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

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

4. 3 Thesis Structure INTRODUCTION INTRODUCTION TELECOMMUNICATION SYSTEMS AND 3G SERVICES TELECOMMUNICATION SYSTEMS AND 3G SERVICES TELECOM BUSINESS IN JAPAN & KOREA TELECOM BUSINESS IN JAPAN & KOREA THE DEVELOPMENT OF CHINESE TELECOMMUNICATON INDUSTRY THE DEVELOPMENT OF CHINESE TELECOMMUNICATON INDUSTRY CONCLUSIONS CONCLUSIONS Communications Laboratory, HUT,Finland 2005-06-02

5. 4 Why Japan and Korea ? Industry Criterion -- ARPU Average Revenue Per User 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 Communications Laboratory, HUT,Finland 2005-06-02

6. 5 Their telecom industries are MATURE ! Reason for why Japan and Korea Communications Laboratory, HUT,Finland 2005-06-02

7. 6 What maturity means... 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 The ChallengeRequires a new approach Communications Laboratory, HUT,Finland 2005-06-02

8. 7 Japan and Korea Telecom Business - Japan Telecom Industry and Key Player Japan and Korea Telecom Business - Japan Telecom Industry and Key Player Industry situation The exploiter and leader in terms of telecom business The exploiter and leader in terms of telecom business Both W-CDMA and CDMA2000 networks are supported Both W-CDMA and CDMA2000 networks are supported 3G first mover – NTT DoCoMo 3G first mover – NTT DoCoMo Core Business and Strategies of NTT DoCoMo i-mode and FOMA i-mode and FOMA Regulations Regulations Cooperation Cooperation Value chain management Value chain management Service innovation Service innovation Pricing system Pricing system Communications Laboratory, HUT,Finland 2005-06-02

9. 8 1. Regulation Establish industrial association Laws 2. 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 Japan and Korea Telecom Business - Japan Telecom Industry and Key Player Japan and Korea Telecom Business - Japan Telecom Industry and Key Player Communications Laboratory, HUT,Finland 2005-06-02

10. 9 3. Value chain management NTT DoCoMo manages the value chain by closely collaborate with other telecom actors, enabling all parties involved in the value chain 4. Service content innovation All contents are continually developed and authorized by itself, kept as comprehensive as possible, and designed for maximum clarity and attractiveness Japan and Korea Telecom Business - Japan Telecom Industry and Key Player Japan and Korea Telecom Business - Japan Telecom Industry and Key Player Communications Laboratory, HUT,Finland 2005-06-02

11. 10 5. 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 Japan and Korea Telecom Business - Japan Telecom Industry and Key Player Japan and Korea Telecom Business - Japan Telecom Industry and Key Player Communications Laboratory, HUT,Finland 2005-06-02

12. 11 Japan and Korea Telecom Business - Korea Telecom Industry and Key Player Japan and Korea Telecom Business - Korea Telecom Industry and Key Player Industry situation The exploiter and leader in terms of telecom business The exploiter and leader in terms of telecom business Concentrates on CDMA2000 but also supports W-CDMA Concentrates on CDMA2000 but also supports W-CDMA Leading player - SKT Leading player - SKT Core business and core competence of SKT SKT main services: Ting/ TTL/ June/ NATE etc. SKT main services: Ting/ TTL/ June/ NATE etc. Core Competence Core Competence - brand equity - technology pioneer - cooperation Communications Laboratory, HUT,Finland 2005-06-02

13. 12 trade-off ? Stranded with 3G strategies Low credibility Limited access to capital No compelling reason to buy Mass market multimedia Capacity relief Capacity relief Better business case Coverage requirements No cheap, simple 3G phones Communications Laboratory, HUT,Finland 2005-06-02

14. 13 Regulation is always is leading factor – Show the directionRegulation is always is leading factor – Show the direction VValue Chain Management – Maximum the opportunity of every player getting money Cooperation Competition R&D EconomicsIndustryEnvironment Regulation Technologyinnovation Economic Competition Cooperation Value Chain Telecom Business Development Development Telecom Business Development Communications Laboratory, HUT,Finland 2005-06-02

15. 14 Chinese Telecom Industry - Market Attractiveness Massive population Continuous deregulatory reforms of industry Booming economics Coverage requirements Daily technical innovation World Most Attractive Market Communications Laboratory, HUT,Finland 2005-06-02

16. 15 China’s TD-SCDMA Standard Opportunities & Challenge Chinese Telecom Industry - TD-SCDMA, China 3G standard 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 1.Own property right 2.Support from big players 3.Technical advantages Challenge 1.Short history, less experience 2.Poor quality of handsets by operators and manufacturers, loose cooperation Communications Laboratory, HUT,Finland 2005-06-02

17. 16 Chinese Telecom Industry - difference from Japan & Korea 1.Different protocols 2. Telecom industry development history 3. Regulatory policy 4. Economic and demographic situation 5. Industrial operation model Communications Laboratory, HUT,Finland 2005-06-02

18. 17 Key players on the value chain Communications Laboratory, HUT,Finland 2005-06-02

19. 18 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 Chinese Telecom Industry - Challenges in China Communications Laboratory, HUT,Finland 2005-06-02

20. 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 0 20,000 40,000 60,000 80,000 100,000 120,000 200220032004200520062007 'Feature' phones Voice -centric phones Source: ovum

21. 20 Mobile gaming Mobile financial services Mobile commerce Mobile learning Traffic management Mobile health care services Chinese Telecom Industry - Marketing Projection of China's 3G Services Source: ovum Communications Laboratory, HUT,Finland 2005-06-02

22. 21 CONCLUSIONS 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

23. 22 Questions and Comments ? Communications Laboratory, HUT,Finland 2005-06-02

24. 23 Thanks for your attention and being here ! Welcome to China ! Communications Laboratory, HUT,Finland 2005-06-02