presentation given in Jakarta on Dec 3, 2007 at the launch of mobilemonday Indonesia

1. The Changing Rules of the Game in the China Mobile Value-
Added Services Market
MobileMonday Indonesia Launch
JW Marriott, Jakarta, December 3rd, 2007
Bruno Bensaid,
MobileMonday Shanghai Chapter Founder
1

2. Foreword: MobileMonday in Shanghai

3. Foreword: MobileMonday in Shanghai
Launched in Oct 2006 by three seasoned executives of
the mobile, internet and advertising industry bringing a
new vision of converged services.
Pioneering sponsors (Finnish Agency for Technology and
Innovation, Nokia, etc) and advisory board
+2000-member community, growing 100/month.
Holding monthly events in the heart of Shanghai.
Visibility across China through tight partnership with
Mobilemonday Beijing team
www.mobilemondayshanghai.net

4. The China Mobile Environment
Unique Size, Unique Rules, between Tradition and Modernity
4

5. Highly Regulated Market
All fixed and mobile telecom operators are state-owned
(though shares floating in Hong-Kong or NY). GSM prevailing
over CDMA (less than 5% subs).
Telecom sector gradually opening under WTO commitments.
To date, foreign telecom operators cannot operate services,
and Foreign Internet Service/Content Providers (ISP/ICP)
cannot hold more than 49% of local ISP/ICP.
3G licenses have not been granted yet. Home grown TD-
SCDMA standard expected to prevail, on top of existing GSM
and CDMA networks.
Mobile ARPU is about 1/4 of Europe’s average (€8 vs. €32)

6. But mind-boggling figures
523 million subscribers (September 2007), +18% YOY (MII)
39.9% Penetration, but coastal cities dominate (Beijing
101.6%, Shanghai 96.2% penetration) - MII
371 million fixed telecom subscribers (28.3% penetration)
Average 50 Bil SMS sent per month!!!! Sept 2007, 52.65
billion SMS sent, averaging 3.38 SMS / subscriber / day!!!
(423 Bil SMS sent in 2006).
Total MVAS market 59.6 billion RMB (EUR 5.5 Bil) in 2006
(Analysis), and EUR 3.3 Bil in H1’07 (+45% YOY). 2006
WAP revenue 7.4 billion RMB (EUR 0.7 Bil) - CNNIC

7. A Regulator’s nightmare? the CDMA anomaly

8. Mobile Traffic and MVAS steady growth*
In large cities, such as Shanghai, Beijing, Guangzhou, Shenzhen,
penetration has reached over 100%. Subscribers growth is now
occurring in 2-tier and 3-tier cities as well as rural townships.
* Source China Mobile

9. Manufacturing for local and export markets
Strong Exports, but a fragmented and weak local industry
9

10. China Ships 50% of total World phones
Q2’07, China Mobile phone shipments reached 132.2
million units, + 23.1% YOY.
H1’07 shipments topped 253.8 million units +25.6% YOY
China-only combined shipments reached 34.85 million for
combined GSM and CDMA handsets (Q2’07).
Nokia and Motorola top two vendors (source: Analysis).
For CDMA models alone, Samsung and China-based
Huawei Technologies were the top two vendors with
market shares of 24.1% and 18.4% respectively (Analysys).
Over 80 brands of phones, and 6000 phone models

11. China Mobile Phone Market - 2007
Handset vendor shipment share, 2Q07
Company Share
Nokia 29.5%
Motorola 18.5%
Samsung 10.8%
Lenovo (Chinese) 6.7%
Sony Ericsson 5.5%
Ningbo Bird (Chinese) 4.6%
Amoi (Chinese) 3.3%
LG Electronics 3.0%
Konka (Chinese) 1.8%
Haier (Chinese) 1.6%
Source: Digitimes

12. Mobile Applications and Operators’ Policies
A Glossy Picture of Growth, but the Ecosystem is shrinking
12

13. MVAS experiencing a cold front since 2005
High Capital requirements (RMB 10 Mil ~ EUR 0.9 Mil) to
operate a national internet or mobile content service).
Obligation to sign with every provincial operator (instead of
one “hub”) – (2005)
Ministry of Information Industry (MII), China Mobile and
China Unicom enforcing double confirmation rule (2006)
China Mobile enforcing mandatory “Monternet” landing
page for all SPs, including free wap SPs (2007) to curb off-
deck usage.

14. MVAS experiencing a cold front since 2005
China Mobile taking control of more and more services
(mobile IM, Mobile Music, Mobile gaming, Mobile blogging,
Mobile news aggregator), with great promotion and
successes.
China Mobile / Unicom cancelling flat-rate GPRS packages.
Next generation networks not ready (no 3G licenses yet)
As a result, ~ 300,000 jobs were obliterated from the
Industry between 2005 and 2007, and large mobile
SPs market capitalization went down the drain, SPs
were acquired or merged to survive (Hurray for ex.)

