line phone • Mobile phone • Internet-related services • Original plan to merge China Mobile with Jitong and China Unicom with China Railcom, met with strong dissent from the capital markets who saw this as an affront to China Mobile and China Unicom’s governance as publicly held companies • Mobile • Fixed • Mobile • Fixed • Fixed • Mobile • Fixed • Fixed • China Telecom North • Fixed • Mobile • Fixed • China Telecom South • Mobile (GSM-R) • Fixed • Mobile • Fixed China Railcom China Railcom Source: Literature search; industry interviews

02 PD China Mobile Telecoms Service Industry 020403.ppt PROFILES OF CURRENT AND LIKELY FUTURE PLAYERS • License prospects* • China assets • Mobile strategy • Current partnerships • Current players • China Mobile • China Unicom • Likely future players • China Telecom • China Netcom • China Railcom • ~96 million mobile subscribers • ~30 million mobile subscribers • Services covering over 180 cities • Largest national telecom network covering 2,000 cities • First operator to introduce internet access cards, and announced on-line shopping card to be launched in 2001 • Internet backbone covering 17 major cities • Started IP phone services in January 2000 • 2nd largest network in China; covering all major cities (>500 cities) • Be technology leader, thus eager to enter 3G • Focus on high-end customers • Trialing GPRS with 7 vendors • Strongly supporting WAP • Shifting attitudes on technology, now first player to cover both GSM and CDMA • Focusing attention on developing CDMA networks • Trialing GPRS with 4 vendors • Compete on service offering with existing operators, leveraging government and supplier expertise • Active with WLL and local mobility • Go straight to 3G if possible • Obtain mobile license as quick as possible regardless of technology standard • Roll out wireless data services even if it means taking GSM/GPRS first • May focus initially on GZ, BJ, SH • Likely intends following 2-tier structure • Obtain 3G license to target high-end users • Use 2G PHS to target voice subscribers • Vodafone • HP • Hutchison • KDDI • SK Telecom • Telstra • AT&T • Japan Telecom • British Telecom • News Corporation • Goldman Sachs • SingTel • None • Existing • Existing • Still to be decided * Government likely to grant 2 licenses; undecided when, and what type; none to be awarded in 2001 Source: Piper Jaffrey; Merrill Lynch; Literature search

02 PD China Mobile Telecoms Service Industry 020403.ppt OTHER PLAYERS UNLIKELY TO ATTAIN MOBILE LICENSES • Who they are • Basis for entry • Obstacles • Century Mobile • Jitong • Foreign JV Entrants • New telcos • Consortium of 10 enterprises who have joined together to try to set up mobile enterprise • Set up in 1994 to develop data communication services • Potential JVs involving foreign companies • New players expanding into telecom • Some government contacts • Originally considered takeover of Great Wall’s assets • Owns 70% of VoIP market • Government has indicated desire to see multiple operations with multiple service offerings • Government may be pressured to show market progress and WTO benefits • Foreign operators and entities eager to invest • Desire to enter wireless given opportunities and convergence of technologies • Great Wall assets moved to China Unicom • No current discussion regarding mobile services observed • Low capability to utilize mobile spectrum if allocated • WTO agreements do not require that new telecom licenses be issued to new entrants • Nationwide presence of foreign investment not possible for initial 3 years under WTO • MII will likely limit the influence of other ministries on their turf (e.g., blocking SARFT entry into Internet) Source: Goldman Sachs; EIU Pyramid; McKinsey analysis

02 PD China Mobile Telecoms Service Industry 020403.ppt EXISTING AND POTENTIAL MOBILE OPERATORS HOLD BROAD BUT DIFFERENT COMPETITIVE POSITIONINGS AND SERVICE OFFERINGS • China Mobile • China Unicom • China Telecom • China Netcom Basic services • Mobile voice service • Mobile data service • IP • Multimedia service • Mobile voice service • Mobile data service • IP • Multimedia service • Local call • DLD • IDD • Paging • IP • Multimedia service • Local call • DLD • IDD • Web hosting • Network element lease and sale • IP • IDD • Web hosting • Lease and sale of bandwidth Value-added services • Fax • Voice mail • Caller ID • Call waiting • SMS • VPN/VPDN • IDC • Fax • Voice mail • Caller ID • Call waiting • SMS • VPN • Fax • Voice VAS • Caller ID • VPN • IDC • ISDN/DDN • EDI • ISP • E-mail • Data communication • Public multimedia services Source: MII; Asiacom; Analyst report

