Benchmarking Japan and Korea Telecommunication Business for 3G in China

1. Master Thesis Seminar Benchmarking Japan and Korea Telecommunication Business for 3G in China Author: Jiannan Zhao Supervisor: Prof. Patric Östergård Instructor: Vesa Riihimäki, M.Sc. (Tech) Communications Laboratory, HUT ,Finland 2005-06-02

2. Agenda Japan and Korea Telecom Business China Telecom Industry Thesis Structure Questions and Answers Communications Laboratory, HUT ,Finland 2005-06-02

3. Thesis Structure • INTRODUCTION • TELECOMMUNICATION SYSTEMS AND 3G SERVICES • TELECOM BUSINESS IN JAPAN & KOREA • THE DEVELOPMENT OF CHINESE TELECOMMUNICATON INDUSTRY • CONCLUSIONS Communications Laboratory, HUT ,Finland 2005-06-02

4. Why Japan and Korea ? • Markets are saturating between 70-90% of population • Also saturation in high to mid-value customers in developing markets • Prepay growth is driving down ARPU • Prepay revenues third or less of contract revenues Industry Criterion -- ARPU Average Revenue Per User Communications Laboratory, HUT ,Finland 2005-06-02

5. Reason for why Japan and Korea Their telecom industries are MATURE ! Communications Laboratory, HUT ,Finland 2005-06-02

6. In developing countries, a two-speed market Saturation in mid-to-high end Growth in low end users Pressure on margins/ARPU/network Shift in management focus Customer retention - not acquisition Segmentation Regulation Mobile termination, USO, 3G rollout Bundling by full service operators - squeeze mobile only players Prepare for industry consolidation Most countries will only sustain 2 to 3 mobile operators per market Focus on high-profit customers Growing “wallet share” rather than market share Maintain opex and capex discipline Scale critical Limited scope for differentiation Increased volume traffic but revenues don’t grow at the same pace What maturity means... The Challenge Requires a new approach Communications Laboratory, HUT ,Finland 2005-06-02

7. Japan and Korea Telecom Business- Japan Telecom Industry and Key Player Industry situation • The exploiter and leader in terms of telecom business • Both W-CDMA and CDMA2000 networks are supported • 3G first mover – NTT DoCoMo Core Business and Strategies of NTT DoCoMo • i-mode and FOMA • Regulations • Cooperation • Value chain management • Service innovation • Pricing system Communications Laboratory, HUT ,Finland 2005-06-02

8. Japan and Korea Telecom Business- Japan Telecom Industry and Key Player • Regulation Establish industrial association Laws • Cooperation NTT DoCoMo has built a strong competitive advantage through forging close relationships with a wide range of companies. Synchronization makes DoCoMo’s stakeholders having their interests aligned with the end-customer and committing in maximizing value and continually upgrading the quality of all services and products Communications Laboratory, HUT ,Finland 2005-06-02

9. Japan and Korea Telecom Business- Japan Telecom Industry and Key Player • Value chain management NTT DoCoMo manages the value chain by closely collaborate with other telecom actors, enabling all parties involved in the value chain • Service content innovation All contents are continually developed and authorized by itself, kept as comprehensive as possible, and designed for maximum clarity and attractiveness Communications Laboratory, HUT ,Finland 2005-06-02

10. Japan and Korea Telecom Business- Japan Telecom Industry and Key Player • Appropriate pricing system NTT DoCoMo tailors its services with suitable cost then offers high quality services at optimum price These usage charges are based on the volume of data sent/received rather than on time spent connected DoCoMo is charged by each content provider based on users’ utilization but all the billing issues are under DoCoMo’s control Communications Laboratory, HUT ,Finland 2005-06-02

11. Japan and Korea Telecom Business- Korea Telecom Industry and Key Player Industry situation • The exploiter and leader in terms of telecom business • Concentrates on CDMA2000 but also supports W-CDMA • Leading player - SKT Core business and core competence of SKT • SKT main services: Ting/ TTL/ June/ NATE etc. • Core Competence • - brand equity • - technology pioneer • - cooperation Communications Laboratory, HUT ,Finland 2005-06-02

12. Low credibility Limited access to capital No compelling reason to buy Stranded with 3G strategies trade-off ? Capacity relief Mass marketmultimedia • Better business case • Coverage requirements • No cheap, simple 3G phones Communications Laboratory, HUT ,Finland 2005-06-02

13. Industry Regulation Cooperation Value Chain Economic Competition Technology innovation Environment Telecom Business Development • Regulation is always is leading factor – Show the direction • Value Chain Management – Maximum the opportunity of every player getting money • Cooperation • Competition • R&D • Economics Telecom Business Development Communications Laboratory, HUT ,Finland 2005-06-02

14. Chinese Telecom Industry - Market Attractiveness World Most Attractive Market • Massive population • Continuous deregulatory reforms of industry • Booming economics • Coverage requirements • Daily technical innovation Communications Laboratory, HUT ,Finland 2005-06-02

15. Chinese Telecom Industry - TD-SCDMA, China 3G standard China’s TD-SCDMA Standard Opportunities & Challenge TD-SCDMA was proposed by the China Wireless Technology Standard (CWTS) Group in 1998, approved by ITU in May 2000, and joined 3GPP in March 2001, as one of the three 3G transmission standards • Opportunities • Own property right • Support from big players • Technical advantages • Challenge • Short history, less experience • Poor quality of handsets by operators and manufacturers, loose cooperation Communications Laboratory, HUT ,Finland 2005-06-02

16. Chinese Telecom Industry - difference from Japan & Korea • Different protocols Telecom industry development history Regulatory policy Economic and demographic situation Industrial operation model Communications Laboratory, HUT ,Finland 2005-06-02

17. Key players on the value chain Communications Laboratory, HUT ,Finland 2005-06-02

18. Chinese Telecom Industry - Challenges in China • Competition in the handset market • Putting extreme pressure on margins • Building a business case for 3G • Coverage matched with low-end handsets? • Thin rollout in urban areas for high-value markets? • Multiple networks • Managing platforms, applications, interoperability across W-CDMA, EV-DO, TD-SCDMA networks • Developing a low-end, voice only 3G handset • It represents a market opportunity Communications Laboratory, HUT ,Finland 2005-06-02

19. Steady growth in handset shipments • At last some serious drivers • Colour is good • MMS services launched • Multimedia portals • Replacement rate has risen • More attractive product at high end … • … and at the low end • By 2004 China/India has 18% of global handset shipments 120,000 100,000 80,000 'Feature' phones 60,000 Voice-centric 40,000 phones 20,000 0 2002 2003 2004 2005 2006 2007 Source: ovum

20. Chinese Telecom Industry - Marketing Projection of China's 3G Services • Mobile gaming • Mobile financial services • Mobile commerce • Mobile learning • Traffic management • Mobile health care services Source: ovum Communications Laboratory, HUT ,Finland 2005-06-02

21. CONCLUSIONS • Regulatory policies development needed • Leading role on the value chain • Fair competition is a prerequest • Technology innovation • Close cooperation with handsets manufacturers Operators increasingly want customised devices • Proven success in Japan and Korea • Point of differentiation in a mature market • Allows for a better market segmentation strategy • provides more device cost control • Service portfolio development Communications Laboratory, HUT ,Finland 2005-06-02

22. Questions and Comments ? Communications Laboratory, HUT ,Finland 2005-06-02

23. Thanks for your attention and being here ! Welcome to China ! Communications Laboratory, HUT ,Finland 2005-06-02