15. Mobile gaming still sees obstacles and is
waiting for 3G to take off
Mobile Gaming Market Size and Forecast
USD Million
800 37.6% 39.6% 40%
33.7%
600 30%
22.0%
18.4%
400 20%
717
513
200 373 10%
229 279
187
0 0%
2006 2007F 2008F 2009F 2010F 2011F
Market Size Annual Growth Rate
Source: BDA forecast and analysis 15

16. China Mobile preparing a new platform for mobile
gaming business
China Mobile’s Baibaoxiang Quarterly Sales Revenue
CMCC launched “Game CMCC issued strict
Recommendation Zone” regulations on SPs
under Baibaoxiang in May in July
RMB Million
150 140
123
106
92 94 95
100
CM added validation codes
50
for game downloading in
September to prevent SPs
from fraud billing
0
2005 Q4 2006 Q1 2006 Q2 2006 Q3 2006 Q4 2007 Q1
Source: China Mobile, BDA 16

17. China Mobile’s M.Music Club subscribers grew
sharply in Q2 2007
M.Music Club VIP Users
Million
25 107.2% 120%
22
20 100%
17
14 80%
15
11 60%
10
28.7%
Service 23.1% 27.7% 40%
5
5 20%
0 0%
Feb-07 Mar-07 Apr-07 May-07 Jun-07
User base Growth rate
Source: China Mobile, BDA 17

18. China Mobile “Mobile Newspaper” and “Mobile IM”
service Fetion saw rapid growth in 1H due to
Mobile Newspaper Paid Users
aggressive promotion
Million
20
15
15
11 User Base of Fetion
9
10
7
5 3 38
29
0 (million)
21
Feb 07 Mar 07 Apr 07 May 07 Jun 07
15
9 10
6 7
2 4
Feb 07 Mar 07 Apri 07 May 07 Jun 07
Active Users Regesitered Users
Source: China Mobile, BDA 18

19. WAP market dropped significantly after China Mobile
launched new WAP regulation on May 17th 2007
Total WAP Revenues of SPs with Kongzhong and Sohu’s Monthly WAP
Nationwide WAP Service License Revenues
RMB million RMB million
200 12
168.3 168.8 9.8 10.3
10 9.2
150 8.1
8
101.0 5.6 5.7
100 6 5.3 5.2
78.5 4.2
4.1
4
50 2.1
2 1.5
0 0
Mar-07 Apr-07 May-07 Jun-07 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07
Kongzhong Sohu
19

20. China Mobile’s regulations on pre-installed MVAS
applications increasingly stricter since 2005
Timeline of China Mobile’s Regulations on MVAS Links Pre-installed in Handsets
China Mobile
China Mobile reiterated announced it would
the regulation prohibiting deduct credits from SPs
MVAS links pre-installed which pre-installed
in handsets MVAS links in handsets
Key
Milestones
2003 … 2005 2006 2007 2008
China Mobile prohibited China Mobile finished China Mobile
SPs from cooperating with transferring SPs’ punished 11 SPs for
handset makers in handset services to MISC MVAS links pre-
built-in applications platform installed in handsets
20

21. Unicom increased investment on mobile music
launching full track music download service
• June 2007, China Unicom launched commercial trials for
full track music download “Xuan Qu”.
• China Unicom has reportedly signed contract with over 23
record companies including Warner Music and Sony BMG,
and can access the copyright of over 80,000 songs,
covering over 90% of China’s record market.
• Motorola K2 is the first handset to support Xuan Qu
service, followed by Nokia and Sony Ericsson.
• In June too, China Unicom released “unlimited” wireless
internet traffic package in Beijing for its CDMA users.
Source: China Unicom, BDA analysis 21

22. Mobile TV in China
The China dilemma
22

23. Immature Technology & great confusion
• Very Few licenses granted so far, amidst political feud between
SARFT and MII.
• Standards confusion:
• In Europe and Asia, an industry group that includes Nokia has
been championing DVB-H.
• South Korea supports two standards, T-DMB and S-DMB. US-based
Qualcomm backs MediaFlo.
• The State Administration of Radio (SARFT) is pushing CMMB.
• A group backed by Tsinghua University is promoting DMB-T/H
• There are also other mobile television standards seeking approval
from the Standardisation Committee, including TMMB, and IMMB,
submitted jointly by CITIC & i-Vision and another one called CDMB.