02 PD China Mobile Telecoms Service Industry 020403.ppt EACH EXISTING/POTENTIAL MOBILE OPERATOR HAS STRENGTHS AND WEAKNESSES • Existing/ • potential operator • Strengths • Weaknesses • China Mobile • China Unicom • China Netcom • China Telecom • China Railcom • Incumbent operator serving higher value customers • Dominates market with 74% of subscribers and 84% of revenues • Allied with Vodafone whose CEO sits on board • Access to global capital via CMHK • Offers complete package to corporate customers • Able to underprice CM and attain market share • Government and policy support to promote competition • No frequency constraint due to CDMA network (13 m sub capacity) • Access to global capital via Unicom Hong Kong • Strong management team with executives hailing from successful startup (Asia-info), consulting firms and bulge bracket investment banks • Strong governmental connections with Jiang Zemin's son onboard • Remains dominant fixed-line operator • Dominant in data communications and in Internet service • 2nd largest fixed-line network • Facing 2G spectrum shortage in major cities 2002/2003 • Unicom has 10% price advantage by regulation • Management and business structure not yet completely set up • Weaker brand and public penetration than CMHK • Facing complexity of dual network management • Infrastructure spend high to build CDMA network • Lacks fixed-network reach • Has no mobile operating license • Lacks mobile expertise • Regulatory concerns as MII law prohibiting JVs with SOEs targets relationship with SARFT (one of the founders) • Has no mobile operating license • Lacks mobile expertise • Carries monopoly culture and lacks business-driven aggressiveness • Bound to financially nonviable rural area expansion of fixed-line network • Uncertainties in its break-up plan • Has no mobile operating license • Lacks mobile expertise • Lacks scale and support Source: Literature Research; McKinsey Analysis; IDC

02 PD China Mobile Telecoms Service Industry 020403.ppt MOST OPERATORS HAVE EXISTING PARTNERSHIPS WITH FOREIGN PLAYERS • Operator* • Partner • Type of partnership • China Mobile • China Unicom • China Telecom • China Netcom • Vodafone • HP • Hutchison Telecom • KDDI • SK Telecom • Telstra • AT&T • Japan Telecom • British Telecom • News Corporation, • Goldman Sachs, etc. • SingTel • Equant • Vodafone owns 2% equity share in China Mobile (HK) • Strategic alliance agreement with Vodafone to be CMHK’s long term preferred partner in areas including R&D technical expertise, standard and protocol development etc. • Wireless data R&D JV between majority owned subsidiary Aspire and HP • Hutchison owns 1.5% of China Unicom (listed) • Joint development of technology for high speed mobile phone • KDDI to supply CDMAOne mobile phones • Strategic Alliance to aid China Unicom’s CDMAOne network development and 3G transition • Strategic alliance to aid Unicom develop CDMA network • AT&T owns 25% of Shanghai Symphony Telecommunications • MOU in fixed line, mobile phone and fast-data transmission areas for client companies • MOU signed in 1998 to cooperate in technology and business opportunities • Joint venture providing end-to-end data communication service for MNCs set up in 1999 • Partners bought 12% of China Netcom for $324 million in private placement • Strategic alliance to provide safe, efficient data transmission for Singapore companies with subsidiaries, partners in China • Service agreement to co-develop VPN offerings * China Railcom is involved in no relevant partnerships Source: Literature Research; Analyst reports

100%= 02 PD China Mobile Telecoms Service Industry 020403.ppt IN MOBILE TELECOM SERVICE MARKET, CHINA MOBILE WILL LIKELY REMAIN THE DOMINANT OPERATOR IN BOTH REVENUE… US$ Billions, percent • CAGR 1998-2005E • Percent 8.4 11.8 16.2 21.1 27.9 32.0 34.5 38.4 • 0 • 0 • 0 • 0 • 0 • 3 • 3 • N/A • 6 • Other operators • 7 • 10 • 67 • China Unicom • 18 • China Mobile • 1998 • 1999 • 2000 • 2001E • 2002E • 2003E • 2004E • 2005E Source: McKinsey Analysis

02 PD China Mobile Telecoms Service Industry 020403.ppt …AND SUBSCRIBER* SHARE Millions, percent 100%= 11 25 43 85 145 155 176 197 218 • 3 • 5 • Other operator(s) • China Unicom • China Mobile • 1997 • 1998 • 1999 • 2000 • 2001E • 2002E • 2003E • 2004E • 2005E * 02-05 forecast are net subs after inactive and multi-sim-card reduction Source: Deutsche Bank; JP Morgan; McKinsey analysis

Listed company 02 PD China Mobile Telecoms Service Industry 020403.ppt PROPORTION OF EACH OPERATORS’ SUBSCRIBERS* INCLUDED IN LISTED ENTITY Millions, percent • Unicom • China Mobile • 100%= • 23.5 • 37.8 • 66.3 • 111.0 • 108.4 • 112.9 • 118.7 • 126.6 • 100%= • 1.5 • 5.2 • 18.7 • 44.0 • 47.0 • 55.2 • 63.5 • 67.8 • 86 • 82 • 68 • 66 • 66 • 66 • 65 • 65 • 61 • 63 • 62 • 62 • 61 • 61 • Unicom Listed • 41 • 28 • CMHK • 1998 • 1999 • 2000 • 2001E • 2002E • 2003E • 2004E • 2005E • 1998 • 1999 • 2000 • 2001E • 2002E • 2003E • 2004E • 2005E • CMHK Provinces • Beijing** • Fujian • Guangdong • Guangxi** • Hainan • Hebei** • Henan • Jiangsu • Liaoning** • Shandong** • Shanghai** • Tianjin** • Zhejiang • Unicom (HK) Provinces • Anhui • Beijing • Fujian • Guangdong • Hebei • Hubei • Jiangsu • Liaoning • Shandong • Shanghai • Tianjin • Zhejiang * 02-05 forecast are net subs after inactive and multi-sim-card reduction ** Acquired by CMHK from parent in Oct 2000 Source: JP Morgan; Industry interviews; McKinsey analysis

02 PD China Mobile Telecoms Service Industry 020403.ppt CHURN IS ALREADY SIGNIFICANT WITH BOTH OPERATORS AND WILL CONTINUE TO INCREASE DRIVEN BY INCREASING COMPETITION WITH IMPACT GREATEST ON CHINA MOBILE Percent • Comments • China Mobile's broader network coverage leads initially to far lower churn rate than for China Unicom • China Unicom's rapidly expanding network and higher-quality CDMA connection will increase CMHK's churn going forward • Intensifying competition causes both sets of churn rates to rise • As networks become similar, customers appreciate lower China Unicom price • China Mobile HK • China Unicom Source: Analyst report; Company annual report

02 PD China Mobile Telecoms Service Industry 020403.ppt CHINA MOBILE ENJOYS GREATER ARPU, ALTHOUGH LISTED COMPANIES FOR BOTH OPERATORS GENERATE GREATER ARPU THAN UNLISTED • Comments • Decreasing trend due to • Increased competition and lower tariffs • Increased mix of low-value prepaid users • Deepening penetration which increases low-value usership • China Mobile's ARPU higher due to • Higher prices than China Unicom • Greater concentration of high-end users because of breadth of coverage and market presence US$/month • CMHK • Unicom (listed) • CM (unlisted) • Unicom (unlisted) Source: Deutsche Bank; McKinsey analysis

02 PD China Mobile Telecoms Service Industry 020403.ppt Prepaid Postpaid Blended CHINA MOBILE'S ARPU EXCEEDS CHINA UNICOM'S DESPITE A LARGER PROPORTION OF PREPAID CUSTOMERS • Prepaid vs. postpaid ARPU comparison • USD/month • CAGR • Percent • 2001 • 2005 -5 • CMHK -1 • Blended ARPU • US$/month • CAGR • Percent -4 • China Unicom (listed) 0 • 2001 • 2005 -6 • Prepaid subscribers as percentage of total subscribers • Percent • CMHK • CAGR • Percent WA • China Unicom (listed) • 2001 • 2005 -5 19* • CMHK • China Unicom (listed) 43** • China Mobile’s ARPU exceeds China Unicom's despite a larger proportion of prepaid customers due to a far higher postpaid ARPU • China Mobile's higher postpaid ARPU is due to its high-end customer base and superior marketing as well as China Unicom's lower tariffs charged * 100% = 75.9 million subscribers in 2001 and 111.9 million in 2005 ** 100% = 28.6 million subscribers in 2001 and 54.9 million in 2005 Source: Goldman Sachs; Morgan Stanley; Team analysis

02 PD China Mobile Telecoms Service Industry 020403.ppt SHARE PRICES FOR BOTH OPERATORS HAVE DETERIORATED IN 2001 PRIMARILY DUE TO PRICING PRESSURES Share price HK$ • MII announces cancellation of registration fee • CMHK • China Unicom • Market capitalization • US$ billions • 120.4 • 69.5 • 20.9 • 17.5 • Share price took a hit on fears that tariff cuts and spending on a new CDMA network will eat into earnings • China Mobile announces new lower tariff packages Source: Hong Kong stock exchange; DataStream