24. China Mobile has strengthened its streaming mobile
TV services through its new partnership with CRI
On August 30, China Mobile and CRI (China
Radio International) jointly announced the
launch of commercial streaming mobile TV
services over China Mobile’s GPRS networks.
CRI provides mobile video content, such as live
TV channels and video clips, to China Mobile’s
Monternet platform.
CRI obtained the mobile TV license from SARFT
in December 2006, and has established a
subsidy Guoshi TV (GTV) in charge of mobile
TV operation.
Currently, CRI mobile TV charges no service
fee, but mobile subscribers need to pay GPRS
data traffic fee.
Source: China Mobile, CRI, BDA and analysis 24

25. China Internet Market
25

26. Growth of Internet Usage in China is strong
Internet Users in China reached 172 Mil in Sept 2007
Million
180 140%
162
160 123% 120%
140
137
123 100%
120 111
90% 90% 90%
103
100 78% 94 80%
87
79.5
80 60%
68
59.1
60
45.8 40%
33% 36%
40 33.7 29%
26.5 27%
22.5 20%
16.9 18% 18%
20
8.9 15% 17%
4 9% 8% 10% 8% 11% 11%
0.62 1.18 2.1
0 0%
1997 Jun- 1998 Jun- 1999 Jun- 2000 Jun- 2001 Jun- 2002 Jun- 2003 Jun- 2004 Jun- 2005 Jun- 2006 7-Jun
98 99 00 01 02 03 04 05 06
Internte user Growth rate
Source: CNNIC 26

27. Both broadband and wireless internet have become
major internet access platforms
Internet Users By Different Types of Access
Million
200
180 44
17
160
140
120 77
43 53 64 91
100 31 108
6 6 6
80
60 52 51
52 50 48
39
40
32
20 31 30 29
29 29 27
14
0
Jun 04 Dec 04 Jun 05 Dec 05 Jun 06 Dec 06 7-Jun
Dedicated Line Dial up ISDN Broadband Mobile handset
Source: CNNIC 27

28. News, Search, IM, Music, Video dominate usage
Mainstream Internet Application Usage (July 2007)
Online News 77.3%
Search Engine 74.8%
IM 69.8%
Online Music 68.5%
Online Video 61.1%
Email 55.4%
Online Game 47.0%
Online Shopping 25.5%
Online Education 24.0%
Online Banking 20.9%
Blog 19.1%
Online Recruiting 15.2%
Onlne Stock 14.1%
Online Marketing 4.3%
Online Reservation 3.9%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Source: CNNIC 28

29. Converged services opportunities:
The China Internet Advertising Market
29

30. China Advertising Revenue US$ 25.8Bil in 2007
Others
Wireless Outdoor
Out-of-home
displays
Cable
Search
Internet
Radio
Magazines TV
Newspaper
Internet & Search only 4.3% of total “publisher” intake

31. China Internet advertising and search revenues
Online advertising Search
Units: US$ millions
2,000.0
1,800.0
1,600.0
1,400.0
1,200.0
1,000.0
800.0
600.0
400.0
200.0
-
2002 2003 2004 2005 2006 2007F 2008F
Note: Excludes agency fees
Source: SBCI, Company reports

32. Mobile Web (wap) Market

33. The Mobile advertising Market in China

34. Opportunity: Communities, Social Networks
69% of Chinese youth use social networking sites
Chinese youth have 37 “net” friends vs 18 in the US
Close friends Friends, but not close Online friends, never met in person
90
80
70
60
50
40
30
20
10
-
US China
Source: Microsoft/MTV Circuits of Cool Project 2006/2007 (Millward Brown Sadek Wynberg OTX)

35. Online and Mobile Communities are untapped
opportunities
Online advertising spend in 2007 will hit US$1.17bn
(4.3% of total Ad Budget in China)
Online communities capture less than 5% of this
advertising revenue
Note: Excludes agency fees
Source: SBCI, GroupM, Company reports, National Bureau of Statistics of China, Zenith Optimedia

36. China Mobile IM and Social Networking Market
China IM market is dominated by Tencent’s QQ (84.4%)
and MSN (13.9%). A host of other IM clients are also
promoted by China Internet portals (Sina, Sohu, Netease
etc), online gaming actors (Shanda etc), B2B players like
Alibaba or foreign players such as Yahoo or Google.
In the workplace, MSN can be dominant, especially in
wealthiest cities and with high-worth users (over 55%
market share).
47.6% of users only use text when using IM. 22.9%
frequently use voice. 20.4% frequently use video chat.
*Source: China Internet Network Information Center

37. Conclusion
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38. Summary & Conclusion
Solid Operator revenue and growth, but a weaker
ecosystem, due to constraining regulations and the creation
of new walled gardens and operator-branded services.
We are shifting away from the Japan DoCoMo model and
moving towards Korea’s operator controlled model. Could
be a significant opportunity for mobile advertising industry.
Yet, more competition (new 3G licenses and higher
investment cap thanks to WTO compliance) will likely bring
new sets of rules to the game. MVNO will likely start too.
Expect more significant changes in 2009-2010, but no
Olympics effect, except – maybe - on mobile marketing/ad.

39. Thank You!
Bruno Bensaid - 布鲁诺 - bruno@mobilemondayshanghai.net
www.mobilemondayshanghai.net
39