02 PD China Mobile Telecoms Service Industry 020403.ppt NONETHELESS, BOTH OPERATORS STILL ENJOY HEALTHY EBITDA AND RETURN ON ASSETS, DRIVEN BY LOWER COST BASES, ESPECIALLY COMPARED TO CHINA TELECOM US$ Billions, 2000 • Percent of revenue • Percent of revenue • ROA • Percent • Player*** • Revenue • EBITDA • Net profit • 54.7 • 18.8 • CMHK • China Unicom • (listed) • 44.8 • 13.8 • China Telecom • N/A • N/A • 0.5 • 0.1 * Total China Mobile revenue 14.3 billion ** Total China Unicom(Listed + unlisted) mobile revenue is US$1.9 billion; listed portion contributes 1.5 billion (balance paging and fixed line) *** Netcom and Railcom financials N/A Source: JP Morgan

02 PD China Mobile Telecoms Service Industry 020403.ppt KEY MESSAGES • 3. Wireless data services are expected to grow quickly in China to a market of potentially over US$4 billion by 2005, used by 43% of all mobile users. Interest from consumer surveys have been high and operators and other players are actively building services in the market. While early WAP services have failed to catch on, SMS has grown exponentially with up to 20 billion SMS messages estimated for 2001. The early adopters will be mobile professionals and modern youth, who will require services and devices tailored to their needs.

02 PD China Mobile Telecoms Service Industry 020403.ppt RESULTS OF A CHINESE WIRELESS SURVEY (2000) INDICATED STRONG INTEREST IN MOBILE DATA SERVICES • Key sample characteristics • Interview of 100 randomly chosen respondents in Shanghai, Beijing and Guangzhou, representing a good cross-section of different types of mobile users • 68% of respondents express interest in receiving data services • 20% of respondents are fixed line internet users* • Median Internet usage of 30 hours/month • Median mobile bill of RMB 300/month • Very disinterested • Not interested • Very interested • Neutral • Interested * Internet user number is significantly higher than Internet subscription number, because of the sharing Internet access among users Source: Mobile user survey, 2000

02 PD China Mobile Telecoms Service Industry 020403.ppt CONSUMERS HAVE GREATEST INTEREST IN EMAIL AND MOBILE VAS Interest in transactions delivered over mobile Interest in content delivered over mobile Percentage of respondents Percentage of respondents Not interested Neutral Interested E-mail Flight/ train sche-dule and reser-vation News/ sports/ Enter-tain-ment Stock quotes Inter-net brows-ing City map Yellow pages Mobile VAS (billing, location, etc.) Mobile banking Inter-active games • For content, Chinese consumers show greatest interest in email, flight/train scheduling and reservation, and news • For transaction, mobile VAS and m-banking are the most popular m-commerce applications for Chinese consumers Source: Mobile user survey, 2000

02 PD China Mobile Telecoms Service Industry 020403.ppt CHINA’S WIRELESS DATA SERVICES EXPECTED TO GROW QUICKLY • ESTIMATE • Number of mobile subscribers • Millions, Percent • Revenue from wireless data • US$ billions Voice only Data and voice Low case High case • 218-300 • 197-253 • 176-207 • CAGR • 155-161 • 171 • 5.4 • 145 • 43% • 87 • 2.5 • 155 • 26% • 43 • 1.1 • 15% • 0.4 • 9% • 4% • 0.1 • 01E • 02E • 03E • 04E • 05E • '99 • '00 • 01E • 02E • 03E • 04E • 05E • Wireless data service ARPU/month/actual user • US$ • 2.6 • 2.7 • 3.0 • 3.3 Source: IDC report; Literature research; McKinsey analysis

02 PD China Mobile Telecoms Service Industry 020403.ppt HANDSET AND PDA MANUFACTURERS WILL FURTHER DRIVE MOBILE DATA • Number of handset units sold • Millions • Number of mobile device units sold • Millions • CAGR • CAGR • 14% • 86.1 • Non-data enabled • 8% • -28% • 65.6 • 57.5 • 54.9 • 67.2 • -28% • 46.6 • 45.0 • 44.6 • 55.8 • 50.3 • 45.2 • 44.7 • Internet enabled handset • 90% • Non-internet • enabled • 42% • 42% • 69% • 86% • 63% • 45% • Internet • enabled • 30% • 23% • 74% • 2000 • 2001E • 2002E • 2003E • 2004E • 2005E • 58% • 44% • Wireless PDA • 183% • 24% • 30% • 23% • 14% • 7% • 0.3% • 0.3% • 2% • Number of PDA units sold • Millions • 2000 • 2001E • 2002E • 2003E • 2004E • 2005E • Comparison of unit shipment in China vs. US • Millions • China • US • CAGR • 25.0 • 35% • 17.3 • -4% • 11.9 • 6.8 • 8.3 • 5.6 • Other • 82% • 193% • 31% • 56% • 11% • 2% • 2% • Wireless • 2000 • 2001E • 2002E • 2003E • 2004E • 2005E 2001 2005 Source: IDC; CCID; SINO-MR; Gartner; Interviews; Cahners In-Stat Group; literature search; Team analysis

02 PD China Mobile Telecoms Service Industry 020403.ppt NUMEROUS PLAYERS INVOLVED IN THE PRC WIRELESS DATA MARKET • Estimated number • Key Player (examples) • Players • Summary • Launched WAP service/portals with support of partners • GPRS trials in progress and scheduled for launch in October, 2001 • China Unicom launched CDMA (64kbps) and 1XRITT (140kbps) in Jan 2002 • China Mobile initiated 3G trials in November, 2001 • 2 • China Mobile • China Unicom PRC mobile operators • Equipment Vendors • WAP sites launched • M-commerce enabler emerging and forming partnership with content suppliers or/and PRC operators • 2-5 • Monternet (China Mobile) • Uni-info (China Unicom) • PRC wire-less portal platforms • Leading PRC portals launched WAP site • Supported by equipment vendors and local operators • 10-20 • Sohu.com • China.com • Sina.com • PRC wire-line • portals • Actively launching WAP / GPRS trials in Hong Kong • Announced interest in PRC • Acquiring startups to strengthen capability • Developing relationships with PRC Operators • 5-10 • SmarTone /BT • Sonera • SK Telecom • Hutchison • New World • International • m-portals/HK operators Source: Literature search

02 PD China Mobile Telecoms Service Industry 020403.ppt OPERATORS ARE ESPECIALLY ACTIVE IN PURSUING WIRELESS DATA • Operators are actively pursuing wireless data services • Competitive pressure • China Mobile’s domination of the market is threatened by Unicom’s aggressive low price and value added services offerings • 2new operators may be granted licenses to enter wireless market after 2002 • The lever of competition in mobile communication market will be VAS • High value mobile users express their willingness to switch operators in order to access wireless data services • China Mobile offers WAP service in all cities, and has gateways in 4 cities • Unicom also launched WAP service in 6 major cities • Both China Mobile and China Unicom are actively forming partnerships with mobile Internet application providers and ICPs to boost up their WAP offerings • Potential new operators, China Telecom and China Netcom also express strong desires to focus on wireless data services as a tool to gain customer base • Operators have introduced own wireless portals • Monternet by China Mobile • Uni-info by China Unicom Source: Literature search; Analyst reports; Team analysis

02 PD China Mobile Telecoms Service Industry 020403.ppt WAP SERVICES HAVE FAILED TO TAKE OFF IN CHINA… • WAP has failed to take off • Content • Mainly informational services such as news, weather • Text content • Slow take off • 450,000 subscribers in 2000 • Less than 300,000 users in 2000 • Major roadblocks to success • Slow speed (download, processing) • Limited compelling WAP content • Initial premium pricing and limited availability of WAP enabled handsets • Difficult input • Unstable connection • Limited coverage • Relative high mobile Internet charge • Small screen with unclear Chinese character displays • Hard to navigate • Lack of security Source: Literature search; Gartner Group

02 PD China Mobile Telecoms Service Industry 020403.ppt ...BUT SMS IS TAKING CHINA BY STORM • SMS is enjoying a fast take off • Key success factors • Content • Get and send text messages • Play simple games • Real time contest • Download ring tones • Download screen savers • Exchange jokes • 20 million active users currently • 19.9 billion messages sent in 2001 • 2% of CMCC revenue in 2000 was from SMS • Average daily SMS volume in Shanghai is 3 million in July 2001 • China Mobile and China Unicom linking their SMS services • SMS enabled PDAs launched • Low usage cost • 0.10 RMB per message • Reliable service • Proven technology • Improved and easier input • Nationwide coverage by CMCC and now by Unicom too • No new handset needed Fun • Lesson learned • Mobile data services need to be simple, cheap, reliable, and fun Source: Literature search; Team analysis

02 PD China Mobile Telecoms Service Industry 020403.ppt EARLY TAKE UP OF MOBILE DATA IS ENCOURAGING AS CONSUMERS ARE DEMONSTRATING WILLINGNESS TO PAY • Data service offerings • Data service performance • By operators • China Mobile • Product/service • SMS, including personalized information, flight/train schedule inquiry, stock quote and online chatting • WAP, including email, gaming and PIM • Pricing • RMB0.1 per ordinary message for sending with free for reception; RMB0.2-2 charged by service provider and CM for each specialized SMS • WAP pricing: RMB0.15 per minute for first 200 minutes, free for another 300 minutes and RMB0.15 per minute for any extra • China Unicom • Product/service • SMS, including personalized information, PIM, entertainment and stock quote • Online pager • Pricing • RMB0.1 per ordinary message for sending with free for reception; same charge for specialized SMS as CM • China Mobile • 2001 15.9 billion 1.2% 29% Number of short message SMS Penetration in user base*** Percent of total revenue* • China Unicom • 2001 4 billion N/A N/A Number of short message SMS Penetration in user base Percent of total revenue* • QQ • 1st half 2001 • By ICPS • Mobile QQ (WWW.TENCENT.COM) • Product/service • Unified instant messenger (mobile QQ) enabling mobile to PC communication • Pricing • 5 RMB monthly fee + 0.1 RMB per out going message with free incoming messages via CM mobile • No monthly fee, but 0.1 RMB per out going message and 0.05 RMB per incoming message via CU mobile 20 million 0.9 million** Total subs Mobile QQ subs * Include both wireless data and VAS ** only CM QQ subs included *** CMHK Source: Semi-annual reports; Press release; Website; Interviews; Team analysis

02 PD China Mobile Telecoms Service Industry 020403.ppt “VIRTUAL PETS” IS ONE EXAMPLE OF SMS APPLICATION IN CHINA ------2000------ Lunar狼吞虎咽的把饭吃光了。"谢谢主人，再来点吧。"米增加5；金币减少10；经验增加1。 Lunar has eaten the food like a tiger. “Thank you, master. Some more, please.” Use 10 gold coins to buy 5 rice units, add one experience point. • Linktone’s “Virtual Pets” SMS game allows subscribers to educate their animal of choice - ranging from tigers to pigs to the popular koala - send it on dates and put it to bed, rather like the Japanese electronic pet, Tamagotchi • The cost is very affordable at RMB0.10 per SMS More Back More Back ------2000------ 申请侍应生职位成功，由于工作努力，获得30个金币！经验增加3 Your pet was successfully hired as a waiter. Because of his hard work, he has earned 30 gold coins, and three experience points. More Back Someone has a crush on your pet! (To talk to the pig named cici, enter P_cici_ and a note) Do not exceed 30 characters. ------2000------ 你的宠物魅力十足，cici想跟你做朋友（跟对方说话请输入P空格cici空格再写内容），30字以内。 More Back China, like Japan, combines a love of gadgets with a “cult of the cute” Source: Linktone website; literature search

02 PD China Mobile Telecoms Service Industry 020403.ppt QQ HAS BEEN VERY SUCCESSFUL IN GAINING SUBSCRIBER BASE WITH UNIFIED MESSENGING • Basic functions: • Sending SMS between mobile phone and QQ • Using mobile phone to check information stored on QQ • Using mobile phone to check if friends are on-line • Service fee: • Services are free for users who only use OICQ on the Internet • Subscribers are charged for using mobile QQ via mobile phone • Fee structure for China mobile subscribers is : 5 RMB monthly fee + 0.1 RMB per out going message, incoming message is free of change* • Fee structure for Unicom subscribers is : no monthly fee, but 0.1 RMB per out going message and 0.05 RMB per incoming message • Mobile QQ in a semi-instant messaging type of mobile data application, which originated from the popular internet based instant chatting and messaging application, I.e., OICQ, where subscribers can chat with each other and be notified if their friends are on line at real time • TenCent claims to have 20 million subscribers in total • In fact, only 0.9 million of which are actual mobile QQ users from whom China Mobile collects monthly subscription fee for Ten Cent * While subscribers don’t need to pay for incoming messages, TenCent is required to pay 0.05 RMB for each incoming message to China Mobile Source: Ten Cent, team analysis

02 PD China Mobile Telecoms Service Industry 020403.ppt FOUR KEY MOBILE DATA USER SEGMENTS CAN BE IDENTIFIED • Share of sub base • % • Segment • Description • Mostly managers or entrepreneurs • Use mobile phone mainly for business • Travel a lot and have significant roaming needs • Care about voice quality and network coverage • High personal income • High mobile data potential: already 25% of them use SMS frequently • Mobile professionals • Mostly under 30 years old • Use mobile phone mainly for personal communication convenience • Interested in new technologies and willing to try out new things • Many unmarried people, with high educational level • High mobile data potential: already 47% use SMS regularly • Modern youth • Care the most of mobile communication cost • Relatively lower income • Older than average and less educated • Lots of pre-paid users • Lowest ARPU • Very low SMS usage currently: <13% • Little potential for mobile data • Conservative mainstream • Mostly married, over 30 years old and under college education • Don't care much about technology and trend • Mainly use voice services for local calls • Very low SMS usage currently: <15% • Little potential for mobile data • Indifferent laggard Source: Survey research on 18 cities and >2500 mobile users; Team analysis

Share of total subscribers • Percent • ARPU • USD • Mobile professionals • Modern youth • Conservative mainstream • Indifferent laggard 02 PD China Mobile Telecoms Service Industry 020403.ppt MOBILE PROFESSIONALS, YOUTH MOST ATTRACTIVE BECAUSE OF HEAVY DATA USAGE AND HIGHER ARPU • ESTIMATE • Share of total revenues • Percent of total revenue • SMS use • Percent • PC internet use • Percent • Segment • 47 • <13 Source: Judgment and analysis based on survey research on 18 cities and >2,500 users for China Mobile and rough estimates for China Unicom

02 PD China Mobile Telecoms Service Industry 020403.ppt BOTH TARGET SEGMENTS WILL REQUIRE DEVICES WITH FEATURES CUSTOMIZED TO THEIR NEEDS • Customer segment • Description • Key user needs • Key features • Mobile professional • Mostly managers or entrepreneurs • Use mobile phone mainly for business • Travel a lot and have significant roaming needs • Care about voice quality and network coverage • High personal income • High mobile data potential: already 25% of them use SMS frequently • Messaging/email on the go • Information (e.g., stock quotes, weather, news, local guide) • Personal information management • Mobile commerce • Mobile stock trading • Mobile office • Always up-to-date unified messaging (hotmail, voice mail, 2-way SMS, IM) • Customized information • Always up-to-date PIM, notifications, alerts, outlook sync. • Commerce and stock trading capabilities • Secure browser of corporate intranet and internet • Modern youth • Mostly under 30 years old • Use mobile phone mainly for personal communication convenience • Interested in new technologies and willing to try out new things • Many unmarried people, with high educational level • High mobile data potential: already 47% use UMS regularly • Messaging/email • Information (local news, weather, event) • Games/entertainment • Always up-to-date unified messaging (hotmail, voice mail, IM, 2-ways SMS) • Customized information • Network gaming • Downloads (rig tone, basic image, music and video clips) through PC • PIM, PIP, notification, alerts, outlook sync Source: Team analysis

02 PD China Mobile Telecoms Service Industry 020403.ppt MESSAGING, INFORMATION AND ENTERTAINMENT WILL BE KEY OFFERINGS FOR MOBILE PROFESSIONALS AND MODERN YOUTH IN THE NEAR TERM % of people interested • Mobile professionals, • N  370 • Modern youth, • N  500 • Messaging/email 90.0 86.3 • Information (stock quotes, news, weather, restaurants) 61.2 68.7 22.1 25.7 • M-shopping 21.0 • M-stock trading 23.7 • Entertainment (ring tone & screen download) 19.8 35.1 17.1 19.5 • M-advertising Source: Survey research; Team analysis

02 PD China Mobile Telecoms Service Industry 020403.ppt KEY MESSAGES 4. Regulatory changes loom, particularly with the accession of China to the WTO. While foreigners will be unlikely to set up MVNOs, WTO will allow greater participation of foreigners in basic and value added services, although geographic limitations will exist through 2004 and Chinese players will be required to own at least 50% of telecom service ventures (51% for basic services). Regulatory risks remain, with no means to appeal regulator decisions, unclear interpretation of regulation including WTO commitments, and the government’s track record of intransparent and unpredictable decision making. (See separate regulatory PD for details) * Mobile virtual network operator

02 PD China Mobile Telecoms Service Industry 020403.ppt REGULATORY AND POLITICAL CHANGES AND IMPLICATIONS FOR FOREIGNERS PLAYING IN telecom LOOM • Decision point • 2001 • 2002 • 2003 • 2004 • 2005 • Key events • WTO • December, 2001 • Accession • Up to 30% within operating • Up to 49% within operating • Up to 50% within operation • Value-AddedServices • Foreign and geographical restrictions 17 cities nationwide 3 cities (BJ, SH, GZ) • Up to 49% • Mobile voice and • data services • Up to 25% within operating • Up to 35% within operating 3 cities (BJ, SH, GZ) 17 cities Nation- wide • Relevant legislation • Wu Jichuan promised a draft by January 1st. However, comprehensive law not likely to be drafted in that time according to industry insiders. Law not likely to expand beyond WTO concessions • Promulgation of Telecommunications Law • Drafting of foreign investment law in telecommunications • Must be completed before/at time of WTO accessionNot likely to expand beyond WTO concessions • Mobilization of telecommunications commission • Drafting of a development blueprint for the telecommunication industry to manage operation of fixed-line, mobile and Internet business • Zhu Rongji to mobilize commission and lead sector reform • Change in political leadership • Announcement of succession • Transition of power in senior leadership • Limitations on partnership structures lifted gradually • Operators will be more deal ready once laws are official • Foreign investments will still be initially restricted geographically • Risk for shift in regulatory direction and policy making • Change may make relationship investments obsolete • Maximum fore-seeable opening of VAS in China telecom market • Maximum fore-seeable opening of basic servicesin China telecom market • Implications • for foreigners Source: Legal and industry interviews; team analysis

02 PD China Mobile Telecoms Service Industry 020403.ppt MVNOs ARE NOT LIKELY TO BE VIABLE IN THE FORSEEABLE FUTURE • Legal status • Current activity • Future prospects • MVNO operation would require a license • Licenses would be subject to government approval • Regulations governing basic services and value-added services would apply to MVNOs including restrictions on foreign participation • Currently a hot topic discussed by industry followers as a means to help transform service orientation of China’s telecom landscape • MVNOs or services running on equipment infrastructure of licensed operators do exist, including in fixed line; however, these are illegal and the government is currently cracking down on these infractions in an effort reminiscent of crackdown of Chinese-Chinese-Foreign companies (CCFs) • MVNO activity is reportedly present in Liaoning and Southern provinces; these are also not recognized legally by the government and have been retained by disgruntled investors of the PLA's Great Wall CDMA network and will likely disappear after asset transfer to Unicom is completed • Chinese government is discussing MVNO concept as a means to avoid capacity overbuild, particularly with new licensees • Existing operators unlikely to consider MVNOs, particularly in key and attractive regions given spectrum shortages and no desire to increase competition • MVNOs would still require a license from the government, will be limited geographically through 2004, and even by then, require 50% or more Chinese ownership • MVNOs are not likely to be introduced in the foreseeable future Source: Legal interviews; Industry interviews Source: Legal and industry interviews

02 PD China Mobile Telecoms Service Industry 020403.ppt VALUE ADDED SERVICES WILL BE LIBERATED UNDER WTO QUICKER THAN BASIC TELECOM SERVICES BUT LIMITATIONS WILL REMAIN • Basic Telecommunication services • Telecom VAS • (mobile and wireline) • Mobile voice and • data services • Domestic services (wireline) • Period • Upon entry (2002)* • Foreign investors can obtain up to 25% ownership Beijing, Shanghai, Guangzhou • Unchanged (foreign participation not allowed) • Foreign operators can obtain up to 30% ownership in Beijing, Shanghai, Guangzhou • Foreigners will still be prohibited from investing or operating in fiber-optic network • License availability will be strictly limited even after WTO accession and subject to Chinese government approval • Foreign investment is limited to no more than 50% even post WTO • After 1 year (2003) • Foreign investors can obtain up to 35% ownership in 17 cities • Foreign operators can obtain up to 49% ownership in 17 cities • Foreign operators can obtain up to 50% ownership nationwide • After 2 years (2004) • After 3 years (2005) • Foreign investors can obtain up to 49% ownership in 17 cities • Foreign investors can obtain up to 25% ownership in Beijing, Shanghai, Guangzhou • After 5 years (2007) • Foreign investors can obtain up to 49% ownership nationwide • Foreign investors can obtain up to 35% ownership in 17 cities • After 6 years (2008) • Foreign investors can obtain up to 49% ownership nationwide * WTO entry potentially effective January 2002 with likely November 2001 ratification Source: Literature search; WTO Working Team Report November 13, 2001

Definition • Services included 02 PD China Mobile Telecoms Service Industry 020403.ppt VALUE ADDED SERVICES (VAS) ARE DEFINED AS PROVISION OF SERVICES OVER SOMEONE ELSE’S NETWORK • BACK UP • Basic Telecommunication services • Telecommunications VAS • Ownership of networks • Fixed, domestic, long distance and local telephone • Provision of services over other's network • Paging services • Mobile voice and data services: • Analog/digital/cellular services • Personal communication services • Domestic Services • Voice services • Packet-switched data transmission services • Circuit-switched data transmission services • Facsimile services • Domestic private leased circuit services • International Services • Voice services • Packet-switched data transmission services • Circuit-switched data transmission services • Facsimile services • International closed user group voice and data services (use of private leased circuit service is permitted) • Electronic mail • Voice mail • On-line information and database retrieval • Electronic data interchange • Enhanced/Value-added facsimile services (including store and forward, store and retrieve) • Code and protocol conversion • On-line information and/or data processing (including transaction processing) Source: WTO Working Team Report November 13, 2001

China’s Mobile Telecom Services Industry Overview